Penrose, John M.
JBC
2008
Abstract:
Corporate annual reports typically include a narrative section and a financial section. The narrative section is not scrutinized by auditors as the financial section is, yet many readers rely heavily on its graphs to estimate the firm's financial situation. However, the graphs often misrepresent the financial data. To better understand annual report graphs' important role, this article examines more than 25 years of literature related to these four areas: (a) the ways financial graphs are prepared, used, and misinterpreted; (b) differences by country; (c) regulatory influences for accountants; and (d) the parts formatting and media selection decisions play in communication interpretation and persuasion. Across the literature, the author notes consensus that annual report graphs are widely used in many countries and that there is rampant disregard for the guidelines for their accurate, non-misleading presentation. The article concludes with seven proposed directions for future research.
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