- Email: [email protected]
THE INFLUENCE OF COGNITIVE STYLE ON THE UNDERSTANDABILITY OF A PROFESSIONAL ACCOUNTING PRONOUNCEMENT BY ACCOUNTING STUDENTS
British Accounting Review (1996) 28, 139–154
THE INFLUENCE OF COGNITIVE STYLE ON THE UNDERSTANDABILITY OF A PROFESSIONAL ACCOUNTING PRONOUNCEMENT BY ACCOUNTING STUDENTS CHRIS PATEL Macquarie University, Australia
RON DAY The University of Newcastle, Australia The Cloze test has been used extensively in accounting research to measure understandability of accounting reports, textbooks and pronouncements. Although useful, previous research has generally been limited to using the output from Cloze tests as measures of understandability. Little attempt has been made to look into the black box of human information processing to identify individual psychological differences that may influence understandability scores. This study extends the research into this area and provides insight into the black box by investigating the interaction between cognitive styles and understandability, within the context of an Australian accounting pronouncement. Specifically, this paper develops and tests the hypothesis that field independent subjects should obtain significantly higher understandability scores as measured by the Cloze test. A secondary objective is to provide empirical evidence on the understandability of Statement of Accounting Concept No. 4: ‘Definition and Recognition of the Elements of Financial Statements’ (SAC 4), given the importance of this pronouncement to the development of the conceptual framework project in Australia and the controversial claims of its lack of understandability. 1996 Academic Press Limited
INTRODUCTION Communication has long been recognized as a basic function of financial reporting (Littleton & Zimmermann, 1962; Norton, Bedford & Baladouni, We would like to acknowledge the useful comments of an anonymous reviewer and the associate editor, Dr Lydia Thomson. Correspondence should be addressed to: Chris Patel, Department of Accounting & Finance, Macquarie University, NSW, 2109, Australia; or Ron Day, Department of Commerce, The University of Newcastle, NSW, 2308, Australia. Received 30 January 1995; revised 29 May 1995; accepted 10 July 1995 0890–8389/96/020139+16 $18.00
1996 Academic Press Limited
140
. .
1962; Sterling, 1967). The effectiveness of communication depends on the complexity of the content (its readability) and on the capacity of users to extract the relevant message based on the interaction between the content and users (its understandability). Various readability and understandability formulae have been used to measure the effectiveness of communication in financial reporting objectively. Empirical scores of understandability are superior to readability measures because they are related to the complexity of content, and to the education and experience of subjects. One of the most reliable and valid methods to measure ‘understandability’ is the Cloze test. The Cloze test has been used extensively in accounting research to measure understandability of accounting reports, textbooks and pronouncements (Adelberg, 1979; Adelberg & Razek, 1984; Stevens, Stevens & Raabe, 1983, 1985; Smith & Taffler, 1992a, b; Jackson, 1993; DrewsBryan & Schleifer, 1993). Although useful, this research has generally been limited to using the output from Cloze tests as measures of understandability, rather than to identify factors that may influence differences in understandability scores. Despite some appeals in the literature to study the individual psychological factors that may influence understandability (Rankin, 1959, p. 142; Adelberg & Razek, 1984, p. 115), these have largely been ignored. The most commonly used approaches to study individual psychological differences are behavioural and cognitive analysis. Behavioural analysis focuses on external environmental determinants of learning and behaviour, whereas cognitive analysis focuses on mental processes and structures of individuals as processors of information. Behavioural learning is essentially learning by experience shaped by rewards and punishment, whereas cognitive learning emphasizes internal learning with the perceptual and memory systems of individuals playing a key role (Gardner, 1985; Johnson-Lairs, 1989; Siegler, 1989). The past 20 years has seen cognitive analysis grow more rapidly than any other approach, largely in response to advances in computer technology and the growth of psycholinguistics (Walraven & Fitzgerald, 1990, p. 82). Further, the results of a number of recent studies have shown that learning is determined by biological and cognitive factors, in addition to environmental ones (Zimbardo, 1992, p. 305). This trend is also reflected in the growing number of accounting studies that have used a cognitive approach (for example, see Ponemon, 1990, 1992; Gul, Teoh & Shannon, 1992; Windsor & Ashkanasy, 1994). It is important to note that the use of the cognitive approach is not a substitute for behavioural explanations, but should be seen as both supplementary and complementary to behavioural and other approaches (Craig-Lees, Joy & Browne, 1994). This paper uses cognitive analysis to identify the interaction of cognitive style on understandability, and suggests a number of behavioural remedies for accounting educators and standard setters in the discussion of the results. Previous accounting research has been conducted on the effects of cognitive styles to find the information processing propensities and the decision
141
making strategies of preparers and users of accounting information (AAA, 1977b, pp. 1–2). This study extends the existing research and provides further insight into the black box of the human mind by studying the interaction between cognitive styles and understandability within an accounting pronouncement context. It investigates the influence of field dependence/independence cognitive style on understandability. This variable was selected because it is one of the most important and influential constructs in cognitive psychology (Gonzales & Roll, 1985, p. 191), and because of its appropriateness to the current study as explained in the hypothesis development section of the paper. The narrative selected for measuring understandability by the Cloze test was Statement of Accounting Concepts No. 4: Definition and Recognition of the Elements of Financial Statements (SAC 4) issued by the Australian Accounting Research Foundation (1992). This pronouncement was selected because of its importance to the conceptual framework project in Australia and because it has been criticized by various prominent accountants and business leaders for lacking understandability (for example, see Soh, 1992; Shanahan, 1992; Financial Forum, 1993; Larson, 1993). This paper develops and tests the hypothesis that field independent subjects should obtain significantly higher understandability scores in SAC 4 as measured by the Cloze test. The secondary objective is to provide empirical evidence on the understandability of SAC 4, given its importance and the controversial claims it has attracted. The remainder of the paper is organized as follows: Section II discusses readability and understandability and explains the Cloze test. Section III examines field dependence/field independence cognitive style and develops the hypothesis of the study. Section IV describes the research method, followed by a discussion of the results in Section V. Finally, Section VI provides some conclusions from the study.
READABILITY AND UNDERSTANDABILITY: THE CLOZE TEST Readability Formulae Readability formulae which base their computations on the length of the sentences and of the words employed have been widely used in measuring the difficulty of the narrative in accounting reports (Smith & Smith, 1971; Still, 1972; Healy, 1977; Courtis, 1986; Schroeder & Gibson, 1990; Smith & Taffler, 1992a, b). A number of readability formulae have been developed based on word and sentence lengths. These measure the speed of recognition and the recall of words into the immediate memory (Smith & Taffler, 1992a, p. 86). FLESCH, FOG index, and LIX are examples of common readability formulae that have been used in accounting research (for example, see Smith & Smith, 1971; Courtis, 1986; Smith & Taffler, 1992a, b; Hay,
142
. .
1992). However, the major limitation of readability formulae is that they fail to take into account the contextual variables because they are not dependent on the interaction between the context and the intended audience. Furthermore, empirical evidence suggests that ‘readability’ and ‘understandability’ are two different concepts and that synonymous treatment of them in the accounting literature is unjustified (Stevens et al., 1985; Smith & Taffler, 1992a, b). The Cloze Test to Measure Understandability Empirical scores of understandability are superior to the readability measures in that they are related to the complexity of content, and to the education and experience of the participants. One of the most reliable and valid methods to measure understandability is the Cloze test. A number of studies have provided strong evidence that Cloze tests provide valid measures of the ‘comprehension abilities of readers’ and ‘comprehension difficulties of messages’ (see Adelberg & Razek, 1984, p. 14). Based on the validation studies on the Cloze procedure, Bormuth (1975, p. 67) concluded that scores from Cloze and standardized reading comprehension were ‘. . . so highly correlated that the processes that generate these scores are indistinguishable’ (in Adelberg & Razek, 1984, p. 114). The Cloze matches the difficulties of the text with the syntactical, semantic, and knowledge abilities of the reader and therefore provides a valid measure of understandability (Stevens et al., 1985). The term Cloze is derived from ‘clozure’, a concept from Gestalt psychology which explains the human tendency of completing a familiar, but incomplete pattern. The Cloze procedure is a technique for measuring the effectiveness of communication. A Cloze test measures an individual’s ability in understanding a specified section of content as a result of interacting with the material (Taylor, 1953, 1957; Bormuth, 1969; Anderson, 1974; Adelberg & Razek, 1984; Smith & Taffler, 1992a, b). Taylor (1953, p. 416) defined Cloze as: ‘A method of intercepting a message from a transmitter (writer or speaker), mutilating its language patterns by deleting parts, and so administering it to receivers (readers or listeners) that their attempts to make patterns whole again potentially yield a considerable number of cloze units.’
