Annual report graphic use: a review of the literature.

Most of the research regarding how recipients use (interpret, understand, recall, etc.) information from graphics is rather basic. We still need more information on when to use which types of financial graphs to make what point. Just how big a role do the graphs play in decision making? Anecdotal suggestions aside, we need research-based guidelines on graphic choice, treatment, and influence. Little current research looks at these issues. Furthermore, the existing research looks at relatively simple graphs and neglects more complex treatments--and their value--such as double y-axes graphs, 3-D pie graphs, bar and line treatments in one graph, color choice with treatments, spider graphs, and so on. Where is the "sweet spot" between sterile, two-dimensional, highly precise but visually boring graphs and striking, colorful, entertaining treatments intended to acquire viewership?

Further Study of Narrative Versus Financial Report Sections

The financial section of annual reports has a lengthy history of review, especially by accounting, governmental, and financial disciplines; however, the thorough definition of the role of the narrative section is still emerging. Furthermore, comparisons and contrasts between the two sections have received little attention. Some research examines the regulated graphics of financial sections and mostly unregulated graphics in the narrative sections, but we know little about which types of companies, and under what circumstances, the differences are employed. Areas of future research that would be beneficial include differences by journalistic and design treatment (e.g., color use, placement, relative attention to different topics, preferences for types of graphics, general length, etc.). Finally, how does profitability affect the decision of whether to include a narrative section? The next item relates here as well.

Profitability as a Variable Affecting Graphic Use

Because almost all studies of annual reports and graphics use for-profit organizations, profitability seems to be an important variable. When it is included, there is much reliance on the largest companies (measured in revenues or other criteria). The question becomes, what we do know about annual report graphs usage when the company has a history of poor financial performance or when recent positive performance is followed by negative performance (or vice versa)? A related methodological question is, how do we best measure financial performance (EPS, dividends, net income)? For those nonprofit organizations that annually report on their performance, is there also misuse of graphs?

Communication Variables

Research findings thus fax are rather sketchy regarding the role financial graphics in narrative sections play in persuasiveness. That is, we have seen on frequent occasions that the graphics are a common element of the narrative section and that they are often poorly presented. Is that presentation intentional or unintentional, and is it a persuasive ploy? How competently do viewers discern faulty design, and do they perceive it as covert information? In other words, just how tar can an annual report designer go with misrepresentation without eliciting the wrath of the viewer?

The Role of Accounting and Regulation in Graphic Choices

Research to guide corporate auditors in their examination of narrative section financial graphics is not yet mature. Because the graphs are (supposed to be) reporting factual financial data, one would think that guidelines would be more rapidly emerging. However, this is not the case. Ample opportunities exist for researching the current practices of visual treatments of financial information and extending the results to guide auditors in the future.

International Annual Reporting

We have seen results of many studies of annual report delivery across various countries and have noted some differences by countries (e.g., France and Germany). The countries most studied are the United States, Canada, England, France, Germany, China, Taiwan, Ireland, and Australia. Generally neglected thus far are descriptive and comparative studies of annual reporting techniques in Africa, India, and Central and South America. In times of global business and increasing internationalism, we need more information about other countries' practices.

Electronic Annual Reporting

This review has purposefully avoided entering the fray between hard-copy annual reports and their electronic counterparts. Such an examination was beyond the limits of space. Nevertheless, quite obviously electronic reporting is rapidly gaining support and acceptance. Beyond just the speed with which changes can be made and the low cost of distribution that are part of electronic reporting, there is also the increasing preference by an electronically savvy clientele.

In addition to seeking similarities, differences, and preferences for hard-copy versus electronic annual reporting, the future research focus should be on financial graphic usage between the two media. For example, one might ask, are electronic financial graphs more persuasive than their hard copy counterparts, and if so, why?

Continuing and extended research into the use of graphs in annual reports is needed, desirable, and timely. The purpose of this review has been to provide guidance and direction.

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