The Use of Interactive Data Views in Corporate Financial

Reporting

The Use of Interactive Data Views in Corporate Financial

Reporting

Diane J. Janvrin

ISU Accounting Finance Research WorkshopMay 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.

OverviewOverview

Motivation Research Questions Methodology Preliminary Results Discussion/Conclusion

Interactive Data ViewsInteractive 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

Interactive Data ViewsInteractive 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

Key TermsKey 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.

Categories of Information Visualization (Yi et al. 2007)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

Visualization ToolsVisualization 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

IDV ExamplesIDV 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/annualdata2007/

SEC Executive Compensation ViewerSEC Executive Compensation Viewer

SEC Interactive Financial ReportsSEC Interactive Financial Reports

SEC Interactive Financial ReportsSEC Interactive Financial Reports

SEC Financial ExplorerSEC Financial Explorer

IBM

SEC Financial ExplorerSEC Financial Explorer

Pfizer

Corporate Website – Stock informationCorporate Website – Stock informationFord

Corporate Web site – Financial and non-financial informationCorporate Web site – Financial and non-financial information

Corporate Web site – Financial and non-financial informationCorporate Web site – Financial and non-financial information

Data transformationsData 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

Current ResearchCurrent 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

Exploratory StudyExploratory Study

Examines issues (i.e. unaudited information / distorted information ) raised by the Pozen Committee (SEC 2008)

Examines perceived system quality (Ahn et al. 2007)

Presentation of Unaudited InformationPresentation 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

Research Questions – Presentation of Unaudited Information

Research Questions – Presentation of Unaudited Information

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

Presentation of Distorted InformationPresentation 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

Research Questions – Presentation of Distorted Information

Research Questions – Presentation of Distorted Information

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

First StudyFirst 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)

Results Results

Unaudited / distortion System Quality

Second StudySecond Study

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

Second StudySecond 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

Sample ScenarioSample Scenario

Income greater– https://www.bus.iastate.edu/djanvrin/IDV/part2inco

megreater.asp Income smaller

– https://www.bus.iastate.edu/djanvrin/IDV/part2incomesmaller.asp

Income varied– https://www.bus.iastate.edu/djanvrin/IDV/part2inco

mevaried.asp

ResultsResults

Investment choice Post project data

Summary Implications for General Decision Making

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

Implications for Financial Statement PreparersImplications for Financial Statement Preparers

Rendering issues

Do you present audited or unaudited information?

Materiality at data level

Implications for Financial Statement AuditorsImplications 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

Implications for Financial Statement UsersImplications 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

Conclusions 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?