The Cloze units are the successful reproduction of the missing words from a selected passage. Cloze is based on the assumption that if the reader and the author use identical semantic and syntactic rules, there will be a higher number of correct responses. The Cloze test mutilates content by the deletion of either a random number of words, or of every nth word. Respondents are required to predict, for each deletion, the exact word based on the surrounding context. Responses to the Cloze test are scored by counting the number of correct reproductions which is then expressed as a percentage of the total number of deletions.
143
Taylor (1953) and Bormuth (1968) found that deletion of every fifth word provided optimum results with a variety of subjects and passages. Further, Taylor (1953); Bormuth (1968); Stevens et al. (1985) and Adelberg & Razek (1984) found that approximately 50 deletions was necessary to provide a stable and reliable score. They argued that approximately this number, combined with relatively low criteria scores for interpreting the result, was necessary to reduce the impact of some of the deleted words that might be considered to be trivial or non-unique. Miller and Coleman (1967) conducted extensive validation tests of the Cloze procedure and found high intercorrelations of results for various methods of deletions (r>0·9). In addition, they experimented with other scoring systems such as allowing synonyms rather than the exact missing word, but concluded that the simpler method of allowing only exact insertions was preferable, given that the various options correlated at 0·99 (in Smith & Taffler, 1992b, p. 79). The criteria suggested for evaluating the level of competence demonstrated by an adult based on the Cloze are; ‘high’ if the scores are greater than 52%; ‘medium’ for scores ranging from 45 to 52% and ‘low’ for scores less than 45% (Smith & Taffler, 1992). It follows that understandability of the content is of ‘high difficulty’ for scores of less than 45%, ‘medium difficulty’ for scores of 45% to 52%, and ‘low difficulty’ for scores of greater than 52%. The Cloze test has been extensively used in accounting research to measure understandability of accounting reports, textbooks and pronouncements (for example, see Stevens et al., 1983, 1985; Adelberg & Razek, 1984; Smith & Taffler, 1992a, b; Jackson, 1993; Drews-Bryan & Schleifer, 1993). Although useful, this previous research has been limited to using the output from Cloze tests as measures of understandability. Little attempt has been made to look into the ‘black box’ of human information processing to identify psychological factors that may influence individual differences in understandability scores. Development of the Cloze test Four passages from Statement of Accounting Concept No. 4: ‘Definition and Recognition of the Elements of Financial Statements’ (SAC 4) were randomly selected to design the Cloze test. Three passages were actual statements and the fourth was from the commentary to the Statement. Every fifth word was deleted from each passage, in accordance with the Cloze procedure, giving a total of 47 Cloze deletions (see appendix to the paper for an extract of the instructions to the Cloze test). SAC 4 was selected for analysis because it is considered to be one of the fundamental building blocks of the conceptual framework project in Australia and is therefore expected to have a major impact on the education of accountants and the future direction of financial accounting and reporting.
144
. .
In addition, SAC 4 had been criticized for its lack of understandability. For example, a group of prominent accountants described it as being too complex, lacking clarity and difficult to understand by the majority of preparers and users of accounting information (see Soh, 1992; Lawson, 1993, p. 16; Financial Forum, June 1993, pp. 4–5). As no empirical evidence is available to support these criticisms, an additional objective of this study is to provide empirical evidence on the understandability of SAC 4.
COGNITIVE STYLES AND HYPOTHESIS DEVELOPMENT Field Dependent/Field Independent Cognitive Style Cognitive style has been conceptualized as the particular way in which individuals perceive, organize, and label stimuli configurations in order to arrive at a basis of similarity among stimuli (Gardner, 1953; Kelly, 1955; Kagan et al., 1963). Such organizing and labelling is the essential process of cognitive style. Additionally, research shows that not only are individuals consistent in how they organize and label stimuli, but that the same individuals also show stable individual preferences in modes of organizing a variety of stimuli. This study investigated the influence of field dependence/field independence (FD/FI) cognitive style on understandability. This cognitive style was selected because of theoretical support in the literature (see Witkin, 1974; Witkin & Goodenough, 1977; Hadfield & Maddux, 1988), and its appropriateness to the current study. Additionally, FD/FI has been the most extensively researched construct in cognitive psychology and has been identified as one of the most important and influential constructs (Gonzales & Roll, 1985, p. 191). More importantly, FD/FI cognitive style has been identified as a useful dimension for accounting research relating to information processing propensities of preparers and users of accounting information (Gul, 1984, p. 275, 1993, p. 155). The field dependence cognitive dimension classifies individuals as either field dependent (FD) or field independent (FI) on the basis of a paper-andpencil test call the Group Embedded Figures Test (GEFT) developed by Witkin et al. (1971). The test contains simple figures that are effectively hidden in complex designs (see appendix B for an example). GEFT consists of eighteen complex designs, and participants are required within ten minutes to identify the embedded simple figures. Each correct response scores one point and participants scoring greater or equal to 14 out of 18 are classified as field independent. Individuals who have difficulty in separating the simple figures from the complex structures are classified as FD. The reason suggested for this is that a FD person is strongly dominated by the overall organization of the surrounding field, whereas a FI person is able to break up the surrounding field to locate its relevant parts.
145
An extensive number of studies provide support for the reliability and validity of Embedded Figures Tests. Witkin et al. (1971, pp. 18–20) provide a summary of 42 studies that support the continued use of embedded tests to differentiate between FD/FI subjects. Hypothesis Development Evidence shows that FD individuals have more difficulty than FI individuals in problem-solving situations (Witkin & Goodenough, 1977). Studies further suggest that FI individuals performed better than FD’s in ‘disambiguating’ syntactically ambiguous sentences (Goodman, 1971, in Gul et al., 1992). In another study, Powers & Lis (1977) found that FI students performed sentence transformation tasks more efficiently than FD students. Furthermore, Frank & Noble (1985) found that FI individuals had greater cognitive skills in providing structure for an ambiguous complex stimulus than FD individuals. FD/FI cognitive style has also been studied in accounting research. For example, Lusk (1973) showed that FI individuals had greater cognitive skills in analysing annual financial reports than FD individuals. Gul (1989) tested and found support for the hypothesis that bankers who were field independent, or more ‘analytic’, would not be affected by a ‘benign’ audit qualification since they were able to identify correctly the insignificant nature of the qualification. In contrast, FD bankers who were less ‘analytic’ were more likely to be mislead by an audit qualification. In another study, Gul et al. (1992) demonstrated that FI students performed significantly better than FD students in multiple choice examinations that contained ambiguous answers. The previous studies, using a range of subjects and situations, show that FI individuals demonstrate greater cognitive restructuring skills when provided with ambiguous stimuli or novel scenarios. FI individuals appear to be more ‘analytic’ and have a penchant for the ‘nitty-gritty’ aspects of information (Gul, 1993, p. 153). Cloze tests can be compared to a forest where selected individual trees have been removed. FI individuals are more likely to ‘see’ and identify the missing trees. In contrast, FD persons are more holistic in their perceptions and are likely to have difficulty in ‘seeing’ specific trees. Based on this reasoning, the hypothesis of the study is: Filed Independent subjects should obtain significantly higher understandability scores as measured by the Cloze test.
RESEARCH METHOD Participants The participants in the study consisted of 191 students at The University of Newcastle, Australia, that had completed at least three out of the six
146
. .
semesters of their Bachelor of Commerce degree. These students were selected, prior to their commencement of a second year financial accounting subject that included a study of SAC 4 as an integral part of the course, including the use of the SAC 4 accounting pronouncement as a primary reading and reference source. Prior to this subject, the students had no previous exposure to the detailed SAC 4 document. Procedure Each participant was given two tests. The first was the GEFT test to classify students as either FD or FI. The second was the Cloze test, containing randomly selected extracts from SAC 4 that had every fifth word deleted. There was a total of 47 deletions in the Cloze test which is approximately the number suggested in the literature to provide optimum validity and reliability (Taylor, 1956; Bormuth, 1975). Students were required to predict, for each deletion, the exact word based on the surrounding context. In accordance with the procedure adopted by Adelberg & Razek (1984), the tests were administered at the very beginning of the semester so that none of the students were likely to have had prior exposure to the unmutilated passages in the SAC 4 document. In addition, all students present at the lecture completed the tests with the exception of students who were repeating the course. After discarding six incomplete instruments, 191 useable responses were collected.
