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This study examines the evolution of retail firms' financial reporting for unused gift cards (i.e., breakage) as an example of how reporting norms develop in the absence of explicit authoritative guidance. We find that firms exhibit a wide range of accounting and reporting choices but show significant increases in the quantity and detail of disclosure over time. Consistent with our predictions, these changes in disclosure are positively related to initial disclosure levels below the average of industry peers, the receipt of a related SEC comment letter, and specific external auditors (especially those with a high frequency of related comment letters in their client portfolio). Overall, the evolution of reporting norms for gift card breakage demonstrates the role the SEC, peers, and auditors have in quickly shaping U.S. reporting norms in the absence of formal disclosure requirements.
