Reporting financial information: An investigation into the effect of digital presentation formats
on functional fixation
Erlane K. Ghani, Universiti Teknologi Mara, Malaysia
Fawzi Laswad, Massey University, Palmerston North, New Zealand**
Stuart Tooley, Queensland University of Technology, Brisbane, Australia
April 2008
**Corresponding author:
Fawzi Laswad
School of Accountancy
Massey University
Private Bag 11 222
Palmerston North
New Zealand
Email: F.Laswad@massey.ac.nz
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Abstract
This study examines whether, in the reporting of financial information, digital presentation
formats address the concern over functional fixation. The literature indicates that the reporting of
financial information either within the financial statements (i.e. recognition policy) or in the
notes to the financial statements (i.e. disclosure policy) often creates functional fixation where
users of financial statements fail to adjust for differences in accounting policy. This leads users
of financial statements to judge what would otherwise be identical financial situations as being
different due to the different accounting policies and methods adopted.
It has been suggested that the use of digital presentation formats may overcome functional
fixation. Using an experimental design involving professional public accountants as one group of
key decision maker who use financial information, the results show that digital presentation
formats do not fully overcome the issue of functional fixation in the processing of financial
information. Although the participants were able to identify and extract relevant information,
irrespective of whether or not the information was presented within the financial statements or in
the notes to the accounts, evidence was found that some degree of functional fixation remains
when the participants came to make a final decision based on available information. In general,
the results indicate current technology may not be able to fully reduce functional fixation in the
evaluation of financial information prepared in accordance with different accounting policies and
methods.
Keywords: Presentation formats, Recognition versus disclosure, Functional fixation, Digital
reporting
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1.
INTRODUCTION
Decision-makers are motivated to optimise their decision-making performance and the efficacy
of the decision-making process is often dependent on the nature and content of the information
provided (Libby and Lewis, 1977; 1982). However, it is generally acknowledged that decisionmakers have limited ability when it comes to the processing of large quantities of data. The way
in which information is presented (i.e. presentation format) has been proposed as a possible
solution enabling a more efficient and effective decision-making process (Libby and Lewis,
1982; Rohrman, 1986; Maines, 1995).
Within the accounting context, the recent emergence and expansion of digital technology has had
a significant impact in the wider dissemination of financial information and reports (Lymer and
Tallberg, 1997; Lymer, 1999; Ashbaugh et al., 1999; Anderson, 2000; Oyelere et al., 2003;
Smith, 2003; Fisher et al., 2004; Hodge and Pronk, 2006). The new reporting technology
provides opportunity for accounting report preparers to extend their reporting medium beyond
the traditional hard-copy print-based format to include alternative forms of digital reporting
which has seen presentation formats evolve from the tabular and graphical to more sophisticated
formats such as Portable Document Format (PDF), Hypertext Mark-up Language (HTML) and
Extensible Business Reporting Language (XBRL). Such alternative forms of presentation are
also seen to promote greater transparency in financial reporting (Beattie and Pratt, 2003; Hodge
et al., 2004).
One of the key issues in financial reporting and standard-setting is whether accounting report
users are able to adjust for differences in accounting methods and policies including whether an
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economic event is recognised within the financial statements or disclosed by way of note to the
financial statements. Studies have shown that the placement of financial information (i.e.
accounting policy of ‘recognition’ or ‘disclosure’) in the financial report often creates functional
fixation whereby users are unable to adjust for differences in accounting methods (Sami and
Schwatz, 1992; Barth, 1994; Hopkins, 1996; Hirst and Hopkins, 1998; Maines and McDaniel,
2000; Luft and Shields, 2001; Hodge et al., 2004).
Using an experimental design, this study examines whether digital presentation formats, in
contrast to the traditional print-based form of reporting, can minimise the occurrence of
functional fixation and thereby assist financial report users adjust for differences in the
placement of key financial information. To this end, this study adapts the work of Hodge et al.
(2002; 2004) who examined the interaction of presentation formats and functional fixation in the
context of the reporting of stock compensation options either within the financial statements (i.e.
recognition policy) or as a note to the accounts (i.e. disclosure policy). This study responds to a
call from Hodge et al for similar research to be conducted in other accounting contexts.
The focus of the empirical component of the research reported in this paper is on the accounting
for investment property under alternative accounting methods. The accounting standard on
investment property (IAS 40) allows a change in value to be accounted for in one of two ways:
either the investment property is revalued and the asset reported in the balance sheet at its market
value and the resultant gain or loss recognised in the income statement (i.e. Fair value model), or
the investment property remains reported in the balance sheet at cost and a disclosure of change
in fair value provided in the notes to the financial statements (i.e. Cost model). Using three
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different forms of digital reporting technologies (i.e. PDF, HTML and XBRL)1, an experiment is
undertaken to determine if one or more digital presentation formats is used more effectively by
the participants to extract and integrate key financial information, irrespective of its placement,
in their investment decision-making process.
The remainder of this paper is structured as follows. Section 2 provides a literature review on the
relevance of presentation formats and the link between presentation formats, placement of
information (i.e. financial statement recognition or notes to the financial statements disclosure)
and information processing. Section 3 provides the research framework and hypotheses. Section
4 outlines the research method and the results are presented in section 5. A discussion of the
findings and their implications for financial reporting are provided in the last section.
2.
LITERATURE REVIEW
Psychological studies portray decision-makers, due to their human form, as “intellectual cripples,
limited in their capacity to think, and biased by cognitive processes that interfere with rational
decision-making. They are oversensitive to variables that are not included in normative theories
and under sensitive to variables that are. They become more variable when given more
information and increase their confidence in the accuracy of their judgements when they should
not” (Ebbesen and Konecni, 1980, p.21). An extension of this view, would suggest that decisionmakers are therefore prone to making unreliable, inconsistent and sub-optimal decisions (Ashton,
1981) and, notably, will often seek ways to perform a decision-making task with minimum
cognitive effort (Newell and Simon, 1972).
1
Portable Document Format, Hypertext Mark-up Language, and Extensible Business Reporting Language,
respectively.
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The limitation of humans as processors of information can be exacerbated in tasks involving, for
example, large quantities of data (Rohrman, 1986) and the placement of information (Kozminky,
1977; Chi et al., 1981; Bernard and Schipper, 1994; Hopkins, 1996; Hirst and Hopkins, 1998;
Maines and McDaniel, 2000; Libby et al., 2002; Hodge and Pronk, 2006). Decision-makers may
also have a tendency to assume that certain information disclosure practices are followed
consistently and therefore come to overlook information that is placed outside of the ‘normal’
point of disclosure (Dyckman, 1964; Chi et al., 1981; Maines and McDaniel, 2000). Such an
occurrence falls within the realm of ‘functional fixation’ and may appear in all stages of the
decision-making process (Maines and McDaniel, 2000).