RESULTS AND DISCUSSION Demographic Data A summary of the demographic data is as follows: 79·5% of the total of 191 students were full-time students (57·6 males and 42·4% females); 81·2% of students were between 18–23 years of age; and 15·7% of students had worked for a professional accounting firm. Statistical tests showed that none of the above demographic features had any bearing on students’ performance in either the Cloze test or the GEFT. Interaction Between Understandability and Cognitive Style (FI/FD) Accounting is a discipline that requires strong skills in classifying and analysing financial data. Since FI individuals are more ‘analytic’ (Gul, 1993, p. 153), it was not surprising that 134 students (70%) were FI. Recall that the literature suggests that the criteria for evaluating the level of competence demonstrated by an adult based on the Cloze test are ‘high’ if the Cloze score is greater than 52%; ‘medium’ for scores ranging from 45 to 52% and ‘low’ for scores less than 45% (Smith & Taffler, 1992a). Based on the
147 TABLE 1 Cognitive style (FD/FI) and understandability (Cloze) frequency of occurrence
FI FD Total
High (>52%)
Medium (45–52%)
Low (<45%)
Total
59 (44%) 17 (30%) 76 (40%)
29 (22%) 10 (17%) 39 (20%)
46 (34%) 30 (53%) 76 (40%)
134 (70%) 57 (30%) 191 (100%)
TABLE 2 Mean understandability (Cloze) scores (and standard deviations)
FI FD Total
High (>52%)
Medium (45–52%)
Low (<45%)
Total
62·82 (0·08) 58·82 (0·07) 61·93 (0·08)
47·76 (0·03) 47·02 (0·02) 47·57 (0·03)
33·77 (0·08) 30·00 (0·08) 32·28 (0·08)
49·59† (0·15) 41·58† (0·15) 47·20 (0·15)
Standard deviations are shown in brackets. Mean scores that are significantly different at the 5% confidence level are shown by the symbol †.
above understandability criteria, the frequency scores of the FD/FI students’ are shown in Table 1. The results of a Chi-squared test showed that the distribution among high, medium and low scores differed significantly between the FD and FI subjects (p<0·1, 2df, v2=4·6). The central concern of this paper was to investigate the differences in understandability scores between FI and FD subjects. Again, using the suggested criteria to categorize understandability results, the mean scores and the standard deviations of FD/FI subjects are shown in Table 2. The hypothesis of the study that FI subjects should obtain significantly higher understandability scores than FD subjects was supported by both the parametric t-tests and non-parametric Mann–Whitney U-tests (p<0·05) for the total category. The overall mean score of the FI subjects was 49·59% (S.D. 0·15) and the mean of FD participants was 41·58% (S.D. 0·15). These results have at least two important considerations for improving the quality of learning and teaching of accounting. First, accounting educators need to understand that FD/FI cognitive style is a relevant variable affecting student performance. Since field independent cognitive style is associated with greater understandability of accounting narratives, there arises the need to provide a better match between cognitive style and accounting information provided to students. Teaching resources such as case studies, exercises and assignments can be designed to take into account
148
. .
students’ cognitive styles. Second, as some evidence exists that an individual can be taught to move from a global approach of thinking to a more articulated approach, it may be possible for a field dependent person to be taught to be more field independent (Witkin, 1974). For example, Hadfield & Maddux (1988) suggest that practice sets and exercises involving the extraction of simple concepts from an array of seemingly unrelated scenarios may be useful. Designing teaching and learning strategies compatible with cognitive style has challenging and interesting prospects for accounting educators. Future research should consider the efficacy of providing special instructions to those diagnosed at FD so that they may have the same facility as FI subjects (Gul et al., 1992). Understandability of SAC 4 The secondary objective of the study was to provide empirical evidence on the understandability of SAC 4. Previous researchers have correlated Cloze results with scores from multiple-choice comprehension tests to establish levels of proficiency. Bormuth (1968); Rankin & Culhane (1969); and Peterson et al. (1972, 1973) have agreed that a Cloze score of 44% for adult learners is comparable to a conventional multiple-choice comprehension test score of 75% (at the ‘instructional’ reading level). Thus, a Cloze score of 44% can be considered to be a criterion level for understandability of ‘instructional materials’ (Adelberg & Razek, 1984). The results of the Cloze test as shown in Table 1 establish that 40% of the participants found understandability of the extracts from SAC 4 of high difficulty, 20% of medium difficulty and 40% of low difficulty. Furthermore, using the above criteria, at least 76 (40%) of the respondents obtained less than 45% in the Cloze test and are classified in the low understandability column of Table 1. That is, these 40% did not find SAC 4 ‘understandable’ at the specified ‘instructional’ reading level. More importantly, of these 76 participants, 53% were FD and only 34% were FI. Accounting students are legitimate and important users of accounting pronouncements. This is particularly the case with Statements of Accounting Concepts (SACs) that attempt to ‘. . . define the nature, subject, purpose and broad content of general purpose financial reporting’ (AARF, 1990, par 2). SAC 4: ‘Definition and Recognition of the Elements of Financial Statements’ has been described by AARF as one of the basic corner stones of the conceptual framework project. It is an important vehicle for educating new entrants to the accounting profession, and users of general purpose reports, on the content of financial statements included in those reports’ (AARF, 1992). Therefore, SAC 4 is intended to play an important role in educating present and future acountants. If it is to fulfil this function, these documents ought to be written in a way that they are understandable to their intended audience, including accounting students. Further, if important
149
accounting pronouncements such as SAC 4 are not easily understood by accounting students, then perhaps other user groups may have similar or even more serious problems. A considerable amount of the collective efforts of the accounting profession and academics has been directed at developing a conceptual framework for financial reporting over the past three decades (AAA, 1966, 1977a; FASB, 1978; IASC, 1988; AARF, 1990; ASB, 1991). In these projects, ‘understandability’ has been recognized as being fundamental to the communication process and is defined as an important qualitative characteristic of financial information. If accounting information is not understood by the intended user groups, then other qualitative characteristics such as reliability, relevance, comparability, consistency, or neutrality become secondary. CONCLUSION Subject to the usual caveats associated with laboratory experiments, this paper provides some evidence about the relationship between cognitive style and understandability that previous literature has not demonstrated. In particular, the results show that field independent subjects obtained significantly higher understandability scores than field dependent subjects. The results of this study raise some important implications and challenges for accounting educators. Accounting educators need to appreciate that students’ performance is affected by their cognitive styles. As a result, learning and teaching strategies may need to be restructured to take account of individual cognitive styles. Furthermore, Cloze scores of accounting topics can provide a useful technique to evaluate students’ understanding and to determine how much time and attention to devote to respective accounting issues. The study also provides objective data that a fundamentally important accounting pronouncement (SAC 4) was not ‘understood’ by at least 40% of accounting student participants. This lack of understandability should be of concern to both accounting regulators and educators. Given, that ‘understandability’ is an important qualitative characteristic of financial information and is essential for effective communication, important accounting pronouncements may need to be written more clearly to make them comprehendible and understandable to all user groups. Alternatively, accounting educators may need to consider whether accounting pronouncements can continue to be used as either primary or secondary teaching materials in the classroom. R Australian Accounting Research Foundation. (1990). Series 3: Proposed Statements of Accounting Concepts, August.
150
. .
