The Use of Interactive Data Views in Corporate Financial Reporting

1
The Use of Interactive Data Views in Corporate
Financial Reporting

• Diane J. Janvrin
• ISU Accounting Finance Research Workshop
• May 4, 2009
• Thanks to Bill Dilla and Robyn Rasche (UNLV) for
  helpful discussions, Mike Doran for assistance in
  data collection, Andrea Biagolni, Courtney
  Ekeler, Leslie Pease, and Pat Wagaman for
  material preparation assistance.

2
Overview

• Motivation
• Research Questions
• Methodology
• Preliminary Results
• Discussion/Conclusion

3
Interactive Data Views

• Process of allowing users to select presentation
  format and type of information they find as most
  relevant
• Allows users to disaggregate financial statement
  information and select only the information they
  view as most relevant.
• Some allow users to perform selected calculations

4
Interactive Data Views

• May help decision makers overcome information
  overload by reducing large data sets into simple
  visuals
• Shifts cognitive load to the human perceptual
  system through graphics

5
Key Terms

• Visual representation
• Selection, transformation, and presentation of
  data (including spatial, abstract, physical, or
  textual) in a visual format that facilitates
  exploration and understanding (Lurie and Mason
  2007)
• Visualization tools
• Intermediate step in converting data into insight
  
• Data characteristics such as dimensionality,
  scale (categorical, ordinal, and metric) and
  cardinality (binary vs massively categorical
  variables) affect which tools are appropriate.

6
Categories of Information Visualization (Yi et
al. 2007)

• Select
• Mark data item as interesting
• Explore
• View other data items
• Reconfigure
• View different arrangement of data
• Encode
• View different representation of data
• Abstract/Elaborate
• View data in more or less detail
• Filter
• View data conditionally
• Connect
• View related items of data

7
Visualization Tools

• Early use in genetics and biology
• Business applications lag the sciences by as much
  as 10 years (West 1995)
• Today, used in marketing efforts (Lurie and Mason
  2007)
• Beginning to see usage in external financial
  reporting maybe internal reporting

8
IDV Examples

• SEC web site
• Executive Compensation
• Interactive Financial Reports
• http//viewerprototype1.com/viewer
• Financial Explorer
• http//209.234.225.154/viewer/home/
• Corporate web sites
• Stock price information
• http//www.ford.com/about-ford/investor-relations/
  investment-information/stock-chart
• Enumerate - financial and non-financial
  information
• http///www.enumerate.com
• http//production.investis.com/bp2/ia/annualdata20
  07/

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SEC Executive Compensation Viewer
10
SEC Interactive Financial Reports
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SEC Interactive Financial Reports
12
SEC Financial Explorer

• IBM

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SEC Financial Explorer

• Pfizer

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Corporate Website Stock information

• Ford

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Corporate Web site Financial and non-financial
information
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Corporate Web site Financial and non-financial
information
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Data transformations

• Potentially affect the ultimate insights derived
  from the data
• The problem
• visual representations may allow users to see
  patterns and outliers easier, make certain
  information more salient and other information
  less salient, and show detailed information on
  specific alternatives (i.e. improve decision
  quality)
• however, visual representation may accentuate
  biases in decision making and lower performance
  by increasing attention to particular attributes
  or less diagnostic information

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Current Research

• Exploratory study examining whether
  nonprofessional investors perceive that IDVs
  present
• unaudited information
• distorted information
• Second study examining whether viewing distorted
  changes in financial information in IDV format
  impacts nonprofessional investor judgment

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Exploratory Study

• Examines issues (i.e. unaudited information /
  distorted information ) raised by the Pozen
  Committee (SEC 2008)
• Examines perceived system quality (Ahn et al.
  2007)

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Presentation of Unaudited Information

• Important issues related to presentation of
  financial information using IDVs
• Should assurance be provided by a third party?
• If not, should financial statement preparers
  indicated information is unaudited?
• Do users realize presented information is
  unaudited?
• Hodge 2001 found answer is no

21
Research Questions Presentation of Unaudited
Information

• RQ Do investors perceive that IDVs present
  unaudited financial information?

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Presentation of Distorted Information

• Some IDVs may distort the underlying financial
  information
• SEC Financial Explorer atomic models
• Will user decisions be impacted by distorted
  financial information?
• Arunachalam et al. 2002 found yes

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Research Questions Presentation of Distorted
Information

• RQ Do investors perceive that IDVs present
  distorted financial information?

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First Study

• 154 students enrolled in intermediate accounting
  or accounting information systems at large public
  university
• Examined four IDVs
• Provided responses to general statements based on
  issues raised by the Pozen Committee (SEC 2008)
  and technology acceptance statements regarding
  perceived system quality (Ahn et al. 2007)

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Results

• Unaudited / distortion
• System Quality

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Second Study

• Examines whether viewing distorted changes in
  financial information in IDV format impacts
  nonprofessional investor judgment

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Second Study

• 154 students enrolled in accounting information
  systems at large public university
• 20 CPAs attending continuing education session
• Trained to use SEC Interactive Financial Explorer
  IDV
• Examined nine scenarios involving IDVs
• Financial information displayed revenue,
  expenses, and income
• All components increased, decreased, varied
• In each scenario, one IDV displayed the change in
  financial information appropriately and one IDV
  distorted the change in financial information
• Based on this limited information, participants
  were asked to make an investment decision

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Sample Scenario

• Income greater
• https//www.bus.iastate.edu/djanvrin/IDV/part2inco
  megreater.asp
• Income smaller
• https//www.bus.iastate.edu/djanvrin/IDV/part2inco
  mesmaller.asp
• Income varied
• https//www.bus.iastate.edu/djanvrin/IDV/part2inco
  mevaried.asp

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Results

• Investment choice
• Post project data

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Summary Implications for General Decision Making

• Visualization has potential to offer decision
  makers ways to
• improve efficiencies
• reduce costs
• gain new insights
• make data more accessible
• increase satisfaction
• At same time, visualization may accentuate biases
  in decision making

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Implications for Financial Statement Preparers

• Rendering issues
• Do you present audited or unaudited information?
• Materiality at data level

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Implications for Financial Statement Auditors

• Is audited information presented?
• How do users determine if information is audited?
  i.e., disclaimer or presence of audit report?
• Materiality at data level

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Implications for Financial Statement Users

• Provides data in preferred format (i.e., table,
  graph, or both)
• Allows user to view only the data user determine
  is relevant
• Facilitates comparison
• between companies
• between periods
• between divisions / products
• May accentuate biases highlight less relevant
  information

34
Conclusions

• Interactive data views tool preparers to
  communicate financial information and for users
  to acquire and evaluate financial information
• May have both positive and negative consequences
  to decision making
• Any questions?