Ijiri et al. (1966) noted that “psychologists have found that functional fixation exists in most
human behaviour in which a person attaches a meaning to a title or an object and is unable to
recognise the alternative meanings or uses. People intuitively associate a value with an item
through past experience, and often do not recognise that the value of an item depends, in fact,
upon the particular moment in time and may be significantly different from what it was in the
past”. In an accounting context, for example, functional fixation occurs when users of financial
information fail to adjust for differences arising from the adoption of different accounting
policies and methods (Sami and Schwatz, 1992; Bernard and Schipper, 1994; Libby et al., 2002).
As a consequence, firms with identical economic circumstances except for their choice of
allowable accounting alternatives are sometimes judged to be different (Libby et al., 2002).
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The phenomenon of functional fixation and its accounting implications for placement of key
financial information has been extensively examined in the literature (Landsman, 1986; Harris
and Ohlson, 1987; Harper et al., 1987; Landsman and Ohlson, 1990; Harper et al., 1991; Sami
and Schwatz, 1992; Barth, 1994; Hopkins, 1996; Hirst and Hopkins, 1998; Maines and
McDaniel, 2000; Luft and Shields, 2001; Hodge et al., 2002; Hodge et al., 2004). Using the
perennial accounting issue of whether to recognise key financial information within the financial
statements (recognition policy) or disclosure the same information in the notes to the financial
statements (disclosure policy) this literature indicates users of financial statements exhibit
functional fixation when comparing financial statements of firms that adopt different accounting
policies. That is, decision-makers/users do find cognitive convenience in looking for information
in a to-be-expected location and the acquisition and integration of information located outside of
the normal situation may be more the result of ‘accidental discovery’ (Hirst and Hopkins, 1998).
Recent studies have explored potential solutions to overcome functional fixation in situations of
alternate placement of information. Luft and Shields (2001), for example, suggested that more
instructional learning on the opportunities for alternative placements of information and the
implications arising from such placements could provide a remedy to alleviate the impact of
functional fixation, but they found no supporting evidence. Their results show that instructional
learning is not necessarily a quick remedy for functional fixation in accounting because
accounting can, in turn, influence the learning process. That is, individuals may come to be
fixated on the accounting and do not develop the skills to ‘see through’ or ‘unscramble’ the
effects of alternative accounting methods (Luft and Shields, 2001).
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Another group of studies have focused on whether the way in which information is presented
minimises the occurrence of functional fixation and therefore leads to a more effective decisionmaking process (decision outcome). The findings of these studies indicate that some forms of
presentation formats enhance the decision-making process (Stock and Watson, 1984; Dickson et
al., 1986; Iselin, 1988; Vessey, 1991; Mackay and Villareal, 1987; Hard and Vanacek, 1991;
Stone and Schkade, 1991; Anderson and Kaplan, 1992; Ramarapu et al., 1997; FrownfelterLohrke, 1998; Almer et al., 2003; Bizarro and Baldwin, 2004; Hodge et al., 2004). Other studies
suggest that decision-makers experience a reduction in decision performance in completing tasks
when inappropriate presentation formats are used (Vessey, 1991; Vessey and Galletta, 1991;
Umanath and Vessey, 1994; Speier et al., 2003), while another group of studies suggest that
presentation formats do not affect decision performance (Bricker and Nehmer, 1995; Dull et al.,
2003; So and Smith, 2003) and it is the degree of information processing and the type of task
being performed that has the greatest impact on the effectiveness of presentation formats in the
decision-making process.
More recent research has focused on the dissemination of financial information through digital
reporting technology as opposed to the more traditional print-based reporting. In their study,
Hodge et al. (2002; 2004) proposed that appropriate digital presentation formats minimise
functional fixation whereby financial information becomes more transparent irrespective of its
placement. They reasoned that if presenting information in a particular style (i.e. digital
presentation formats) enhances data structure, this would allow users to become more effective
and efficient in information acquisition and usage (Larkin and Simon, 1987). Comparing PDF
format (non-searchable) with XBRL format (searchable), Hodge et al. (2004) found that
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participants who used the PDF format incurred higher levels of functional fixation than XBRL
participants at the initial information gathering stage of the decision-making process. This led to
PDF participants proposing a sub-optimal investment strategy compared, for example, to the
XBRL participants who were able to identify and extract a wider range of relevant and important
information.
The empirical component of the Hodge et al. (2002; 2004) study was in the context of stock
option compensation with key financial information either recognised within the financial
statements or disclosed in the notes to the financial statements. MBA students were used as
surrogates for professional decision-makers. Arguably, their research findings may be context
and participant specific and not generalisable to other settings. This study extends Hodge et al.
(2002; 2004) by examining the relationship between digital presentation formats and functional
fixation using three forms of digital presentation formats – PDF, HTML and XBRL. The current
study is located in the context of accounting for investment property and uses professional
subjects who are actively engaged in investment making decisions.
3.
RESEARCH FRAMEWORK AND HYPOTHESES
In this section we present the research framework and hypotheses underpinning the empirical
component of this study. The framework is based on the premise that the form of presentation
format is an important characteristic of an input into the decision making process and therefore
influences resulting judgements under conditions of uncertainty created by alternative
placements of key information.
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Decision-making is a cognitive process that leads to the selection of a course of action. In its
basic form, the decision-making process involves three sequential stages: input, processing, and
output (Libby and Lewis, 1977; Beach and Mitchell, 1978; Hogarth, 1980; Einhorn and Hogarth,
1981; Cloyd, 1995; Roberts, 2002). The input stage is concerned with the source and form of the
information made available to decision makers. The information processing stage is seen to
encompass the primary tasks of decision-making; that is, acquiring information, evaluating the
relevance of different items of information, and weighting the importance of specific items for
the decision task at hand. The output stage is concerned with the decision. The framework
proposes that presentation format influences the performance of decision makers to acquire, to
evaluate and weight information in forming a judgement (decision) on a firm’s financial
performance.
For the purposes of this study the three digital presentation formats of PDF, HTML and XBRL
form one group of independent variable. Bosak and Bray (1999) and Abdolmohammadi et al.
(2002) distinguished between PDF, HTML and XBRL on their ability to process information
where PDF allows no information processing, HTML allows static information processing and
XBRL allows dynamic information processing. In their work, Hodge et al. (2002; 2004)
distinguished between XBRL and PDF on the basis of their search capabilities. They described
XBRL as a searchable technology that enabled directed searches and the simultaneous
presentation of financial statements and related footnote information (including notes to the
financial statements) whereas non-searchable technologies, such as PDF, do not allow directed
searches and simultaneous presentation. They found that XBRL made information presented
outside of the financial statements more transparent and consequently, the participants who used
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XBRL achieved a more optimal investment decision outcome compared to participants who
used, for example, PDF.