Accounting Standards Board. (1991). Exposure Draft: Qualitative Characteristics of Financial Information, London, ASB. American Accounting Association. (1966). A Statement on Basic Accounting Theory, AAA. American Accounting Association. (1977a). Statement on Accounting Theory and Theory Acceptance, AAA. American Accounting Association. (1977b). Report of the 1976–77 Committee on Human Information Processing, August. Australian Accounting Research Foundation. (1990). Statements of Accounting Concepts SAC 3: Qualitative Characteristics of Financial Information, Melbourne, AARF. Australian Accounting Research Foundation. (1992). Statements of Accounting Concepts SAC 4: Definition and Recognition of the Elements of Financial Statements, Melbourne, AARF. Adelberg, A.H. (1979). ‘A methodology for measuring the understandability of financial report messages’, Journal of Accounting Research, 17 (29), pp. 565–592. Adelberg, A.H. & Razek, J.R. (1984). ‘The Cloze procedure: a methodology for determining the understandability of accounting textbooks’, The Accounting Review, LIX (1), pp. 109–122. Anderson, T.H. (1974). ‘Cloze measures as indices of achievement comprehension when learning from prose’, Journal of Educational Measurement, Summer, pp. 83–92. Bormuth, J. (1968). ‘Cloze test readability: criterion reference scores’, Journal of Educational Measurement, Fall, pp. 189–196. Bormuth, J. (1969). ‘Factor validity of Cloze tests as measures of reading comprehension ability’, Reading Research Quarterly, Spring, pp. 358–365. Bormuth, J. (1975). ‘The Cloze procedure: literacy in the classroom’, Help for the Reading Teacher: New Directions in Research, National Conference on research in English, pp. 60–90. Chapman, J. (1993). ‘SAC 4 threatens credibility of Australian accounting’, CPA News, April, pp. 1–2. Courtis, J.K. (1986). ‘An investigation into annual report readability and corporate riskreturn relationships’, Accounting and Business Research, 16 (64), pp. 285–294. Craig-Lees, M., Joy, S. & Browne, B. (1994). Consumer Behaviour, Jacaranda Wiley, Australia. Drews-Bryan, A. & Schleifer, L. (1993). ‘A note on readability of accounting textbook passages and corresponding GAAP’, Accounting Forum, December, pp. 24–40. Financial Accounting Standards Board. (1978). ‘Objectives of Financial Reporting by Business Enterprises’, Statement of Financial Accounting Concepts No. 1, Stanford: FASB. Financial Forum. (1993). 2 (5), pp. 1, 4–5. Frank, B.M. & Noble, J.P. (1985). ‘Field independence—dependence and cognitive restructuring’, Journal of Personality and Social Psychology, 47 (5), pp. 1129–1135. Gardner, H. (1985). The Mind’s New Science: A History of the Cognitive Revolution, Basic Books, New York. Gardner, R. (1953). ‘Cognitive styles in categorizing behaviour’, Journal of Personality, No. 22, pp. 214–233. Gonzales, R.R. & Roll, S. (1985). ‘Relationships between acculturation, cognitive style, and intelligence’, Journal of Cross-Cultural Psychology, 16 (2), pp. 190–205. Goodman, D.R. (1971). ‘Cognitive style factors in linguistic performance with ambiguous sentences’, Unpublished Master’s Thesis, York University. Gul, F.A. (1984) ‘The joint and moderating role of personality and cognitive style on decision making’, The Accounting Review, LIX, April, pp. 264–277. Gul, F.A. (1987) ‘Field dependence cognitive style as a moderating factor in subjects’ perceptions of auditor independence’, Accounting and Finance, pp. 37–48. Gul, F.A. (1989) ‘Bankers’ perceptions of factors affecting auditor independence’, Accounting, Auditing and Accountability Journal, pp. 40–51. Gul, F.A. (1993) ‘The role of individual differences and human behaviour on accounting information systems design and presentation’, Journal of Accounting and Finance, pp. 143–169. Gul, F.A., Teoh, H.Y. & Shannon, R. (1992) ‘Cognitive style as a factor in accounting
151 students’ performance on multiple choice examination’, Accounting Education, 1 (4), pp. 311–319. Hadfield, O.D. & Maddux, C.D. (1988). ‘Cognitive style and mathematics anxiety among high school students’, Psychology in the Schools, 24, pp. 75–83. Hay, D. (1992). ‘Reports and readability: an empirical study of New Zealand audit reports’, Unpublished Paper, Department of Accounting and Valuation, Lincoln University. Healy, P. (1977). ‘Can you understand the footnotes in financial statements’, Accountants Journal, July, pp. 219–222. Henderson, S. & Harris, K. (1992). ‘SAC 4 and income tax allocation’, Accounting Forum, December, pp. 36–46. International Accounting Standard Committee. (1988). Framework for the Preparation and Presentation of Financial Statements, London, IASC. Jackson, B. (1993). Measuring the Understandability of Corporate Communication: A New Zealand Perspective, Working Paper, Massey University, New Zealand. Johnson-Lairs, P.N. (1989). The Computer and the Mind: An Introduction to Cognitive Science, Fontana Masters Guide. Kagan, J., Moss, H. & Sigel, I. (1963). ‘Psychological significance of styles of conceptualization’, In J.C. Wright & J. Kagan (eds), Basic Cognitive Processes in Children: Monographs of Society for Research in Child Development. Kelly, C. (1995). The Psychology of Personal Constructs, New York, W.W. Norton. Lawson, M. (1993). ‘Accountants are baffled and its getting personal’, Financial Review, May 10, 1993, p. 16. Libby, R. & Lipe, M.G. (1992). ‘Incentives, effort, and the cognitive processes involved in accounting-related judgments’, Journal of Accounting Research, 30 (2), Autumn, pp. 249–273. Littleton, A.C. & Zimmerman, V.K. (1962). Accounting Theory: Continuity and Change, Prentice-Hall. Lusk, E. (1973). ‘Cognitive aspects of annual reports: field independence/dependence’, Journal of Accounting Research, (suppl.), pp. 191–202. McKean, K. (1990). ‘Intelligence: new ways to measure the wisdom of man’, In M.G. Walraven & H.E. Fitzgerald (eds), Annual Editions Psychology. Miller, G.R. & Coleman, E.B. (1967). ‘A set of thirty-six prose passages calibrated for complexity’, Journal of Verbal Learning and Verbal Behaviour, pp. 851–854. Norton, M., Bedford, M. & Baladouni, V. (1962). ‘A communication theory approach to accounting’, The Accounting Review, October, pp. 650–659. Peterson, J., Paradis, E. & Peters, N. (1972). ‘Validation of the Cloze procedure as a measure of readability with high school, trade school and college populations’, Investigations Relating to Mature Reading, pp. 45–50. Peterson, J., Paradis, E. & Peters, N. (1973). ‘Revalidation of the Cloze procedure as a measure of instructional level for high school students’, Investigations Relating to Mature Reading, pp. 44–49. Powers, J.E. & Lis, D.J. (1977). ‘Field dependence-independence as performance with the passive transformation’, Perceptual and Motor Skills, 45, pp. 759–765. Ponemon, L.A. (1990). ‘Ethical judgements in accounting: a cognitive developmental perspective’, Critical Perspectives in Accounting, pp. 191–215. Ponemon, L.A. (1992). ‘Ethical reasoning and selection-socialization in accounting’, Accounting, Organizations and Society, 17, pp. 239–258. Rankin, E. (1959). ‘The Cloze procedure—its validity and utility’, Starting and Improving College Reading Programs, National Reading Conference, pp. 131–144. Rankin, E. & Culhane, (1969). ‘Comparable Cloze and multiple choice comprehension tests’, Journal of Reading, December, pp. 30–37. Schroeder, N. & Gibson, C. (1990). ‘Readability of management’s discussion and analysis’, Accounting Horizons, 4 (4), pp. 78–87. Shanahan, J. (1992). ‘SAC 4: brave new world of accounting’, New Accountant, 29 October.
152
. .
Siegler, R.S. (1989). ‘Mechanisms of cognitive development’, In M.R. Rosenzweig & L.W. Porter (eds), Annual Review of Psychology, No. 40, pp. 353–379. Smith, J.E. & Smith, N.P. (1971). ‘Readability: a measure of the performance of the communication function of financial reporting’, Accounting Review, 46, July, pp. 552–561. Smith, M. & Taffler, R. (1992a) ‘Readability and understandability: different measures of the textual complexity of accounting narrative’, Accounting, Auditing & Accountability, 5, pp. 84–98. Smith, M. & Taffler, R. (1992b) ‘The Chairman’s statement and corporate financial performance’, Accounting and Finance, 32 (2), pp. 75–90. Soh, D. (1992). ‘Standard will change profession’, New Accountant, 9 March, p. 1. Sterling, R. (1967). ‘A statement of basic accounting theory: a review article’, Journal of Accounting Research, Spring, pp. 95–112. Stevens, W.P., Stevens, K.C. & Raabe, W.A. (1983). ‘Communication in accounting: readability of FASB statements’, Review of Business and Economic Research, Fall, pp. 110–118. Stevens, W.P., Stevens, K.C. & Raabe, W.A. (1985). ‘FASB statements in the classroom: a study of readability’, Advances in Accounting, 2, pp. 89–100. Still, M.D. (1972). ‘The readability of chairman’s statements’, Accounting and Business Research, 2, Winter, pp. 36–39. Taylor, W. (1953). ‘Cloze procedure: a new tool for measuring readability’, Journalism Quarterly, Fall, pp. 415–433. Taylor, W. (1956). ‘New developments in the use of Cloze procedure’, Journalism Quarterly, Winter, pp. 42–48. Taylor, W. (1957). ‘Cloze readability scores as indices of individual differences in comprehension and aptitude’, Journal of Applied Psychology, February, pp. 19–26. Walraven, M.G. & Fitzgerald, H.E. (1990). ‘Cognitive processes’, Annual Editions Psychology, pp. 82–83. Windsor, C.A. & Ashkanasy, N.M. (1995). ‘The effect of client management bargaining power, moral reasoning development, and belief in a just world on auditor independence’, Seminar presentation, The University of Newcastle, June 1995. (Forthcoming in Accounting Organizations and Society.) Witkin, H.A., Oltman, P.K., Raskin, E. & Karp, S.A. (1971). A Manual for the Embedded Figure Tests, Consulting Psychologists Press Inc. Witkin, H.A. (1974). ‘Educational implications of cognitive style’, Unpublished paper, Council of Graduate Schools, Phoenix. Witkin, H.A. & Goodenough, D.R. (1977). ‘Field dependence and interpersonal behaviour’, Psychological Bulletin, 84, pp. 661–689. Zimbardo, P.G. (1992). Psychology and Life, Harper Collins Publishers, New York.
153
APPENDIX A The Cloze Test
154
. .
