An Experiment to Study the Effects of Changing Format and Scaling Characteristics of Financial Statement Data.
Date of Award
Doctor of Philosophy (PhD)
Anthony P. Curatola
Current financial statements present single numbers, the result of a measurement process embracing many estimates and arbitrary classifications, summarizations, judgments, and allocations. These point-estimates and the ensuing uncertainty for decisionmakers has been cause for concern to both academics and practitioners, evoking various recommendations to change the format and scaling of financial statement data. The most significant acknowledgment of this problem came from the Financial Accounting Standards Board in 1978, when it released Objectives of Financial Reporting by Business Enterprises (SFAC No. 1). The primary interest of this research was to study the impact on decisionmaking about prospective cash flows by changing the format and scaling of financial statement data. Subjects from six of the "Big 8" accounting firms took part in an experiment to manipulate the format (tabular versus graphical) and scaling (point-estimate versus probabilistic) of financial statement data. The subjects were required to estimate the net cash flow from operations for a hypothetical case based on the Robert Morris Associates annual statement studies for a physician's office. The subjects had numerous cues to utilize in order to make judgments about the cash flow. One hundred and seventeen subjects took part in a self-administered computerized experiment. Each subject received a diskette containing the experiment, the instructions, the case material, and the data instrument. The subjects completed the experiment in their own time and their responses were automatically recorded on the diskette. The results of a split-plot analysis of variance disclosed that there was no significant interaction between the format, scaling and supplemental information. However, the decisionmakers were cognizant of the content of the supplemental financial data. The decisionmakers were very mindful of the distribution skewness (although not statistically significant) and adjusted their estimates of cash flow in the correct direction. Assessing the chances of cash flows is improved if the decisionmaker is presented with both graphical and probabilistic financial data and the decisionmaker is able to assimilate the probabilistic data.
Goldwater, Paul Michael, "An Experiment to Study the Effects of Changing Format and Scaling Characteristics of Financial Statement Data." (1989). LSU Historical Dissertations and Theses. 4778.