Prior studies have suggested that functional fixation may occur at all stages of the decisionmaking process (Hodge et al., 2002; 2004; Maines and McDaniel, 2000). The framework
therefore proposes that presentation format may influence the performance of decision makers to
process information and form a judgement when alternative accounting models and methods are
used. Accordingly, a second group of independent variable focuses on the alternate placement of
information which for some accounting transactions and/or events could either be recognised
within the financial statements (recognition policy) or in the notes to the financial statements
(disclosure policy). There is a dearth of literature that examines the potential of different forms
of digital presentation formats to minimise the occurrence of functional fixation, especially
within the accounting context of financial statement recognition or notes to financial statements
disclosure. Hodge et al. (2002; 2004) argued that decision-makers were more likely to rely on
information that was recognised within the financial statements but were less likely to draw on
relevant information that was disclosed in the notes to the financial statements. Hopkins (1996)
observed that decision-makers would integrate items of disclosure if they accidentally found the
information item and it was relevant to their decision-making models.
Figure 1 provides a diagrammatical representation of the theoretical framework that underpins
the research and identifies the various stages of decision making as dependent variables and it is
around these variables that the following null hypotheses are developed.
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Figure 1:
Research framework
Dependent variables
Independent variables
Presentation formats
 PDF
 HTML
 XBRL
Information
processing stages
 Acquisition
 Evaluation
 Weighting
 Decision


Placement of
information
Recognition
Disclosure
Users’ characteristics
 Experience
 Familiarity
Confounding variables
(a)
Information Acquisition
In the context of this study, information ‘acquisition’ refers to an informed decision maker2
reading the financial statements and accompanying notes and detecting sufficiently well for
future recall the specific cues relating to the valuation model used to report investment
properties. The framework indicates that different digital presentation formats can influence
whether decision makers read all investment property related information.
H1:
(b)
The choice of digital presentation format does not impact on the performance of
decision-makers’ to identify the accounting valuation model used to account for
investment properties, irrespective of the placement of relevant information.
Information Evaluation
Information ‘evaluation’ involves the decision maker assessing the information acquired. That is,
having identified and read the relevant information, the decision maker will also perceive visible
2
It is to be expected that participants in the experimental exercise reported in this study have sufficient technical
knowledge to understand the accounting-calculation effect when reporting an investment property within the
financial statements and which is dependent on whether a Cost model or Fair Value model of accounting is used.
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characteristics of that information such as, for example, change in fair value of investment
property. The framework indicates that different digital presentation formats can influence
whether decision makers correctly evaluate the change in investment property fair value,
regardless of where that change is reported.
H2:
(c)
The choice of digital presentation format does not impact on the performance of
decision-makers’ to evaluate the change in investment property fair value,
irrespective of the placement of that information.
Information Weighting
Information ‘weighting’ refers to a perceived importance placed by the decision maker on the
evaluated information characteristic when forming a judgement or decision. Studies have shown
that decision-makers gave different relative weightings of importance to information items due to
functional fixation (Hopkins, 1996; Hirst and Hopkins 1998). For example, information items
recognised within financial statements were found to be more influential to a decision outcome
than information items disclosed in the notes to the financial statements (Maines and McDaniel,
2000). In other studies (e.g., Beaver and Landsman, 1983; Beaver and Ryan, 1985; Bernard and
Ruland, 1985; Landsman, 1986; Harris and Ohlson, 1987) information recognised in the Balance
Sheet was found to be more influential than information recognised in the Income Statement.
Lipe and Salterio (1999) found that information users mentally grouped similarly located items,
hence increasing the relative weighting of importance of one placement over another when
making the final decision.
In the context of this study, information ‘weighting’ refers to the importance for decision makers
to adjust for the change in the investment property’s fair value, for both balance sheet and
income statement effect, when undertaking financial analysis for comparative purposes. The
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framework therefore indicates that different digital presentation formats can influence decision
maker’s assessment of the perceived importance of an information item.
H3:
(d)
The choice of digital presentation format does not impact on the perceived
weighting given by decision-makers’ to information on the fair value of the
investment property, irrespective of the placement of that information.
Decision Outcome
The sequential process of decision making implies that the qualitative outcome at each stage of
the decision making process is influenced by the decision maker’s performance at the preceding
stage. Thus we would expect that the quality of the investment decision to be dependent on the
decision maker being able to similarly acquire and evaluate investment property information
using all three digital presentation formats and irrespective of where the information is placed.
Studies have also found that functional fixation exists in the decision stage (Maines and
McDaniel, 2000; McDaniel et al., 2002). Decision-makers’ decisions are affected when
comparisons are made between two firms adopting different accounting models (Hodge et al.,
2004). In their study, Hodge et al. (2004) found weak support for the XBRL presentation formats
to reduce functional fixation when compared to the PDF format. This study extends Hodge et al.
2002; 2004) by re-examining the impact of digital presentations formats on alleviating functional
fixation (if any) in an investment decision task. The following hypothesis is developed:
H4:
There is no significant difference in decision outcome from the choice of
presentation format, irrespective of the placement of information.
Prior studies have suggested that decision-makers’ work experience, familiarity with
technologies used in the decision-making process and personal characteristics such as gender,
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confidence and cognitive style, may influence the effectiveness of different presentation formats
to enable an optimal decision outcome (Sabherwal and Grover, 1989; Bamber, 1993; Brown and
Eining, 1996; Nouri and Douglas-Clinton, 2006). In their study, Kalchelmeier and Messier
(1990) found that experience moderates decision performance since the more experienced
decision maker brings added skills to their interaction with different presentation formats.
Mackay et al. (1992) found that the greater the familiarity with a particular presentation format
then the better the performance in achieving an optimal decision outcome. Therefore, it is
possible that the decision-makers’ level of task experience and knowledge of digital presentation
formats may have an influence on the way in which decision-makers engage in the decisionmaking process (Roberts, 2002; Hodge et al., 2004). The empirical analysis undertaken in this
study includes tests that control for work experience and technology familiarity.
4.
RESEARCH DESIGN
This study uses an experimental design to examine the impact of different forms of digital
presentation format on an investment decision-making process in situations when information of
relevance is reported in different locations. Specifically, this study examines whether different
forms of digital presentation format minimise the effects of functional fixation when two
alternative accounting models are used to report on changes in an asset’s (i.e. investment
property) value. This section provides an overview of the research design underpinning the
experiment.
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Participants
Sixty-two New Zealand public accounting practitioners volunteered to participate in this study.
Public accountants were chosen as the research subjects because they perform a broad range of
accounting-based services including advising clients on investing strategies and activities (VeraMunoz et al., 2002). Accounting practitioners also have knowledge and understanding of
financial statements and as such are described as professional users of financial statements
(Goldwater and Fogarthy, 1995).