APPENDIX B Group Embedded Figures Test INSTRUCTIONS: This is a test of your ability to find a simple form when hidden within a complex pattern. Example (from a figure used in the GEFT test) Here is a simple form which we have labelled ‘A’:
This simple form ‘A’, is hidden within the more complex figure below:
Try to find the simple form in the complex figure and trace it in pencil directly over the lines of the complex figure. It is the SAME SIZE, in the SAME PROPORTIONS, and FACES THE SAME DIRECTION within the complex figure as when it appeared alone. Solution. The simple form traced over the lines of the complex figure appears below:
THE INFLUENCE OF COGNITIVE STYLE ON THE UNDERSTANDABILITY OF A PROFESSIONAL ACCOUNTING PRONOUNCEMENT BY ACCOUNTING STUDENTS CHRIS PATEL Macquarie University, Australia
RON DAY The University of Newcastle, Australia The Cloze test has been used extensively in accounting research to measure understandability of accounting reports, textbooks and pronouncements. Although useful, previous research has generally been limited to using the output from Cloze tests as measures of understandability. Little attempt has been made to look into the black box of human information processing to identify individual psychological differences that may influence understandability scores. This study extends the research into this area and provides insight into the black box by investigating the interaction between cognitive styles and understandability, within the context of an Australian accounting pronouncement. Specifically, this paper develops and tests the hypothesis that field independent subjects should obtain significantly higher understandability scores as measured by the Cloze test. A secondary objective is to provide empirical evidence on the understandability of Statement of Accounting Concept No. 4: ‘Definition and Recognition of the Elements of Financial Statements’ (SAC 4), given the importance of this pronouncement to the development of the conceptual framework project in Australia and the controversial claims of its lack of understandability. 1996 Academic Press Limited
INTRODUCTION Communication has long been recognized as a basic function of financial reporting (Littleton & Zimmermann, 1962; Norton, Bedford & Baladouni, We would like to acknowledge the useful comments of an anonymous reviewer and the associate editor, Dr Lydia Thomson. Correspondence should be addressed to: Chris Patel, Department of Accounting & Finance, Macquarie University, NSW, 2109, Australia; or Ron Day, Department of Commerce, The University of Newcastle, NSW, 2308, Australia. Received 30 January 1995; revised 29 May 1995; accepted 10 July 1995 0890–8389/96/020139+16 $18.00
1996 Academic Press Limited
140
. .
1962; Sterling, 1967). The effectiveness of communication depends on the complexity of the content (its readability) and on the capacity of users to extract the relevant message based on the interaction between the content and users (its understandability). Various readability and understandability formulae have been used to measure the effectiveness of communication in financial reporting objectively. Empirical scores of understandability are superior to readability measures because they are related to the complexity of content, and to the education and experience of subjects. One of the most reliable and valid methods to measure ‘understandability’ is the Cloze test. The Cloze test has been used extensively in accounting research to measure understandability of accounting reports, textbooks and pronouncements (Adelberg, 1979; Adelberg & Razek, 1984; Stevens, Stevens & Raabe, 1983, 1985; Smith & Taffler, 1992a, b; Jackson, 1993; DrewsBryan & Schleifer, 1993). Although useful, this research has generally been limited to using the output from Cloze tests as measures of understandability, rather than to identify factors that may influence differences in understandability scores. Despite some appeals in the literature to study the individual psychological factors that may influence understandability (Rankin, 1959, p. 142; Adelberg & Razek, 1984, p. 115), these have largely been ignored. The most commonly used approaches to study individual psychological differences are behavioural and cognitive analysis. Behavioural analysis focuses on external environmental determinants of learning and behaviour, whereas cognitive analysis focuses on mental processes and structures of individuals as processors of information. Behavioural learning is essentially learning by experience shaped by rewards and punishment, whereas cognitive learning emphasizes internal learning with the perceptual and memory systems of individuals playing a key role (Gardner, 1985; Johnson-Lairs, 1989; Siegler, 1989). The past 20 years has seen cognitive analysis grow more rapidly than any other approach, largely in response to advances in computer technology and the growth of psycholinguistics (Walraven & Fitzgerald, 1990, p. 82). Further, the results of a number of recent studies have shown that learning is determined by biological and cognitive factors, in addition to environmental ones (Zimbardo, 1992, p. 305). This trend is also reflected in the growing number of accounting studies that have used a cognitive approach (for example, see Ponemon, 1990, 1992; Gul, Teoh & Shannon, 1992; Windsor & Ashkanasy, 1994). It is important to note that the use of the cognitive approach is not a substitute for behavioural explanations, but should be seen as both supplementary and complementary to behavioural and other approaches (Craig-Lees, Joy & Browne, 1994). This paper uses cognitive analysis to identify the interaction of cognitive style on understandability, and suggests a number of behavioural remedies for accounting educators and standard setters in the discussion of the results. Previous accounting research has been conducted on the effects of cognitive styles to find the information processing propensities and the decision
141
making strategies of preparers and users of accounting information (AAA, 1977b, pp. 1–2). This study extends the existing research and provides further insight into the black box of the human mind by studying the interaction between cognitive styles and understandability within an accounting pronouncement context. It investigates the influence of field dependence/independence cognitive style on understandability. This variable was selected because it is one of the most important and influential constructs in cognitive psychology (Gonzales & Roll, 1985, p. 191), and because of its appropriateness to the current study as explained in the hypothesis development section of the paper. The narrative selected for measuring understandability by the Cloze test was Statement of Accounting Concepts No. 4: Definition and Recognition of the Elements of Financial Statements (SAC 4) issued by the Australian Accounting Research Foundation (1992). This pronouncement was selected because of its importance to the conceptual framework project in Australia and because it has been criticized by various prominent accountants and business leaders for lacking understandability (for example, see Soh, 1992; Shanahan, 1992; Financial Forum, 1993; Larson, 1993). This paper develops and tests the hypothesis that field independent subjects should obtain significantly higher understandability scores in SAC 4 as measured by the Cloze test. The secondary objective is to provide empirical evidence on the understandability of SAC 4, given its importance and the controversial claims it has attracted. The remainder of the paper is organized as follows: Section II discusses readability and understandability and explains the Cloze test. Section III examines field dependence/field independence cognitive style and develops the hypothesis of the study. Section IV describes the research method, followed by a discussion of the results in Section V. Finally, Section VI provides some conclusions from the study.
READABILITY AND UNDERSTANDABILITY: THE CLOZE TEST Readability Formulae Readability formulae which base their computations on the length of the sentences and of the words employed have been widely used in measuring the difficulty of the narrative in accounting reports (Smith & Smith, 1971; Still, 1972; Healy, 1977; Courtis, 1986; Schroeder & Gibson, 1990; Smith & Taffler, 1992a, b). A number of readability formulae have been developed based on word and sentence lengths. These measure the speed of recognition and the recall of words into the immediate memory (Smith & Taffler, 1992a, p. 86). FLESCH, FOG index, and LIX are examples of common readability formulae that have been used in accounting research (for example, see Smith & Smith, 1971; Courtis, 1986; Smith & Taffler, 1992a, b; Hay,
142
. .
1992). However, the major limitation of readability formulae is that they fail to take into account the contextual variables because they are not dependent on the interaction between the context and the intended audience. Furthermore, empirical evidence suggests that ‘readability’ and ‘understandability’ are two different concepts and that synonymous treatment of them in the accounting literature is unjustified (Stevens et al., 1985; Smith & Taffler, 1992a, b). The Cloze Test to Measure Understandability Empirical scores of understandability are superior to the readability measures in that they are related to the complexity of content, and to the education and experience of the participants. One of the most reliable and valid methods to measure understandability is the Cloze test. A number of studies have provided strong evidence that Cloze tests provide valid measures of the ‘comprehension abilities of readers’ and ‘comprehension difficulties of messages’ (see Adelberg & Razek, 1984, p. 14). Based on the validation studies on the Cloze procedure, Bormuth (1975, p. 67) concluded that scores from Cloze and standardized reading comprehension were ‘. . . so highly correlated that the processes that generate these scores are indistinguishable’ (in Adelberg & Razek, 1984, p. 114). The Cloze matches the difficulties of the text with the syntactical, semantic, and knowledge abilities of the reader and therefore provides a valid measure of understandability (Stevens et al., 1985). The term Cloze is derived from ‘clozure’, a concept from Gestalt psychology which explains the human tendency of completing a familiar, but incomplete pattern. The Cloze procedure is a technique for measuring the effectiveness of communication. A Cloze test measures an individual’s ability in understanding a specified section of content as a result of interacting with the material (Taylor, 1953, 1957; Bormuth, 1969; Anderson, 1974; Adelberg & Razek, 1984; Smith & Taffler, 1992a, b). Taylor (1953, p. 416) defined Cloze as: ‘A method of intercepting a message from a transmitter (writer or speaker), mutilating its language patterns by deleting parts, and so administering it to receivers (readers or listeners) that their attempts to make patterns whole again potentially yield a considerable number of cloze units.’
The Cloze units are the successful reproduction of the missing words from a selected passage. Cloze is based on the assumption that if the reader and the author use identical semantic and syntactic rules, there will be a higher number of correct responses. The Cloze test mutilates content by the deletion of either a random number of words, or of every nth word. Respondents are required to predict, for each deletion, the exact word based on the surrounding context. Responses to the Cloze test are scored by counting the number of correct reproductions which is then expressed as a percentage of the total number of deletions.
