Functional fixation: Experimental evidence on the presentation of financial information through different digital formats

This study examines whether, in the presentation of financial information, digital formats address the concern over users’ functional fixation. The accounting literature indicates that the presentation of financial information either within the financial statements or in the notes to the financial statements often creates functional fixation where users of financial statements fail to adjust for differences in accounting policy. This leads users 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 formats in presenting financial reports may overcome functional fixation. Using an experimental design involving accountants in public practice, the results indicate that the use of digital formats to present financial reports does 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, the evidence indicates that functional fixation remained when the participants made final decisions based on available information. This suggests that functional fixation may not be caused by access to or extraction of information but by the level of perceived significance based on where the information is reported in the financial statements. In general, the results indicate that 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.

[1]  Linda S. McDaniel,et al.  Effects of Comprehensive‐Income Characteristics on Nonprofessional Investors' Judgments: The Role of Financial‐Statement Presentation Format , 2000 .

[2]  William R. Kinney,et al.  The Effects of Domain Experience and Task Presentation Format on Accountants' Information Relevance Assurance , 2001 .

[3]  M. W. Nelson,et al.  Experimental Research in Financial Accounting , 2001 .

[4]  Richard B. Dull,et al.  Web-based financial statements: hypertext links to footnotes and their effect on decisions , 2003, Int. J. Account. Inf. Syst..

[5]  B. Tabachnick,et al.  Using multivariate statistics, 5th ed. , 2007 .

[6]  Laureen A. Maines,et al.  Recognition versus Disclosure in Financial Statements: Does Search-facilitating Technology Improve Transparency? , 2002 .

[7]  P. Oyelere,et al.  Determinants of Internet Financial Reporting by New Zealand Companies , 2003 .

[8]  Robert Libby,et al.  Accounting and human information processing : theory and applications , 1981 .

[9]  I. Zimmer,et al.  THE REPORTING OF INVESTMENTS IN ASSOCIATED COMPANIES AND CREDIT EVALUATIONS: AN EXPERIMENTAL STUDY , 1985 .

[10]  井尻 雄士,et al.  Research in accounting measurement , 1986 .

[11]  Michael D. Shields,et al.  Why Does Fixation Persist? Experimental Evidence on the Judgment Performance Effects of Expensing Intangibles , 2001 .

[12]  M. Vasarhelyi,et al.  XBRL: A New Tool For Electronic Financial Reporting , 2004 .

[13]  Patrick E. Hopkins,et al.  The Effect of Financial Statement Classification of Hybrid Financial Instruments on Financial Analysts' Stock Price Judgments , 1996 .

[14]  Cynthia Frownfelter-Lohrke,et al.  The effects of differing information presentations of general purpose financial statements on users' decisions , 1998 .

[15]  Allen Newell,et al.  Human Problem Solving. , 1973 .

[16]  F. Hodge,et al.  Hyperlinking Unaudited Information to Audited Financial Statements: Effects on Investor Judgments , 2001 .

[17]  D. Eric Hirst,et al.  Comprehensive income reporting and analysts' valuation judgments , 1998 .

[18]  N. Dopuch,et al.  The Effects of Alternative Inventory Valuation Methods-An Experimental Study , 1973 .

[19]  Grant M. Beck,et al.  Functional fixation revisited: the effects of feedback and a repeated measures design on information processing changes in response to an accounting change , 2002 .

[20]  Vivien Beattie,et al.  Issues concerning web-based business reporting:an analysis of the views of interested parties , 2003 .

[21]  Barry L. Lewis,et al.  Human information processing research in accounting: The state of the art in 1982 , 1977 .

[22]  Robert H. Ashton,et al.  Judgment and decision-making research in accounting and auditing: Acknowledgments , 1995 .

[23]  Maarten Pronk,et al.  The Impact of Expertise and Investment Familiarity on Investors' Use of Online Financial Report Information , 2006 .

[24]  R. Ashton.  A Descriptive Study Of Information Evaluation , 1981 .

[25]  Kenneth A. Smith,et al.  Government Financial Reporting on the Internet: The Potential Revolutionary Effects of XBRL , 2002 .

[26]  Linda S. McDaniel,et al.  Evaluating Financial Reporting Quality: The Effects of Financial Expertise vs. Financial Literacy , 2002 .

[27]  B. Tabachnick,et al.  Using Multivariate Statistics , 1983 .

[28]  D. Read.  Judgment and Choice , 2005 .

[29]  Laureen A. Maines.  Judgment and decision-making research in accounting and auditing: Judgment and decision-making research in financial accounting: A review and analysis , 1995 .

[30]  Roger Debreceny,et al.  The production and use of semantically rich accounting reports on the Internet: XML and XBRL , 2001, Int. J. Account. Inf. Syst..

[31]  Herbert A. Simon,et al.  Why a Diagram is (Sometimes) Worth Ten Thousand Words , 1987 .

[32]  Laureen A. Maines,et al.  Does Search-facilitating Technology Improve the Transparency of Financial Reporting? , 2004 .

[33]  Mary E. Barth.  FAIR VALUE ACCOUNTING: EVIDENCE FROM INVESTMENT SECURITIES AND THE MARKET VALUATION OF BANKS , 1994 .

[34]  H. J. Einhorn,et al.  Cognitive processes in choice and decision behavior , 1979 .