Previous studies (Hodge, 2001; Dull et al., 2003; Hodge et al., 2002; 2004) have often used
students as proxies for professional users as they were readily available as participants and have
some degree of accounting skill (Libby et al., 2002). However, using students as proxies for
professional users can be problematic as they are likely to differ from professional users in that
they may lack advanced accounting and investment skills and practical experience (Stedry, 1960;
Birnberg and Nath, 1967; Anderson, 1988; Vera-Munoz et al., 2001). The way in which the two
groups acquire and process information is also different (Yates, 1990; Bouwman et al., 1995;
Hunton and McEwen, 1997). Students, in general, have limited working experience and their
analytical techniques may be less developed than, for example, experienced accounting
practitioners (Vera-Munoz et al., 2002). Therefore, the use of professional users as participants
in this study contributes to the broader understanding of the impact of digital presentation
formats on the information processing stage.
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Research Instrument
The research instrument consists of an experimental task and a post experimental questionnaire.
The experimental task requires participants to complete an investment making decision and is
adapted from Hodge et al. (2004). The experiment revolves around the fictitious financial
statements of two firms: Firm A and Firm B. Each set of financial statements comprise an
Income Statement, a Balance Sheet, Notes to the Financial Statements, and a Statement of Cash
Flows. The financial statements for each firm are prepared in accordance with the same
accounting policies with the exception of the way in which a change in investment property
value is accounted for (i.e. fair value model or cost model). For the purposes of the experiment,
Firm A is the control firm which recognises at all times the fair value of investment property in
the financial statements while Firm B is the treatment firm, which would either recognise the fair
value of investment property in the financial statements or disclose the change of fair value in the
notes to the financial statements (refer to Table 1).
Table 1:


Differences in Accounting Policy on Change in Fair Value
PARTICIPANT
PARTICIPANT
‘RECOGNITION’ GROUP
‘DISCLOSURE’ GROUP
Firm A and Firm B adopt the Fair value model

Firm A adopts the Fair value model
whereby investment property is recorded at fair value

Firm B adopts the Cost model whereby investment
in the balance sheet and any gains or losses are
property is recorded at cost value in the balance
recognised in the income statement (Fair value
sheet and the gains or losses are disclosed as notes
model).
to the financial statements (Cost model).

Firm B outperforms Firm A.
Firm A outperforms Firm B unless participants put
the financial position and results of the two firms
on equal footing.

Firm A is the control firm and Firm B is the manipulated firm.
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Participants were divided into two groups. Participants in the first group, hereafter referred to as
the ‘Recognition Group’ received a set of financial statements relating to Firm A and Firm B that
have both been prepared using the same accounting policies and, specifically, where the change
in fair value of the investment property has been accounted for using the fair value model (i.e.
new fair value recognised in the balance sheet and corresponding gain recognised in income
statement). Participants in the second group, hereafter referred to as the ‘Disclosure Group’,
received the same set of financial statements for Firm A as received by the Recognition Group
(i.e. based on the fair value model), however the financial statements of Firm B were
manipulated whereby the change in fair value of Firm B’s investment property was accounted for
using the cost model (i.e. asset remains in balance sheet at cost, but information on change in fair
value is disclosed in the notes to the financial statements). The participants were required to
calculate four ratios: return on assets, return on sales, return on fixed assets and fixed assets
turnover. These four ratios were chosen as they include assessing information items related to
investment property.
The material is developed in such a manner that when both firms adopt the fair value model,
Firm B outperforms Firm A. For example; a participant in the Recognition group would calculate
the ratio for return on fixed assets for Firm A as 14.4% and Firm B as 16.2%. However, when
Firm A adopts the fair value model and Firm B adopts the cost model, then Firm A outperforms
Firm B on the key ratios. For example: a participant in the Disclosure group would calculate the
ratio of return on fixed assets for Firm A as 14.4% and Firm B as 12.73%. Of particular interest
to this study is whether, when calculating the key financial ratios and making the investment
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decision, participants in the Disclosure Group make appropriate adjustments to Firm B’s
reported investment property values to recognise change in fair value and associated gain on
revaluation. For example: if a participant in the Disclosure group has made appropriate
adjustments to Firm B’s reported investment property, then the ratio of return on fixed assets for
Firm A would be 14.4% and for Firm B would be 16.2%, the results of which would then be
similar to those calculated by the Recognition group.
The financial statements for both firms were then converted into three digital presentation
formats: PDF, HTML and XBRL. These presentation formats are technologies available to
preparers of financial reports in the dissemination of financial performance and position
information. The conversion of the financial statements into XBRL was made using Microsoft
Excel. Microsoft Excel was chosen as this is similar to the model XBRL financial statement
developed by XBRL-NZ (XBRL-NZ, 2004). Further, professional users often use Microsoft
Excel when performing decision analyses (Beattie and Pratt, 2003). The financial statements in
the three presentation formats (PDF, HTML and XBRL) were then uploaded to a webpage.
Pilot study and data collection
A pilot study was conducted before commencing the main experiment to ensure that the
experiment and post experiment questionnaire captured the data relevant to testing the
hypotheses. Two public practitioners participated in the pilot study. One participant had
difficulty in accessing one of the presentation formats and this indicated a possible need for
participants to be offered assistance in accessing the research material.
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Participants had the opportunity to complete the research exercise in the researcher’s presence.
Hodge (2001) refers to these participants as ‘in-lab’ participants. Alternatively, participants
could elect to access the research material on their own. Hodge (2001) refers to these participants
as ‘out-of-lab’ participants. This latter option provides participants who may, for example, have
significant work commitments, the opportunity to participate at a more convenient time.
To ensure that in-lab and out-of-lab participants attempted the experimental task in a similar
manner (such as minimal prolonged breaks during the experiment), the participants were
requested to complete the various tasks in one sitting (session). To assess whether the two groups
had completed the tasks in a similar manner, the average time taken by each of the two groups to
complete the experiment was compared. The participants were also instructed to rely solely on
the information provided in the experiment material when completing the various tasks. To
assess the accuracy of extracting relevant values and the correct calculation of the four ratios
requested in the research material the two groups were compared.
Finally, the participants were allocated a particular digital presentation format. Each participant
was advised to complete the research material based on the allotted presentation format. The
purpose of such allocation was to ensure equal distributions across each of the three digital
presentation formats. Figure 2 summarises the basic setup of the experiment including the
number of participants allocated to each of the different digital presentation formats and
combinations of accounting policies used in the preparation of Firm A and B’s financial
statements and accompanying notes to the financial statements.