143
Taylor (1953) and Bormuth (1968) found that deletion of every fifth word provided optimum results with a variety of subjects and passages. Further, Taylor (1953); Bormuth (1968); Stevens et al. (1985) and Adelberg & Razek (1984) found that approximately 50 deletions was necessary to provide a stable and reliable score. They argued that approximately this number, combined with relatively low criteria scores for interpreting the result, was necessary to reduce the impact of some of the deleted words that might be considered to be trivial or non-unique. Miller and Coleman (1967) conducted extensive validation tests of the Cloze procedure and found high intercorrelations of results for various methods of deletions (r>0·9). In addition, they experimented with other scoring systems such as allowing synonyms rather than the exact missing word, but concluded that the simpler method of allowing only exact insertions was preferable, given that the various options correlated at 0·99 (in Smith & Taffler, 1992b, p. 79). The criteria suggested for evaluating the level of competence demonstrated by an adult based on the Cloze are; ‘high’ if the scores are greater than 52%; ‘medium’ for scores ranging from 45 to 52% and ‘low’ for scores less than 45% (Smith & Taffler, 1992). It follows that understandability of the content is of ‘high difficulty’ for scores of less than 45%, ‘medium difficulty’ for scores of 45% to 52%, and ‘low difficulty’ for scores of greater than 52%. The Cloze test has been extensively used in accounting research to measure understandability of accounting reports, textbooks and pronouncements (for example, see Stevens et al., 1983, 1985; Adelberg & Razek, 1984; Smith & Taffler, 1992a, b; Jackson, 1993; Drews-Bryan & Schleifer, 1993). Although useful, this previous research has been limited to using the output from Cloze tests as measures of understandability. Little attempt has been made to look into the ‘black box’ of human information processing to identify psychological factors that may influence individual differences in understandability scores. Development of the Cloze test Four passages from Statement of Accounting Concept No. 4: ‘Definition and Recognition of the Elements of Financial Statements’ (SAC 4) were randomly selected to design the Cloze test. Three passages were actual statements and the fourth was from the commentary to the Statement. Every fifth word was deleted from each passage, in accordance with the Cloze procedure, giving a total of 47 Cloze deletions (see appendix to the paper for an extract of the instructions to the Cloze test). SAC 4 was selected for analysis because it is considered to be one of the fundamental building blocks of the conceptual framework project in Australia and is therefore expected to have a major impact on the education of accountants and the future direction of financial accounting and reporting.
144
. .
In addition, SAC 4 had been criticized for its lack of understandability. For example, a group of prominent accountants described it as being too complex, lacking clarity and difficult to understand by the majority of preparers and users of accounting information (see Soh, 1992; Lawson, 1993, p. 16; Financial Forum, June 1993, pp. 4–5). As no empirical evidence is available to support these criticisms, an additional objective of this study is to provide empirical evidence on the understandability of SAC 4.
COGNITIVE STYLES AND HYPOTHESIS DEVELOPMENT Field Dependent/Field Independent Cognitive Style Cognitive style has been conceptualized as the particular way in which individuals perceive, organize, and label stimuli configurations in order to arrive at a basis of similarity among stimuli (Gardner, 1953; Kelly, 1955; Kagan et al., 1963). Such organizing and labelling is the essential process of cognitive style. Additionally, research shows that not only are individuals consistent in how they organize and label stimuli, but that the same individuals also show stable individual preferences in modes of organizing a variety of stimuli. This study investigated the influence of field dependence/field independence (FD/FI) cognitive style on understandability. This cognitive style was selected because of theoretical support in the literature (see Witkin, 1974; Witkin & Goodenough, 1977; Hadfield & Maddux, 1988), and its appropriateness to the current study. Additionally, FD/FI has been the most extensively researched construct in cognitive psychology and has been identified as one of the most important and influential constructs (Gonzales & Roll, 1985, p. 191). More importantly, FD/FI cognitive style has been identified as a useful dimension for accounting research relating to information processing propensities of preparers and users of accounting information (Gul, 1984, p. 275, 1993, p. 155). The field dependence cognitive dimension classifies individuals as either field dependent (FD) or field independent (FI) on the basis of a paper-andpencil test call the Group Embedded Figures Test (GEFT) developed by Witkin et al. (1971). The test contains simple figures that are effectively hidden in complex designs (see appendix B for an example). GEFT consists of eighteen complex designs, and participants are required within ten minutes to identify the embedded simple figures. Each correct response scores one point and participants scoring greater or equal to 14 out of 18 are classified as field independent. Individuals who have difficulty in separating the simple figures from the complex structures are classified as FD. The reason suggested for this is that a FD person is strongly dominated by the overall organization of the surrounding field, whereas a FI person is able to break up the surrounding field to locate its relevant parts.
145
An extensive number of studies provide support for the reliability and validity of Embedded Figures Tests. Witkin et al. (1971, pp. 18–20) provide a summary of 42 studies that support the continued use of embedded tests to differentiate between FD/FI subjects. Hypothesis Development Evidence shows that FD individuals have more difficulty than FI individuals in problem-solving situations (Witkin & Goodenough, 1977). Studies further suggest that FI individuals performed better than FD’s in ‘disambiguating’ syntactically ambiguous sentences (Goodman, 1971, in Gul et al., 1992). In another study, Powers & Lis (1977) found that FI students performed sentence transformation tasks more efficiently than FD students. Furthermore, Frank & Noble (1985) found that FI individuals had greater cognitive skills in providing structure for an ambiguous complex stimulus than FD individuals. FD/FI cognitive style has also been studied in accounting research. For example, Lusk (1973) showed that FI individuals had greater cognitive skills in analysing annual financial reports than FD individuals. Gul (1989) tested and found support for the hypothesis that bankers who were field independent, or more ‘analytic’, would not be affected by a ‘benign’ audit qualification since they were able to identify correctly the insignificant nature of the qualification. In contrast, FD bankers who were less ‘analytic’ were more likely to be mislead by an audit qualification. In another study, Gul et al. (1992) demonstrated that FI students performed significantly better than FD students in multiple choice examinations that contained ambiguous answers. The previous studies, using a range of subjects and situations, show that FI individuals demonstrate greater cognitive restructuring skills when provided with ambiguous stimuli or novel scenarios. FI individuals appear to be more ‘analytic’ and have a penchant for the ‘nitty-gritty’ aspects of information (Gul, 1993, p. 153). Cloze tests can be compared to a forest where selected individual trees have been removed. FI individuals are more likely to ‘see’ and identify the missing trees. In contrast, FD persons are more holistic in their perceptions and are likely to have difficulty in ‘seeing’ specific trees. Based on this reasoning, the hypothesis of the study is: Filed Independent subjects should obtain significantly higher understandability scores as measured by the Cloze test.
RESEARCH METHOD Participants The participants in the study consisted of 191 students at The University of Newcastle, Australia, that had completed at least three out of the six
146
. .
semesters of their Bachelor of Commerce degree. These students were selected, prior to their commencement of a second year financial accounting subject that included a study of SAC 4 as an integral part of the course, including the use of the SAC 4 accounting pronouncement as a primary reading and reference source. Prior to this subject, the students had no previous exposure to the detailed SAC 4 document. Procedure Each participant was given two tests. The first was the GEFT test to classify students as either FD or FI. The second was the Cloze test, containing randomly selected extracts from SAC 4 that had every fifth word deleted. There was a total of 47 deletions in the Cloze test which is approximately the number suggested in the literature to provide optimum validity and reliability (Taylor, 1956; Bormuth, 1975). Students were required to predict, for each deletion, the exact word based on the surrounding context. In accordance with the procedure adopted by Adelberg & Razek (1984), the tests were administered at the very beginning of the semester so that none of the students were likely to have had prior exposure to the unmutilated passages in the SAC 4 document. In addition, all students present at the lecture completed the tests with the exception of students who were repeating the course. After discarding six incomplete instruments, 191 useable responses were collected.
