1. Introduction
One consequence of the shift to fair value measurement is the emergence of voluntary disclosures in audited financial
statements that question the reliability of mandated fair value information. We refer to these disclosures as reliability
disavowals (hereafter, disavowals). We examine disavowals of employee stock option compensation (SOC) estimates
disclosed under Statement of Financial Accounting Standard 123 (SFAS 123). We test whether they are informative
regarding reliability issues or are opportunistic. SFAS 123 encouraged firms to recognize a fair value estimate of SOC
expense, but most firms elected the intrinsic value method and provided a required pro forma footnote disclosure of the