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Figure 2:
Experiment Setup
Experiment Material
Recognition group
PDF
Firm A
Recognition
Firm B
Recognition
HTML
Firm A
Recognition
Firm B
Recognition
Disclosure group
XBRL
Firm A
Recognition
PDF
Firm A
Recognition
Firm B
Recognition
Firm B
Disclosure
HTML
Firm A
Recognition
Firm B
Disclosure
XBRL
Firm A
Recognition
Firm B
Disclosure
Experiment procedures
The experiment was conducted in a series of sequential events. All participants are provided with
two envelopes. The participants commence the experiment by opening the first envelope which
contains a CD. Material on the CD includes an instruction page, a homepage containing general
information about the line of business that the two firms are involved in, and the financial
statements of the two firms converted into the three digital presentation formats. The participants
begin their analysis by viewing each firm’s homepage. In each of the firm’s homepage, the
participants are requested to click on to their assigned presentation formats. The presentation
includes the financial statements and relevant notes to the financial statements for the particular
firm.
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After reviewing each of the firm’s financial information, the participants are asked to calculate,
for each of the two firms, the four specified key ratios. The purpose of requiring participants to
calculate the ratios is to determine if they are aware of the accounting model adopted by the two
firms in relation to investment properties. The participants are then asked to evaluate the
financial performance and earnings potential of Firm A and Firm B and decide how much out of
a total of $10,000 they would invest in one firm or across both firms.
Once the participants completed the experiment exercise, they were asked to open the second
envelope which contains the post experimental questionnaire. The post experimental
questionnaire includes two sections. The first section asks the participants to identify the
accounting model adopted by the two firms (i.e. fair value model or cost model) and if they have
evaluated the two firm’s information on investment property. The second section solicited
participant demographic information.
Measurement of Dependent Variables
The impact of presentation formats is measured at the four stages of information processing:
acquisition, evaluation, weighting and decision outcome. Information acquisition for hypothesis
1 is measured by the participants’ ability to correctly recall the model adopted by Firm A and
Firm B. The financial information set for each of the two firms received by participants in the
Recognition group have been prepared using the same accounting model (i.e. Fair value model)
when accounting for investment properties whereas the financial information set received by
participants in the Disclosure group have been prepared using different accounting models to
22
account for investment property (i.e. Fair value model for Firm A and Cost model for Firm B). If
participants in the Disclosure group correctly identify the different models adopted by each firm,
this indicates that the particular presentation formats used by participants had reduced functional
fixation (caused by the use of different accounting models and alternate placement of
information) in the information acquisition stage (Hodge et al., 2004). Therefore, the percentage
of correct model identifications by the Disclosure group would be similar to the percentage of
correct model identifications by the Recognition group. The level of success by participants to
correctly identify the accounting model(s) used is the dependent measure.
Information evaluation is measured according to whether the participants have evaluated the
relevant information related to investment property in their decision-making process. For Firm
A, this information is included in the balance sheet (property investment is shown at fair value)
and in the income statement (gain arising from the difference between fair value and cost)
irrespective of whether the participant is in the Recognition group and the Disclosure group. For
Firm B, the investment property is accounted for and reported to participants in the Recognition
group using the fair value model whereas, for participants in the Disclosure group, the
investment property is accounted for and reported using the cost model (that is, asset is shown in
balance sheet at cost value and information regarding the asset’s fair value and cost value is
presented in the notes to the financial statements). The participants’ response of either “yes” or
“no” to a question on whether they identified the relevance of information pertaining to
investment property, in their decision-making process, is the dependent measure to test
hypothesis 2 relating to the impact of presentation formats on the information evaluation stage of
decision making.
23
Information weighting is assessed by participants’ decision to include or exclude the information
related to investment property in their calculation of the four financial ratios for each of the two
firms. The difference in the sum totals of the ratios calculated for Firm A and Firm B by
participants in the Recognition group and the sum totals of the ratios calculated for Firm A and
Firm B by participants in the Disclosure group are compared. If the Recognition group and the
Disclosure group, using the same digital presentation formats, give the same level of importance
(i.e. weighting) to information related to investment properties, then the sum totals of the ratios
calculated by each of the two groups would be similar and any difference should not be
significantly different from 03. However, the greater the difference between the sum totals of the
two groups, then the stronger the indication that a higher proportion of participants in the
Disclosure group gave less weighting to the full range of reported information on investment
property than participants in the Recognition group4.
The dependent variable decision outcome is measured by the participants’ percentage of
investment in Firm B5.
The set of financial information provided to participants in the
Recognition group, for both Firm A and Firm B, were prepared using the same accounting model
whereas participants in the Disclosure group received two sets of financial information prepared
using two different accounting models. If the participants in the Disclosure group adjusted for
the difference in the accounting models and placed the two firms at par, then their investment
3
This approach is the same as Hodge et al. (2002; 2004).
This argument is based on the notion that participants would reach the same results if they were provided with the
same information. Since the only manipulated information in the experiment is the accounting method for
investment properties, any difference in results is likely to be caused by participants with the manipulated
information failing to give appropriate weight to the information item related to the investment properties.
5
This choice of using the percentage of investment in Firm B as a dependent measure is consistent with Hodge et al.
(2002; 2004).
4
24
decisions should favour Firm B and therefore the percentage of investment in Firm B would be
higher than the percentage of investment in Firm A6.
5.
RESULTS
Participants
Table 2 shows the extent of the participant’s professional experience and their level of familiarity
with digital presentation formats. Participants have substantial work experience with twenty-two
percent of the participants having more than 20 years’ working experience and half of the
participants having more than 10 years of working experience. The table also shows that a higher
proportion of participants were familiar with PDF (83%) compared with HTML (51%) and
XBRL (8%). This is not surprising as PDF is used more widely as a reporting format (Baldwin et
al., 2004). The small number of participants who were familiar with XBRL may be attributed to
its more recent emergence as a digital reporting technology (Baldwin et al., 2004)7.
Table 2:
Participants’ demographic attributes
Panel A: Level of accounting experience
Experience
Less than 5 years
5 to 10 years
11 to 15 years
16 – 20 years
More than 20 years
Total
Number of subjects
15
15
12
6
14
62
6
Percent
24.2
24.2
19.4
9.7
22.6
100.0
The participants may also place both firms at par using the cost model. However, because the information related
to Firm A does not include information on the cost value of the investment property in the balance sheet, the
participants were not able to assess that both firms were using the Cost model as they were requested to rely solely
on the information provided in the experiment material. The cost value of the investment property is intentionally
left out to lead participants who choose to put both firms at par to use the Fair value model.
7
The participants who were familiar with XBRL had some exposure to XBRL either from becoming members of
XBRL-NZ, conferences or involvement with a pilot study performed by XBRL-NZ. The pilot study involved 12
listed companies and was completed in 2005.
