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The Incidence and Quality of Graphics in Annual Reports: An International Comparison

Samford University, Birmingham, AL

Cheryl L. Fulkerson

University of Texas at San Antonio

Graphical presentation of financial and non-financial information represents a relatively low-cost means by which companies can enrich their annual reports. Graphics focus readers' attention. Further, graphics may facilitate understanding and enhance recall.

This study compares the relative incidence and measurement distortion of graphics contained in a matched sample of U.S. and non-U.S. companies listed on two major U.S. stock exchanges. A sample of 270 annual reports and 2,270 graphs from 12 countries was examined. While both U.S. and non-U.S. companies rely heavily on graphics, the annual reports of non-U.S. companies contain a sig nificantly higher number of graphics. Both groups fail to comply with many of the guidelines for good graphics as set forth in previous literature. Most notably, graph discrepancy indices (GDIs) reveal that both U.S. and non-U.S. companies present graphics that may be misleading to users. The incidence of graphic distor tion was higher for non-U.S. companies.

The findings are potentially important for policy development. At a minimum, they suggest that it may be appropriate to educate business professionals regarding graphics construction. On a broader level, they suggest that international standard setters concerned with uniformity of financial presentation, as well as U.S. regula tors concerned with investor protection, may consider the development and imple mentation of guidelines for graphical presentation of financial information.

Key Words: Annual Reports • Financial Reports • Graphics • Graph Discrepancy Index

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