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.

Overview Motivation Research Questions Methodology Preliminary Results Discussion/Conclusion

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

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

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.

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 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 Examples SEC web site –Executive Compensation –Interactive Financial Reports –Financial Explorer Corporate web sites –Stock price information –Enumerate - financial and non-financial information

SEC Executive Compensation Viewer

SEC Interactive Financial Reports

SEC Financial Explorer IBM

SEC Financial Explorer Pfizer

Corporate Website – Stock information Ford

Corporate Web site – Financial and non-financial information

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

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

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)

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

Research Questions – Presentation of Unaudited Information RQ: Do investors perceive that IDVs present unaudited financial information?

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 found yes

Research Questions – Presentation of Distorted Information RQ: Do investors perceive that IDVs present distorted financial information?

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)

Results Unaudited / distortion System Quality

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

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

Sample Scenario Income greater – megreater.asphttps:// megreater.asp Income smaller – mesmaller.asphttps:// mesmaller.asp Income varied – mevaried.asphttps:// mevaried.asp

Results Investment choice Post project data

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

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

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

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?