25
Panel B: Familiarity with presentation formats
Familiarity
(1: not familiar7: Very familiar)
7
6
5
4
3
2
1
Total
PDF
Number of
subjects
Percent
24
18
20
3
2
0
6
62
PRESENTATION FORMATS
HTML
XBRL
Number of
Number of
subjects
Percent
subjects
Percent
38.7
29.0
16.1
4.8
1.6
0
9.7
100.00
9
12
11
10
7
3
10
62
14.5
19.4
17.7
16.1
11.3
4.8
16.1
100.0
2
2
1
2
5
12
38
62
3.2
3.2
1.6
3.1
8.1
19.4
61.3
100.0
The participants in this study completed the experiment in either in-lab or out-of-lab settings.
Table 3 provides a comparison between the two groups in relation to the amount of time taken to
complete the experiment. Twenty three participants attempted the research instrument in an inlab setting while 39 participants chose to complete the research instrument in an out-of-lab
setting. The average time to complete the experiment in-lab was 13 minutes while the out-of-lab
was 15 minutes. A t-test shows no significant differences between the two groups (p=0.159).
This indicates that in-lab and out-of-lab participants completed the experiment in a similar
timeframe (such as no prolonged breaks during the experiment).
Table 3:
Completion time
In-lab
Out-lab
Descriptive statistics of time taken to complete the experiment
Number of
subjects
23
39
Mean
13.6087
15.8974
Time to complete the experiment
Std deviation
Std error mean
6.72674
1.40262
5.71607
0.91530
The participants were asked to complete the experiment using only the information presented in
the research instrument. However, because the participants were allowed to complete the
experiment in an out-of-lab setting, there is a possibility that the participants might have
26
accessed information outside of the research material. If the participants relied solely on the
information in the distributed research material when completing the experiment, the accuracy in
extracting and calculating ratios between the in-lab and out-of-lab participants should not be
significantly different. The participants were asked to calculate a total of 4 ratios for each firm
and these can be used to determine whether there were any significant differences in the source
of information used to inform their calculations. Table 4 provides a comparison between the two
groups in relation to their accuracy in calculating the ratios.
Table 4:
Participants’ information usage
Panel A: Descriptive statistics of accuracy in calculating ratios
Number of
Completion time
subjects
Mean
4.3043
In-lab
23
5.0769
Out-lab
39
Accuracy in calculating ratios
Std deviation
Std error mean
2.85139
2.67920
0.59456
0.42902
Panel B: T-test for in-lab and out-of lab experiment
Equal variances
assumed
T
-1.071
Df
60
Sig.
0.288
Mean
difference
-.77258
Std. error
difference
0.72131
95% confidence interval of
the difference
Lower
Upper
-2.21540
0.67025
The mean accuracy score for in-lab participants is 4.3 while for the out-of-lab participants is
about 5. A t-test indicates no significant differences between these two groups (p=0.288). This
suggests that the in-lab and out-of-lab participants attempted the experiment by relying solely on
the information provided in the experiment instrument.
Manipulation check
Before testing the four research hypotheses, a manipulation check was performed to assess
whether the results of the experiment could be attributed to the impact of the presentation
formats in processing of information in the situation of alternate placements of information (i.e.
27
recognition versus disclosure), and not to the decision-makers’ ability to recall information (i.e.
working memory capacity)8.
The manipulation check was performed by requesting the participants, in the post experiment
questionnaire, to identify the accounting models adopted by Firm A and Firm B. The participants
were requested to not view the webpage information after completing the experimental exercise.
The manipulation check, adapted from Hodge et al. (2002), examines the accuracy of the
participants in identifying the accounting models adopted by the two firms in the experiment.
Within each situation, if the results show significant differences in model identification, this may
indicate that the participants’ working memory capacities differ significantly. For example, if
the results show significant differences in model identification within the recognition group,
where both firms adopt the same model for accounting of investment property, this would
indicate that presentation format and/or participants’ working memory capacities affect
accounting model identification. If the results show no significant differences, that would
indicate that either presentation format does not affect accounting model identification or there
are no significant differences in participants’ working memory capacities. A new variable, model
identification, was developed to code whether the participants correctly identified the model
adopted by the two firms.
Table 5 presents the results of the manipulation check using Multinomial logistic regression
analysis. The table is divided into three panels. Panel A presents the descriptive statistics of the
accounting model identification under each of the three digital presentation formats, and the
Working memory is the “workspace” within memory, separate from long-term memory, responsible for temporary
storage and information processing (Roberts, 2002). Studies have suggested that working memory capacity differs
among decision-makers (Baddeley, 1992; Engle, 1996).
8
28
results of testing for any significant differences between presentation formats by participants in
the Recognition group. Panel B provides the descriptive statistics of the accounting model
identification under each of the three digital presentation formats, and the results of testing for
any significant differences between presentation formats by participants in the Disclosure group.
Panel C presents the descriptive statistics of accounting model identification under each of the
three digital presentation formats, and testing for any significant differences between
presentation formats by all participants. All results show no significant differences between the
presentation formats, which suggests that there are no differences in the working memory
capacities of participants allocated to each of the three presentation formats.
29
Table 5:
Manipulation check
Panel A: Descriptive statistics for the Recognition group
Information acquisition
Correctly identified the model
Incorrectly identified the model
Total
N
4
7
11
Presentation formats
HTML
N
Percent
5
33.3
5
31.3
10
32.3
PDF
Percent
26.7
43.7
35.4
Model fitting
criteria
-2LL
9.592
Effect
Presentation formats
XBRL
N
Percent
6
40.0
4
25.0
10
32.3
Likelihood ratio tests
X²
Df
2
Sig.
0.549
1.199
Panel B: Descriptive statistics for the Disclosure group
Information acquisition
Correctly identified the model
Incorrectly identified the model
Total
N
3
7
10
Presentation formats
HTML
N
Percent
3
27.3
7
35.0
10
32.2
PDF
Percent
27.3
35.0
32.2
Effect
Presentation formats
XBRL
N
Percent
5
45.4
6
30.0
11
35.6
Model fitting
criteria
-2LL
Likelihood ratio tests
Df
X²
Sig.
8.903
2
0.731
0.694
Panel C: Descriptive statistics of all participants
Information acquisition
Correctly identified the model
Incorrectly identified the model
Total
Effect
Presentation formats
N
7
14
21
Presentation formats
HTML
N
Percent
8
30.7
12
33.3
20
32.4
PDF
Percent
26.9
38.9
33.8
XBRL
N
Percent
11
42.4
10
28.8
21
33.8
Model fitting
criteria
-2LL
Df
X²
Sig.
11.968
2
1.612
0.447
30
Likelihood ratio tests
Acquisition
Multinomial logistic regression is used to examine hypothesis 1 which proposes that the form of
digital presentation format does not impact on decision-makers’ performance in the acquisition
of information in an accounting ‘recognition versus disclosure’9 situation. Table 6 presents the
results and is divided into two panels: Panel A presents the descriptive statistics of information
acquisition and Panel B provides the results of Multinomial logistic regression that tests the
likelihood of significant difference in information acquisition between presentation formats.
