Measurement distortion of graphs in corporate reports: an experimental study

doi:10.1108/09513570210440595

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Accounting, Auditing & Accountability Journal

ISSN: 0951-3574

Online from: 1988

Subject Area: Accounting and Finance

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Measurement distortion of graphs in corporate reports: an experimental study

Document Information:
Title:	Measurement distortion of graphs in corporate reports: an experimental study
Author(s):	Vivien Beattie, (Department of Accounting, Finance and Law, University of Stirling, Stirling, UK), Michael John Jones, (Cardiff Business School, Cardiff, UK)
Citation:	Vivien Beattie, Michael John Jones, (2002) "Measurement distortion of graphs in corporate reports: an experimental study", Accounting, Auditing & Accountability Journal, Vol. 15 Iss: 4, pp.546 - 564
Keywords:	Company reports, Financial accounting, Graphs, Measurement
Article type:	Research paper
DOI:	10.1108/09513570210440595 (Permanent URL)
Publisher:	MCB UP Ltd
Abstract:	Graphs in corporate annual reports are a double-edged sword. While they offer the potential for improved communication of accounting information to users, the preparers of the annual reports can easily manipulate the graphs for their own interests. For over a decade, the empirical financial graphics literature has focused on examining company reporting practices. A particular concern has been measurement distortion, which violates a fundamental principle of graph construction. Unfortunately, it is not yet known whether observed levels of measurement distortion are likely to affect users’ perceptions of financial performance. This study uses an experimental approach to address this issue. Pairs of graphs are shown to establish the level of difference that is just noticeable to graph readers. Six levels of “distortion” are investigated (5 per cent, 10 per cent, 20 per cent, 30 per cent, 40 per cent and 50 per cent). Results indicate that if financial graphs are to avoid distorting the perceptions of users, then no measurement distortions in excess of 10 per cent should be allowed. Users with lower levels of financial understanding appear to be most at risk of being misled by distorted graphs. Further research will be necessary to investigate whether this impact upon perceptions subsequently affects users’ decisions in specific contexts.