Readability and understandability of notes to the financial statements

• Autor(a) principal: Telles, Samantha Valentim
• Data de Publicação: 2018
• Tipo de documento: Tese
• Idioma: eng
• Título da fonte: Biblioteca Digital de Teses e Dissertações da USP
• Texto Completo: http://www.teses.usp.br/teses/disponiveis/12/12136/tde-30072018-105221/
• topic: Compreensibilidade; Inteligibilidade; Intelligibility; Legibilidade; Notas Explicativas; Notes to the financial statements; Readability; Understandability

Accounting as a tool for communicating relevant information to multiple users must overcome issues and barriers of presenting such information. One of the issues is its understandability, once lack of understanding can impact decisions. However, understandability is not easily measured. Previous studies use readability metrics as proxies for understandability. They understand that these concepts are related to some extent, but while readability focuses on the text, understandability includes the reader characteristics. Thus, the main purpose of this research was to verify how readability impacts the understandability of the information from the notes to the financial statements. I also verified whether the distance between them was due to reporting language. The specific goals were: (i) to verify whether different readability levels have impact on the notes to the financial statements\' understandability; (ii) to verify whether the understandability levels are due to accounting specific terms; (iii) to verify if those notes\' understandability and readability are different for different languages; and (iv) to verify if the levels of readability and understandability changed after OCPC 07. I performed two different types of research methods, archival and experimental research. The archival research applied mean tests to 44 firms that presented their notes both in Portuguese and in English from 2012 to 2015. I studied the notes of Financial Instruments and Provisions. I used indexes of intelligibility as proxies to understandability, calculated by a linguistic software. I found that, for most indexes where firms had worse levels of readability, they showed better levels of intelligibility, which goes against the expected. My results also show that with few exceptions, the readability and intelligibility indexes are different for Portuguese and English. Moreover, I found that there was no change after the adoption of OCPC 07 on both readability and intelligibility indexes. In the experimental research, I applied a self-created instrument based on the MIT test to 112 students in Brazil of graduate and undergraduate courses related to business, to verify how readability impacts on understandability, by manipulating readability components of the Flesch index (number of words per sentence and number of syllables per word). I controlled for some characteristics of each participant and the technicality of accounting language. I used an ANCOVA to test the difference between treatments and a Mediation Analysis to verify the impact of the glossary. I found no difference in understanding through different levels of readability, while some participant\'s characteristics - such as previous understanding skills, level of education, courses and the type of school - showed relevance in explaining understandability. The evidence also suggests that using a glossary to assist the reader affected understandability, but mostly for those who have less prior knowledge regarding notes to the financial statements. These results allow me to conclude readability metrics are not good proxies to measure understandability in Accounting, glossary assists on reader\'s understandability, language has an impact over readability and understandability, and readability and understandability did not change with the OCPC 07.