The results indicate that more participants in the Recognition group correctly identified the
accounting model adopted by Firm A and Firm B (48%) in comparison to participants in the
Disclosure group (35%). However, the difference between the two groups is not significant
(p=0.273). Participants who were presented with the XBRL presentation formats had a higher
success rate in identifying the accounting model adopted by both firms correctly (52%),
compared to participants who were presented with PDF (40%) and HTML (33%) presentation
formats. However, the difference between presentation formats on the ability of participants to
correctly identify the accounting model used (information acquisition) is not significant
(p=0.417). Testing the interaction between presentation formats and placement of information on
information acquisition, the results indicate that any difference is not significant (p=0.914).
For brevity, the phrase ‘recognition versus disclosure’ (not to be confused with participants designated as
Recognition group and Disclosure group) is used in this section to describe the alternate placement of financial
information relating to change in fair value of investment property when accounted for under different accounting
models (i.e. the term recognition pertains to the use of the Fair value model, and the term disclosure pertains to the
use of the Cost model).
9
31
Table 6:
Effect of presentation formats and recognition versus disclosure on decisionmakers’ acquisition
Panel A: Descriptive statistics of information acquisition
Identify Model B
Percent
Incorrectly
36.36
7
30.00
7
33.33
14
Format
PDF
Group
Recognition
Disclosure
Total
Correctly
4
3
7
HTML
Recognition
Disclosure
Total
5
3
8
50.00
30.00
40.00
5
7
12
50.00
70.00
60.00
XBRL
Recognition
Disclosure
Total
6
5
11
60.00
45.45
52.38
4
6
10
40.00
54.54
47.62
Total
Recognition
Disclosure
15
11
48.39
35.48
16
20
51.61
64.52
Percent
63.64
70.00
66.67
Panel B: Multinomial logistic regression10
Effect
Presentation
Recognition Group versus Disclosure Group
Presentation x Recognition versus disclosure
Model fitting
criteria
-2LL
Likelihood ratio tests
Df
18.495
17.946
16.744
2
1
2
X²
1.751
1.202
0.180
Sig.
0.417
0.273
0.914
The results above may have been influenced by other factors such as the participants’ work
experience and familiarity with presentation formats. Table 7 presents the results of testing the
interaction between presentation formats and recognition versus disclosure on information
acquisition when controlling for work experience and familiarity with the presentation formats.
The results indicate that work experience and familiarity with a presentation formats are not
important covariates (p=0.403 and p=0.864). The overall results of testing hypothesis 1 indicate
that the null hypothesis is not rejected.
10
The results combine two tables: that is, the main effect of the independent variables and, the interaction between
the independent variables. The chi-square statistic is the difference in -2 log-likelihoods between the final model and
a reduced model. The reduced model is formed by omitting an effect from the final model. The null hypothesis is
that all parameters of that effect are 0.
32
Table 7:
Work experience and familiarity with presentation formats in information
acquisition
Multinomial logistic regression
Effect
Work experience
Familiar with presentation formats
Presentation x Recognition versus disclosure
Model fitting
criteria
-2LL
Likelihood ratio tests
Df
77.145
76.474
79.480
1
1
5
X²
0.700
0.029
3.035
Sig.
0.403
0.864
0.695
Evaluation
Hypothesis 2 proposes that the digital presentation formats do not impact upon decision-makers’
information evaluation in the context of recognition versus disclosure situations. Table 8 presents
the results of the effect of presentation formats on information evaluation. The table is divided
into two panels: Panel A presents the descriptive statistics of information evaluation and Panel B
provides the results of Multinomial logistic regression that tests the likelihood of significant
difference in information evaluation when using different presentation formats.
Table 8 shows that 58% of the participants in the Recognition group and 42% of the participants
in the Disclosure group evaluated the relevance of information related to investment property.
However the difference between the two groups is not significant (p=0.146). Participants
presented with the XBRL presentation formats were more likely to evaluate the information
related to investment property (67%) compared to those participants who were presented with
the PDF (29%) and HTML (55%) formats. The p value of 0.029 indicates that there are
significant differences between the presentation formats on information evaluation. However, the
results indicate that the interaction between presentation formats and placement of information is
not significant (p=0.766).
33
Table 8: The effect of presentation formats and recognition versus disclosure on users’
evaluation
Panel A: Descriptive statistics of information evaluation
Evaluate information related to investment property
Format
Group
Yes
Percent
No
Percent
PDF
Recognition
4
36.36
7
63.64
Disclosure
2
20.00
8
80.00
Total
6
28.57
15
71.43
HTML
Recognition
Disclosure
Total
7
4
11
70.00
40.00
55.00
3
6
9
30.00
60.00
45.00
XBRL
Recognition
Disclosure
Total
7
7
14
70.00
63.64
66.67
3
4
7
30.00
36.36
33.33
Total
Recognition
Disclosure
18
13
58.06
41.94
13
18
41.94
58.06
Panel B: Multinomial logistic regression
Model fitting
criteria
-2LL
Effect
Presentation
Recognition Group versus Disclosure Group
Presentation x Recognition versus disclosure
23.676
18.733
16.623
Likelihood ratio tests
X²
Df.
Sig.
7.053
2.110
0.533
2
1
2
0.029
0.146
0.766
Covariates for work experience and familiarity with presentation formats were also tested to
determine their importance to information evaluation. Table 9 shows that familiarity with
presentation formats is a marginally important covariate for information evaluation (p=0.097).
Nevertheless, the overall results indicate that hypothesis 2 is not rejected.
Table 9:
Work experience and familiarity with presentation formats in information
evaluation
Multinomial logistic regression
Effect
Work experience
Familiar with presentation formats
Presentation x Recognition versus disclosure
Model fitting
criteria
-2LL
67.062
69.810
75.660
34
Likelihood ratio tests
X²
0.003
2.751
8.601
Df.
Sig.
1
1
5
0.958
0.097
0.126
Weighting
Hypothesis 3 states that there is no significant difference in the effect of presentation formats on
decision-makers’ information weighting in recognition versus disclosure situations. Table 10
presents the results of the effect of presentation formats on information weighting and shows that
when comparing the two participant groups, participants in the Recognition group had a mean
sum total of 10.0823, whereas those in the Disclosure group had a mean sum of 9.5058.
However, the difference of 0.5765 is not significant (p=0.666). The results also show that the
effect of presentation formats in decision-makers’ weighting is not significant (p=0.138) and the
interaction of presentation formats and placement of information on information weighting is
also not significant (p=0.578).