RESULTS AND DISCUSSION Demographic Data A summary of the demographic data is as follows: 79·5% of the total of 191 students were full-time students (57·6 males and 42·4% females); 81·2% of students were between 18–23 years of age; and 15·7% of students had worked for a professional accounting firm. Statistical tests showed that none of the above demographic features had any bearing on students’ performance in either the Cloze test or the GEFT. Interaction Between Understandability and Cognitive Style (FI/FD) Accounting is a discipline that requires strong skills in classifying and analysing financial data. Since FI individuals are more ‘analytic’ (Gul, 1993, p. 153), it was not surprising that 134 students (70%) were FI. Recall that the literature suggests that the criteria for evaluating the level of competence demonstrated by an adult based on the Cloze test are ‘high’ if the Cloze score is greater than 52%; ‘medium’ for scores ranging from 45 to 52% and ‘low’ for scores less than 45% (Smith & Taffler, 1992a). Based on the
147 TABLE 1 Cognitive style (FD/FI) and understandability (Cloze) frequency of occurrence
FI FD Total
High (>52%)
Medium (45–52%)
Low (<45%)
Total
59 (44%) 17 (30%) 76 (40%)
29 (22%) 10 (17%) 39 (20%)
46 (34%) 30 (53%) 76 (40%)
134 (70%) 57 (30%) 191 (100%)
TABLE 2 Mean understandability (Cloze) scores (and standard deviations)
FI FD Total
High (>52%)
Medium (45–52%)
Low (<45%)
Total
62·82 (0·08) 58·82 (0·07) 61·93 (0·08)
47·76 (0·03) 47·02 (0·02) 47·57 (0·03)
33·77 (0·08) 30·00 (0·08) 32·28 (0·08)
49·59† (0·15) 41·58† (0·15) 47·20 (0·15)
Standard deviations are shown in brackets. Mean scores that are significantly different at the 5% confidence level are shown by the symbol †.
above understandability criteria, the frequency scores of the FD/FI students’ are shown in Table 1. The results of a Chi-squared test showed that the distribution among high, medium and low scores differed significantly between the FD and FI subjects (p<0·1, 2df, v2=4·6). The central concern of this paper was to investigate the differences in understandability scores between FI and FD subjects. Again, using the suggested criteria to categorize understandability results, the mean scores and the standard deviations of FD/FI subjects are shown in Table 2. The hypothesis of the study that FI subjects should obtain significantly higher understandability scores than FD subjects was supported by both the parametric t-tests and non-parametric Mann–Whitney U-tests (p<0·05) for the total category. The overall mean score of the FI subjects was 49·59% (S.D. 0·15) and the mean of FD participants was 41·58% (S.D. 0·15). These results have at least two important considerations for improving the quality of learning and teaching of accounting. First, accounting educators need to understand that FD/FI cognitive style is a relevant variable affecting student performance. Since field independent cognitive style is associated with greater understandability of accounting narratives, there arises the need to provide a better match between cognitive style and accounting information provided to students. Teaching resources such as case studies, exercises and assignments can be designed to take into account
148
. .
students’ cognitive styles. Second, as some evidence exists that an individual can be taught to move from a global approach of thinking to a more articulated approach, it may be possible for a field dependent person to be taught to be more field independent (Witkin, 1974). For example, Hadfield & Maddux (1988) suggest that practice sets and exercises involving the extraction of simple concepts from an array of seemingly unrelated scenarios may be useful. Designing teaching and learning strategies compatible with cognitive style has challenging and interesting prospects for accounting educators. Future research should consider the efficacy of providing special instructions to those diagnosed at FD so that they may have the same facility as FI subjects (Gul et al., 1992). Understandability of SAC 4 The secondary objective of the study was to provide empirical evidence on the understandability of SAC 4. Previous researchers have correlated Cloze results with scores from multiple-choice comprehension tests to establish levels of proficiency. Bormuth (1968); Rankin & Culhane (1969); and Peterson et al. (1972, 1973) have agreed that a Cloze score of 44% for adult learners is comparable to a conventional multiple-choice comprehension test score of 75% (at the ‘instructional’ reading level). Thus, a Cloze score of 44% can be considered to be a criterion level for understandability of ‘instructional materials’ (Adelberg & Razek, 1984). The results of the Cloze test as shown in Table 1 establish that 40% of the participants found understandability of the extracts from SAC 4 of high difficulty, 20% of medium difficulty and 40% of low difficulty. Furthermore, using the above criteria, at least 76 (40%) of the respondents obtained less than 45% in the Cloze test and are classified in the low understandability column of Table 1. That is, these 40% did not find SAC 4 ‘understandable’ at the specified ‘instructional’ reading level. More importantly, of these 76 participants, 53% were FD and only 34% were FI. Accounting students are legitimate and important users of accounting pronouncements. This is particularly the case with Statements of Accounting Concepts (SACs) that attempt to ‘. . . define the nature, subject, purpose and broad content of general purpose financial reporting’ (AARF, 1990, par 2). SAC 4: ‘Definition and Recognition of the Elements of Financial Statements’ has been described by AARF as one of the basic corner stones of the conceptual framework project. It is an important vehicle for educating new entrants to the accounting profession, and users of general purpose reports, on the content of financial statements included in those reports’ (AARF, 1992). Therefore, SAC 4 is intended to play an important role in educating present and future acountants. If it is to fulfil this function, these documents ought to be written in a way that they are understandable to their intended audience, including accounting students. Further, if important
149
accounting pronouncements such as SAC 4 are not easily understood by accounting students, then perhaps other user groups may have similar or even more serious problems. A considerable amount of the collective efforts of the accounting profession and academics has been directed at developing a conceptual framework for financial reporting over the past three decades (AAA, 1966, 1977a; FASB, 1978; IASC, 1988; AARF, 1990; ASB, 1991). In these projects, ‘understandability’ has been recognized as being fundamental to the communication process and is defined as an important qualitative characteristic of financial information. If accounting information is not understood by the intended user groups, then other qualitative characteristics such as reliability, relevance, comparability, consistency, or neutrality become secondary. CONCLUSION Subject to the usual caveats associated with laboratory experiments, this paper provides some evidence about the relationship between cognitive style and understandability that previous literature has not demonstrated. In particular, the results show that field independent subjects obtained significantly higher understandability scores than field dependent subjects. The results of this study raise some important implications and challenges for accounting educators. Accounting educators need to appreciate that students’ performance is affected by their cognitive styles. As a result, learning and teaching strategies may need to be restructured to take account of individual cognitive styles. Furthermore, Cloze scores of accounting topics can provide a useful technique to evaluate students’ understanding and to determine how much time and attention to devote to respective accounting issues. The study also provides objective data that a fundamentally important accounting pronouncement (SAC 4) was not ‘understood’ by at least 40% of accounting student participants. This lack of understandability should be of concern to both accounting regulators and educators. Given, that ‘understandability’ is an important qualitative characteristic of financial information and is essential for effective communication, important accounting pronouncements may need to be written more clearly to make them comprehendible and understandable to all user groups. Alternatively, accounting educators may need to consider whether accounting pronouncements can continue to be used as either primary or secondary teaching materials in the classroom. R Australian Accounting Research Foundation. (1990). Series 3: Proposed Statements of Accounting Concepts, August.
150
. .
