Michael John Jones

Measurement distortion of graphs in corporate reports: an experimental study

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.

Australian financial graphs: An empirical study

The use of graphs to disclose financial information in corporate annual reports represents a significant dimension of financial disclosure management. This study replicates and extends previous research into financial graphs by documenting the nature and extent of graph use and departures from representational neutrality among the 1991 corporate annual reports of the top one hundred companies listed on the Australian Stock Exchange. Eighty-nine per cent of companies use graphs; the mean number is 9.4, with diversified companies using the most graphs. The most commonly graphed financial variables are sales, profit, EPS and DPS. Evidence is found that graph use is contingent upon favourable performance. In addition, material measurement distortion is found in 34 per cent of all key financial graphs. Eighty-six per cent of companies have slope parameters which depart more than 10° from the optimum, thus impairing communicative effectiveness. A range of design strategies are employed which are consistent with the adoption of an impression management schema. No persistent systematic differences between forms of distortion and industry group are found. Comparison with prior single-country studies reveals that graphs are used more extensively in Australia than in the U.S.A., the U.K. or Canada, but that there is less evidence of impression management. This latter finding is consistent with the view that there are fewer short-term and capital-market pressures in Australia.

Changing Graph Use in Corporate Annual Reports: A Time-Series Analysis

Graphs in corporate annual reports form part of a powerfully designed annual report package that offers considerable potential for “impression management.” The primary purpose of this paper is to determine whether graph use depends on corporate performance. Time-series analysis, not previously used in the financial graphs literature, allows discretionary changes in graph use by companies to be identified and related to changes in individual companies corporate performance over time. Based on the prior financial graphs and accounting choice literature, we develop two hypotheses that relate changes in graph use to changes in corporate performance. These hypotheses focus on the aggregate and individual company levels. We base our analysis on the corporate annual reports of 137 top UK companies that were in continued existence during the five-year period from 1988 to 1992. At both the aggregate and individual company levels, we find the decision to use key financial variable (KFV) graphs, the primary graphical choice, to be associated positively with corporate performance measures. This finding is consistent with the manipulation hypothesis - that is, that financial graphs in corporate annual reports are used to “manage” favorably the readers impression of company performance, and hence that there is a reporting bias.

The role of change agents and imitation in the diffusion of an idea: charge and discharge accounting

Abstract Medieval charge and discharge accounting was the most prevalent accounting system of its time. The first medieval charge and discharge system can be identified in the English Exchequer about 1110. This paper argues that the ideas behind the Exchequer were gradually diffused both internationally and nationally. This paper charts the export of charge and discharge systems to other European Exchequers, to monasteries and bishoprics, to lay estates, to manorial accounting, to guilds, boroughs, universities and parishes. From a single high status source at the start of the 12th century, charge and discharge accounting came to be imitated through mimetic and normative institutional isomorphism by a wide range of lower status medieval institutions by the late 15th century. In the first phase of diffusion, certain key individuals of wealth and power are identified as change agents. In the second phase, individuals, and accounting and estate management texts played an important role in the diffusion. The role of geographical proximity and accidents of history is also explored.

Editorial boards in accounting: The power and the glory

Abstract This paper examines the perceptions of editorial board members about the composition, role and purpose of editorial review boards and issues relating to the ethical behaviour of reviewers and authors. It reports the views of 159 academics from a range of countries who are members of the editorial boards of English language accounting journals. There is little variation in the views of board members irrespective of professional background, age and success in publishing. However, some differences do exist based on the journal perspective which our reviewers adopted. In particular, reviewers of top 20 journals allowed reviewers and editors more discretion. Overall, the respondents believed that board appointments should be made on the basis of publication record and research reputation. Board members favour merit-based appointments and disapprove of institutional or group dominance of journals. There are, however, mixed views on attempts to engineer the composition of journal boards to include women or racial minorities. The journal editor is expected to respect the reviewing process and not accept manuscripts outside it. Wide latitude for editors to reject articles is accepted. Once the review process is initiated editors are expected not to attempt to interfere with, guide or override it. Reviewers are expected to be unbiased and professional, but it is acceptable for them to know the identity of a manuscripts author. There is also overwhelming support for the current system of sequential submission of manuscripts to journals. Overall, the results provide an insight into the standards of behaviour expected from all the major parties to the publication process. The unstated rules with which each of the parties is expected to comply are made explicit. The results have general relevance as they reflect the views of a broad constituency of experienced respondents.

The determinants of a successful accounting manuscript: Views of the informed

Abstract Publishing academic articles is a key measure by which the performance of modern academics is judged. However, there is a surprising lack of guidance to authors about which manuscript characteristics influence journal acceptance decisions. This article reports the results of a study into the perceptions of 129 editorial board members of 87 statements relating to the publishability of manuscripts in accounting journals. The respondents indicated certain factors which enhanced the chances of publication (e.g., statistical significance, originality, appropriate statistics and application of theory) and which detracted from publication (e.g., replication, secondary data, polemic pieces, overlapping work and accessibility). Reviewers from the perspective of US journals were more concerned with statistical significance, the use of appropriate statistics, and the generalisability of samples and case studies. There was a high degree of consistency in the results. We found no systematic differences between those adopting critical as opposed to mainstream research.

Investigating Presentational Change in UK Annual Reports: A Longitudinal Study

This article examines structural and format changes in annual reports of U.K. listed companies from 1965 to 2004 with a particular focus on graph use. The article compares a new sample of 2004 annual reports with preexisting samples by Lee and by Beattie and Jones. Lees identified trends continue. There has been a sharp increase in page length, voluntary information, and narrative information, particularly among large listed companies. A detailed analysis of voluntary disclosure indicates changes in the incidence and pattern of generic sections. Graph usage is now universal. However, key financial graph use has slightly declined, replaced by graphs depicting other operating issues. Impression management through selectivity, graphical measurement distortion, and manipulation of the length of time series graphed are common. Overall, annual reports continue to exhibit many features of public relations documents rather than financially driven, statutory documents, and the analysis of graph usage suggests a need for policy guidelines to protect users.