The effects of graphical distortion of accounting information on financial judgements


Deanna Oxender Burgess Recent studies indicate eighteen to fifty-one percent of corporate annual reports contain graphics that distort financial information. Auditors have a responsibility to ensure such graphs are not ma.terially inconsistent with the financial statements (SAS 8). This research determines whether graphical distortion renders graphs ma.terially inconsistent with the financial statements. Material inconsistencies are defined as significant omissions or misstatements that alter the judgments of financial statement readers. Judgments from distorted graphs and tables (financial statement surrogate) are compared to determine the consistency of distorted graphs and financial statements. This comparison is also made for nondistorted graphs. Differences between distorted and nondistorted graphs in their consistency with the financial statements provide a basis for assessing the effects of graphical distortion. If significant differences exist, distorted graphs should be considered materially inconsistent with the financial statements and therefore should not appear in annual reports. Graphical standards established by the American National Standards Institute are used as measures of graphical distortion. A survey of 1989 annual reports is taken to determine the nature and rate of occurrence of graphical distortion. The first phase employs four graphical standards to examine the effects of distortion on financial judgments at the highest level found in the 1989 annual reports. The second phase varies the degree of distortion for one standard to determine the sensitivity of financial judgments to distortion. The experimental task is also varied. Both phases utilize subjects from three financial statement reader groups: accountants, bankers and stockbrokers. The results of the first experiment indicate three of the four graphical standard violations influence judgments. One violation, breaks in the vertical scale, has a larger impact than the others. The second experiment gives sole consideration to this violation within varying distortion levels and task contexts. The results indicate judgments are influenced by distortion regardless of the distortion level or task context, although differences between tasks indicate distortion effects are higher when the task is less demanding. In sum, distorted graphs at various levels and within different task contexts may be considered ma,terially inconsistent with the financial statements and the ref ore should not appear in annual reports.


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Graduation Date





Welch, Judith K.


Doctor of Philosophy (Ph.D.)


College of Business Administration






166 p.



Length of Campus-only Access


Access Status

Doctoral Dissertation (Open Access)




Business Administration -- Dissertations, Academic; Dissertations, Academic -- Business Administration

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