Accounting Standards Board. (1991). Exposure Draft: Qualitative Characteristics of Financial Information, London, ASB. American Accounting Association. (1966). A Statement on Basic Accounting Theory, AAA. American Accounting Association. (1977a). Statement on Accounting Theory and Theory Acceptance, AAA. American Accounting Association. (1977b). Report of the 1976–77 Committee on Human Information Processing, August. Australian Accounting Research Foundation. (1990). Statements of Accounting Concepts SAC 3: Qualitative Characteristics of Financial Information, Melbourne, AARF. Australian Accounting Research Foundation. (1992). Statements of Accounting Concepts SAC 4: Definition and Recognition of the Elements of Financial Statements, Melbourne, AARF. Adelberg, A.H. (1979). ‘A methodology for measuring the understandability of financial report messages’, Journal of Accounting Research, 17 (29), pp. 565–592. Adelberg, A.H. & Razek, J.R. (1984). ‘The Cloze procedure: a methodology for determining the understandability of accounting textbooks’, The Accounting Review, LIX (1), pp. 109–122. Anderson, T.H. (1974). ‘Cloze measures as indices of achievement comprehension when learning from prose’, Journal of Educational Measurement, Summer, pp. 83–92. Bormuth, J. (1968). ‘Cloze test readability: criterion reference scores’, Journal of Educational Measurement, Fall, pp. 189–196. Bormuth, J. (1969). ‘Factor validity of Cloze tests as measures of reading comprehension ability’, Reading Research Quarterly, Spring, pp. 358–365. Bormuth, J. (1975). ‘The Cloze procedure: literacy in the classroom’, Help for the Reading Teacher: New Directions in Research, National Conference on research in English, pp. 60–90. Chapman, J. (1993). ‘SAC 4 threatens credibility of Australian accounting’, CPA News, April, pp. 1–2. Courtis, J.K. (1986). ‘An investigation into annual report readability and corporate riskreturn relationships’, Accounting and Business Research, 16 (64), pp. 285–294. Craig-Lees, M., Joy, S. & Browne, B. (1994). Consumer Behaviour, Jacaranda Wiley, Australia. Drews-Bryan, A. & Schleifer, L. (1993). ‘A note on readability of accounting textbook passages and corresponding GAAP’, Accounting Forum, December, pp. 24–40. Financial Accounting Standards Board. (1978). ‘Objectives of Financial Reporting by Business Enterprises’, Statement of Financial Accounting Concepts No. 1, Stanford: FASB. Financial Forum. (1993). 2 (5), pp. 1, 4–5. Frank, B.M. & Noble, J.P. (1985). ‘Field independence—dependence and cognitive restructuring’, Journal of Personality and Social Psychology, 47 (5), pp. 1129–1135. Gardner, H. (1985). The Mind’s New Science: A History of the Cognitive Revolution, Basic Books, New York. Gardner, R. (1953). ‘Cognitive styles in categorizing behaviour’, Journal of Personality, No. 22, pp. 214–233. Gonzales, R.R. & Roll, S. (1985). ‘Relationships between acculturation, cognitive style, and intelligence’, Journal of Cross-Cultural Psychology, 16 (2), pp. 190–205. Goodman, D.R. (1971). ‘Cognitive style factors in linguistic performance with ambiguous sentences’, Unpublished Master’s Thesis, York University. Gul, F.A. (1984) ‘The joint and moderating role of personality and cognitive style on decision making’, The Accounting Review, LIX, April, pp. 264–277. Gul, F.A. (1987) ‘Field dependence cognitive style as a moderating factor in subjects’ perceptions of auditor independence’, Accounting and Finance, pp. 37–48. Gul, F.A. (1989) ‘Bankers’ perceptions of factors affecting auditor independence’, Accounting, Auditing and Accountability Journal, pp. 40–51. Gul, F.A. (1993) ‘The role of individual differences and human behaviour on accounting information systems design and presentation’, Journal of Accounting and Finance, pp. 143–169. Gul, F.A., Teoh, H.Y. & Shannon, R. (1992) ‘Cognitive style as a factor in accounting
151 students’ performance on multiple choice examination’, Accounting Education, 1 (4), pp. 311–319. Hadfield, O.D. & Maddux, C.D. (1988). ‘Cognitive style and mathematics anxiety among high school students’, Psychology in the Schools, 24, pp. 75–83. Hay, D. (1992). ‘Reports and readability: an empirical study of New Zealand audit reports’, Unpublished Paper, Department of Accounting and Valuation, Lincoln University. Healy, P. (1977). ‘Can you understand the footnotes in financial statements’, Accountants Journal, July, pp. 219–222. Henderson, S. & Harris, K. (1992). ‘SAC 4 and income tax allocation’, Accounting Forum, December, pp. 36–46. International Accounting Standard Committee. (1988). Framework for the Preparation and Presentation of Financial Statements, London, IASC. Jackson, B. (1993). Measuring the Understandability of Corporate Communication: A New Zealand Perspective, Working Paper, Massey University, New Zealand. Johnson-Lairs, P.N. (1989). The Computer and the Mind: An Introduction to Cognitive Science, Fontana Masters Guide. Kagan, J., Moss, H. & Sigel, I. (1963). ‘Psychological significance of styles of conceptualization’, In J.C. Wright & J. Kagan (eds), Basic Cognitive Processes in Children: Monographs of Society for Research in Child Development. Kelly, C. (1995). The Psychology of Personal Constructs, New York, W.W. Norton. Lawson, M. (1993). ‘Accountants are baffled and its getting personal’, Financial Review, May 10, 1993, p. 16. Libby, R. & Lipe, M.G. (1992). ‘Incentives, effort, and the cognitive processes involved in accounting-related judgments’, Journal of Accounting Research, 30 (2), Autumn, pp. 249–273. Littleton, A.C. & Zimmerman, V.K. (1962). Accounting Theory: Continuity and Change, Prentice-Hall. Lusk, E. (1973). ‘Cognitive aspects of annual reports: field independence/dependence’, Journal of Accounting Research, (suppl.), pp. 191–202. McKean, K. (1990). ‘Intelligence: new ways to measure the wisdom of man’, In M.G. Walraven & H.E. Fitzgerald (eds), Annual Editions Psychology. Miller, G.R. & Coleman, E.B. (1967). ‘A set of thirty-six prose passages calibrated for complexity’, Journal of Verbal Learning and Verbal Behaviour, pp. 851–854. Norton, M., Bedford, M. & Baladouni, V. (1962). ‘A communication theory approach to accounting’, The Accounting Review, October, pp. 650–659. Peterson, J., Paradis, E. & Peters, N. (1972). ‘Validation of the Cloze procedure as a measure of readability with high school, trade school and college populations’, Investigations Relating to Mature Reading, pp. 45–50. Peterson, J., Paradis, E. & Peters, N. (1973). ‘Revalidation of the Cloze procedure as a measure of instructional level for high school students’, Investigations Relating to Mature Reading, pp. 44–49. Powers, J.E. & Lis, D.J. (1977). ‘Field dependence-independence as performance with the passive transformation’, Perceptual and Motor Skills, 45, pp. 759–765. Ponemon, L.A. (1990). ‘Ethical judgements in accounting: a cognitive developmental perspective’, Critical Perspectives in Accounting, pp. 191–215. Ponemon, L.A. (1992). ‘Ethical reasoning and selection-socialization in accounting’, Accounting, Organizations and Society, 17, pp. 239–258. Rankin, E. (1959). ‘The Cloze procedure—its validity and utility’, Starting and Improving College Reading Programs, National Reading Conference, pp. 131–144. Rankin, E. & Culhane, (1969). ‘Comparable Cloze and multiple choice comprehension tests’, Journal of Reading, December, pp. 30–37. Schroeder, N. & Gibson, C. (1990). ‘Readability of management’s discussion and analysis’, Accounting Horizons, 4 (4), pp. 78–87. Shanahan, J. (1992). ‘SAC 4: brave new world of accounting’, New Accountant, 29 October.
152
. .
Siegler, R.S. (1989). ‘Mechanisms of cognitive development’, In M.R. Rosenzweig & L.W. Porter (eds), Annual Review of Psychology, No. 40, pp. 353–379. Smith, J.E. & Smith, N.P. (1971). ‘Readability: a measure of the performance of the communication function of financial reporting’, Accounting Review, 46, July, pp. 552–561. Smith, M. & Taffler, R. (1992a) ‘Readability and understandability: different measures of the textual complexity of accounting narrative’, Accounting, Auditing & Accountability, 5, pp. 84–98. Smith, M. & Taffler, R. (1992b) ‘The Chairman’s statement and corporate financial performance’, Accounting and Finance, 32 (2), pp. 75–90. Soh, D. (1992). ‘Standard will change profession’, New Accountant, 9 March, p. 1. Sterling, R. (1967). ‘A statement of basic accounting theory: a review article’, Journal of Accounting Research, Spring, pp. 95–112. Stevens, W.P., Stevens, K.C. & Raabe, W.A. (1983). ‘Communication in accounting: readability of FASB statements’, Review of Business and Economic Research, Fall, pp. 110–118. Stevens, W.P., Stevens, K.C. & Raabe, W.A. (1985). ‘FASB statements in the classroom: a study of readability’, Advances in Accounting, 2, pp. 89–100. Still, M.D. (1972). ‘The readability of chairman’s statements’, Accounting and Business Research, 2, Winter, pp. 36–39. Taylor, W. (1953). ‘Cloze procedure: a new tool for measuring readability’, Journalism Quarterly, Fall, pp. 415–433. Taylor, W. (1956). ‘New developments in the use of Cloze procedure’, Journalism Quarterly, Winter, pp. 42–48. Taylor, W. (1957). ‘Cloze readability scores as indices of individual differences in comprehension and aptitude’, Journal of Applied Psychology, February, pp. 19–26. Walraven, M.G. & Fitzgerald, H.E. (1990). ‘Cognitive processes’, Annual Editions Psychology, pp. 82–83. Windsor, C.A. & Ashkanasy, N.M. (1995). ‘The effect of client management bargaining power, moral reasoning development, and belief in a just world on auditor independence’, Seminar presentation, The University of Newcastle, June 1995. (Forthcoming in Accounting Organizations and Society.) Witkin, H.A., Oltman, P.K., Raskin, E. & Karp, S.A. (1971). A Manual for the Embedded Figure Tests, Consulting Psychologists Press Inc. Witkin, H.A. (1974). ‘Educational implications of cognitive style’, Unpublished paper, Council of Graduate Schools, Phoenix. Witkin, H.A. & Goodenough, D.R. (1977). ‘Field dependence and interpersonal behaviour’, Psychological Bulletin, 84, pp. 661–689. Zimbardo, P.G. (1992). Psychology and Life, Harper Collins Publishers, New York.
153
APPENDIX A The Cloze Test
154
. .
APPENDIX B Group Embedded Figures Test INSTRUCTIONS: This is a test of your ability to find a simple form when hidden within a complex pattern. Example (from a figure used in the GEFT test) Here is a simple form which we have labelled ‘A’:
This simple form ‘A’, is hidden within the more complex figure below:
Try to find the simple form in the complex figure and trace it in pencil directly over the lines of the complex figure. It is the SAME SIZE, in the SAME PROPORTIONS, and FACES THE SAME DIRECTION within the complex figure as when it appeared alone. Solution. The simple form traced over the lines of the complex figure appears below: