Traditional and alternative methods of measuring the understandability of accounting narratives

Michael John Jones · MALCOLM C. SMITH

82 citations0/0 files storedAccounting Auditing & Accountability Journal

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Auditing, Earnings Management, Governance Accounting Education and Careers Text Readability and Simplification

Abstract

Purpose – The study aims to explore the use of alternative measures of “understandability” on accounting texts. This includes the meaning identification test (MIT) and the sentence verification technique (SVT), which have not previously been used by accounting researchers, as well as variants on the traditional Cloze tests such as the C-Test. Design/methodology/approach – This study focuses on the understandability of accounting texts and evaluates how reliable the Cloze test is as a measure of comprehension. An experiment was designed and conducted to measure users' performance with a variety of comprehension measures (MIT, SVT, Cloze, C-Test). Findings – The study concludes that the outcomes from the MIT and SVT comprehension tests are not significantly associated with those from the Cloze tests. This implies that while the Cloze test is a good measure of the predictability of accounting narratives, and of textual redundancy, it does not necessarily measure the understandability of the text. Originality/value – These measures of understandability, which have not previously been used in accounting, would enable researchers to test the communicational effectiveness of using different accounting narratives such as annual reports or prospectuses. Such a measure could be used to improve the understandability of accounting narratives. The strengths and weaknesses of the various tests are assessed. It is suggested that there is a need for further experimentation especially with the MIT test.

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References

2000The chairman’s statement ‐ A content analysis of discretionary narrative disclosures 1980Students As Surrogates in Behavioral Accounting Research: Some Evidence 1998Annual report readability variability: tests of the obfuscation hypothesis 2009Methodological Insights 2001The effect of thematic structure on the variability of annual report readability 2004Corporate report obfuscation: artefact or phenomenon?2007Discretionary Disclosure Strategies in Corporate Narratives: Incremental Information or Impression Management?1992Readability and Understandability: Different Measures of the Textual Complexity of Accounting Narrative

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