Table 10:
The effect of presentation formats and recognition versus disclosure on
decision-makers’ weighting
Panel A: Descriptive statistics of information weighting
Format
Group
Number of subjects
PDF
Recognition
11
Disclosure
10
Total
21
Mean
7.9927
8.9870
8.4662
Std. Deviation
3.60458
4.95411
4.21899
HTML
Recognition
Disclosure
Total
10
10
20
8.9760
8.8440
8.9100
3.08310
2.32583
2.65887
XBRL
Recognition
Disclosure
Total
10
11
21
13.4870
10.5791
11.9638
12.23956
5.47105
9.19749
31
31
62
10.0823
9.5058
9.7940
7.61562
4.42960
6.18528
Df
2
1
2
F
2.051
0.189
0.554
Total
Recognition
Disclosure
Panel B: UNIANOVA
Source of variance
Presentation
Recognition Group versus Disclosure Group
Presentation x Recognition versus disclosure
35
Sig.
0.138
0.666
0.578
Table 11 presents the results of the impact of presentation formats on information weighting
when controlling for work experience and familiarity with presentation formats. The ANCOVA
results show that work experience and familiarity with presentation formats are not important
covariates in information weighting (p=0.520 and p=0.867). These results support the acceptance
of hypotheses 3 that presentation formats does not impact on information weighting in the
context of recognition versus disclosure.
Table 11:
Work experience and familiarity with presentation formats in information
weighting.
ANCOVA
Source of variance
Experience
Familiarity
Presentation formats x Recognition versus disclosure
Sum of
squares
16.451
1.101
42.544
Df
1
1
2
Mean
square
16.451
1.101
21.272
F
0.429
0.028
0.543
Sig.
0.520
0.867
0.584
Decision outcome
Hypothesis 4 proposes that there is no significant difference in the effect of presentation formats
on decision-makers’ decision in recognition versus disclosure situations. Table 12 presents the
results on the effect of presentation formats on decision outcome. The table shows that the mean
investment in Firm B (expressed as a percentage of $10,000) by participants in the Recognition
groups is 61%, which reflects the average investment decision when the financial statements of
the two firms were prepared using the same accounting policy for investment property11.
Participants in the Disclosure group proposed a mean investment in Firm B of 40% in the
situation when the financial statements of Firm A and Firm B were prepared using different
accounting policies for investment property. This difference between the two groups is
11
Recall from Table 1 that when the two firms adopted the same accounting policy, then Firm B performed better
than Firm A when performance was evaluated on the basis of four financial ratios.
36
significant (p=0.001) which suggests that participants in the Disclosure group may have
experienced functional fixation.
Table 12:
The effect of presentation formats on decision-makers’ decision
Panel A: Descriptive statistics
Format
Group
PDF
Recognition
Disclosure
Total
Number of subjects
11
10
21
Decision Mean
54.4545
36.0000
46.1905
Std. Deviation
26.31108
26.43651
27.56378
HTML
Recognition
Disclosure
Total
10
10
20
67.5000
37.0000
52.2500
14.95363
21.10819
23.70182
XBRL
Recognition
Disclosure
Total
10
11
21
60.4000
47.2727
53.5238
24.82024
23.06118
24.25411
Total
Recognition
Disclosure
31
31
62
60.9355
40.3226
50.6290
22.54172
23.41422
25.04961
Panel B: UNIANOVA
Source of variance
Presentation
Recognition Group versus Disclosure Group
Presentation x Recognition versus disclosure
Df
2
1
2
F
0.718
12.725
0.733
Sig.
0.492
0.001
0.485
Table 12 shows that participants who were presented with financial statements in the PDF
presentation formats invested 36% of funds in Firm B, whereas participants who received HTML
and XBRL presentation formats invested 37% and 47%, respectively. Although this indicates
that the XBRL participants invested more funds in Firm B compared to PDF and HTML
participants, these differences are not significant (p=0.492). The results also show that the
interaction between presentations formats and accounting models on decision outcome is not
significant (p=0.485).
37
Table 13 presents the results of the impact of presentation formats on decision outcome when
controlling for work experience and familiarity with a presentation formats. The ANCOVA
results show that work experience is a marginally important covariate in decisions (p=0.097).
This indicates that when participants have more working experience in investment decisionmaking, the impact of presentation formats on decision outcome when different accounting
models are used by two or more target firms, is less significant than for less experienced
decision-makers.
The results indicate that familiarity with presentation formats is not an
important covariate (p=0.973).
Table 13:
Work experience and familiarity with presentation formats in decision
outcome
ANCOVA
Source of variance
Experience
Familiarity
Presentation formats x Recognition versus
disclosure
Sum of
squares
1510.364
0.600
Df
1
1
Mean
square
1510.364
0.600
F
2.853
0.001
Sig.
0.097
0.973
815.299
2
407.649
0.770
0.468
In summary, the results indicate that functional fixation may exist when making an investment
decision between two firms that adopt different accounting policies. However, presentation
formats does not impact on decision outcome, which suggests that presentation formats do not
reduce functional fixation, indicating that hypothesis 4 is not rejected.
6.
SUMMARY AND CONCLUSION
This study examined the effect of presentation formats on the four stages of decision making (i.e.
information acquisition, evaluation, weighting and decision outcome) in the context of different
38
accounting models being used to report key financial information relating to investment
property.
The results indicate that the use of different models (i.e. Fair value model and Cost model) do
not impact on the ability of decision-makers to acquire, evaluate and weight information relevant
to their investment decision. These results are consistent with other studies that examined the
phenomenon of functional fixation in different settings, such as Wilkins and Zimmer (1983)
which identified that different accounting methods do not affect bankers’ assessments, and
Maines and McDaniel (2000) who found that the placement of information either in the
Statement of Comprehensive Income or Statement of Stockholders’ Equity did not affect the
information acquisition stage.
The results in this study are, however, not consistent with other studies that did find the presence
of functional fixation in ‘recognition versus disclosure’ situations (e.g., Hopkins, 1996; Hirst and
Hopkins, 1998; Luft and Shields, 2001; Hodge et al., 2002; 2004). One possible reason for the
inconsistency with prior studies is the study sample and experimental design. For example,
Hodge et al. (2004) used students as proxies for actual decision-makers whereas in this study we
used professional users.
A key finding in this study is that functional fixation exists in the decision outcome stage when
the information is either recognised within the financial statements (Fair value model of
accounting) or disclosed in the notes to the financial statements (Cost model of accounting). The
evidence in this study points to the conclusion that digital presentation formats have not assisted
39
professionals in overcoming the limitations of humans as decision-makers in relation to
functional fixation. This would support the view that until presentation technology provides the
tools to assist users, the alternative options of either ‘recognising’ or ‘disclosing’ key financial
information may lead to different economic consequences.
40
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Alternative diagram to Figure 1:
Presentation Formats
Information
Processing stages
Placement of
Information
Users Characteristics
Question – are there now 2 hypotheses per dependent variable? Impact of presentation format on
variable and impact of placement of information on variable?
48