The Effect of Presentation Format on Functional Fixation...

Reporting financial information: An investigation into the effect of digital presentation formats on functional fixation

Erlane K. Ghani, Universiti Teknologi Mara, Malaysia

Fawzi Laswad, Massey University, Palmerston North, New Zealand**

Stuart Tooley, Queensland University of Technology, Brisbane, Australia

April 2008

**Corresponding author:

Fawzi LaswadSchool of AccountancyMassey UniversityPrivate Bag 11 222Palmerston NorthNew Zealand

Email: [email protected]

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Abstract

This study examines whether, in the reporting of financial information, digital presentation

formats address the concern over functional fixation. The literature indicates that the reporting of

financial information either within the financial statements (i.e. recognition policy) or in the

notes to the financial statements (i.e. disclosure policy) often creates functional fixation where

users of financial statements fail to adjust for differences in accounting policy. This leads users

of financial statements to judge what would otherwise be identical financial situations as being

different due to the different accounting policies and methods adopted.

It has been suggested that the use of digital presentation formats may overcome functional

fixation. Using an experimental design involving professional public accountants as one group of

key decision maker who use financial information, the results show that digital presentation

formats do not fully overcome the issue of functional fixation in the processing of financial

information. Although the participants were able to identify and extract relevant information,

irrespective of whether or not the information was presented within the financial statements or in

the notes to the accounts, evidence was found that some degree of functional fixation remains

when the participants came to make a final decision based on available information. In general,

the results indicate current technology may not be able to fully reduce functional fixation in the

evaluation of financial information prepared in accordance with different accounting policies and

methods.

Keywords: Presentation formats, Recognition versus disclosure, Functional fixation, Digital reporting

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1. INTRODUCTION

Decision-makers are motivated to optimise their decision-making performance and the efficacy

of the decision-making process is often dependent on the nature and content of the information

provided (Libby and Lewis, 1977; 1982). However, it is generally acknowledged that decision-

makers have limited ability when it comes to the processing of large quantities of data. The way

in which information is presented (i.e. presentation format) has been proposed as a possible

solution enabling a more efficient and effective decision-making process (Libby and Lewis,

1982; Rohrman, 1986; Maines, 1995).

Within the accounting context, the recent emergence and expansion of digital technology has had

a significant impact in the wider dissemination of financial information and reports (Lymer and

Tallberg, 1997; Lymer, 1999; Ashbaugh et al., 1999; Anderson, 2000; Oyelere et al., 2003;

Smith, 2003; Fisher et al., 2004; Hodge and Pronk, 2006). The new reporting technology

provides opportunity for accounting report preparers to extend their reporting medium beyond

the traditional hard-copy print-based format to include alternative forms of digital reporting

which has seen presentation formats evolve from the tabular and graphical to more sophisticated

formats such as Portable Document Format (PDF), Hypertext Mark-up Language (HTML) and

Extensible Business Reporting Language (XBRL). Such alternative forms of presentation are

also seen to promote greater transparency in financial reporting (Beattie and Pratt, 2003; Hodge

et al., 2004).

One of the key issues in financial reporting and standard-setting is whether accounting report

users are able to adjust for differences in accounting methods and policies including whether an

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economic event is recognised within the financial statements or disclosed by way of note to the

financial statements. Studies have shown that the placement of financial information (i.e.

accounting policy of ‘recognition’ or ‘disclosure’) in the financial report often creates functional

fixation whereby users are unable to adjust for differences in accounting methods (Sami and

Schwatz, 1992; Barth, 1994; Hopkins, 1996; Hirst and Hopkins, 1998; Maines and McDaniel,

2000; Luft and Shields, 2001; Hodge et al., 2004).

Using an experimental design, this study examines whether digital presentation formats, in

contrast to the traditional print-based form of reporting, can minimise the occurrence of

functional fixation and thereby assist financial report users adjust for differences in the

placement of key financial information. To this end, this study adapts the work of Hodge et al.

(2002; 2004) who examined the interaction of presentation formats and functional fixation in the

context of the reporting of stock compensation options either within the financial statements (i.e.

recognition policy) or as a note to the accounts (i.e. disclosure policy). This study responds to a

call from Hodge et al for similar research to be conducted in other accounting contexts.

The focus of the empirical component of the research reported in this paper is on the accounting

for investment property under alternative accounting methods. The accounting standard on

investment property (IAS 40) allows a change in value to be accounted for in one of two ways:

either the investment property is revalued and the asset reported in the balance sheet at its market

value and the resultant gain or loss recognised in the income statement (i.e. Fair value model), or

the investment property remains reported in the balance sheet at cost and a disclosure of change

in fair value provided in the notes to the financial statements (i.e. Cost model). Using three

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different forms of digital reporting technologies (i.e. PDF, HTML and XBRL)1, an experiment is

undertaken to determine if one or more digital presentation formats is used more effectively by

the participants to extract and integrate key financial information, irrespective of its placement,

in their investment decision-making process.

The remainder of this paper is structured as follows. Section 2 provides a literature review on the

relevance of presentation formats and the link between presentation formats, placement of

information (i.e. financial statement recognition or notes to the financial statements disclosure)

and information processing. Section 3 provides the research framework and hypotheses. Section

4 outlines the research method and the results are presented in section 5. A discussion of the

findings and their implications for financial reporting are provided in the last section.

2. LITERATURE REVIEW

Psychological studies portray decision-makers, due to their human form, as “intellectual cripples,

limited in their capacity to think, and biased by cognitive processes that interfere with rational

decision-making. They are oversensitive to variables that are not included in normative theories

and under sensitive to variables that are. They become more variable when given more

information and increase their confidence in the accuracy of their judgements when they should

not” (Ebbesen and Konecni, 1980, p.21). An extension of this view, would suggest that decision-

makers are therefore prone to making unreliable, inconsistent and sub-optimal decisions (Ashton,

1981) and, notably, will often seek ways to perform a decision-making task with minimum

cognitive effort (Newell and Simon, 1972).

1 Portable Document Format, Hypertext Mark-up Language, and Extensible Business Reporting Language, respectively.

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The limitation of humans as processors of information can be exacerbated in tasks involving, for

example, large quantities of data (Rohrman, 1986) and the placement of information (Kozminky,

1977; Chi et al., 1981; Bernard and Schipper, 1994; Hopkins, 1996; Hirst and Hopkins, 1998;

Maines and McDaniel, 2000; Libby et al., 2002; Hodge and Pronk, 2006). Decision-makers may

also have a tendency to assume that certain information disclosure practices are followed

consistently and therefore come to overlook information that is placed outside of the ‘normal’

point of disclosure (Dyckman, 1964; Chi et al., 1981; Maines and McDaniel, 2000). Such an

occurrence falls within the realm of ‘functional fixation’ and may appear in all stages of the

decision-making process (Maines and McDaniel, 2000).

Ijiri et al. (1966) noted that “psychologists have found that functional fixation exists in most

human behaviour in which a person attaches a meaning to a title or an object and is unable to

recognise the alternative meanings or uses. People intuitively associate a value with an item

through past experience, and often do not recognise that the value of an item depends, in fact,

upon the particular moment in time and may be significantly different from what it was in the

past”. In an accounting context, for example, functional fixation occurs when users of financial

information fail to adjust for differences arising from the adoption of different accounting

policies and methods (Sami and Schwatz, 1992; Bernard and Schipper, 1994; Libby et al., 2002).

As a consequence, firms with identical economic circumstances except for their choice of

allowable accounting alternatives are sometimes judged to be different (Libby et al., 2002).

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The phenomenon of functional fixation and its accounting implications for placement of key

financial information has been extensively examined in the literature (Landsman, 1986; Harris

and Ohlson, 1987; Harper et al., 1987; Landsman and Ohlson, 1990; Harper et al., 1991; Sami

and Schwatz, 1992; Barth, 1994; Hopkins, 1996; Hirst and Hopkins, 1998; Maines and

McDaniel, 2000; Luft and Shields, 2001; Hodge et al., 2002; Hodge et al., 2004). Using the

perennial accounting issue of whether to recognise key financial information within the financial

statements (recognition policy) or disclosure the same information in the notes to the financial

statements (disclosure policy) this literature indicates users of financial statements exhibit

functional fixation when comparing financial statements of firms that adopt different accounting

policies. That is, decision-makers/users do find cognitive convenience in looking for information

in a to-be-expected location and the acquisition and integration of information located outside of

the normal situation may be more the result of ‘accidental discovery’ (Hirst and Hopkins, 1998).

Recent studies have explored potential solutions to overcome functional fixation in situations of

alternate placement of information. Luft and Shields (2001), for example, suggested that more

instructional learning on the opportunities for alternative placements of information and the

implications arising from such placements could provide a remedy to alleviate the impact of

functional fixation, but they found no supporting evidence. Their results show that instructional

learning is not necessarily a quick remedy for functional fixation in accounting because

accounting can, in turn, influence the learning process. That is, individuals may come to be

fixated on the accounting and do not develop the skills to ‘see through’ or ‘unscramble’ the

effects of alternative accounting methods (Luft and Shields, 2001).

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Another group of studies have focused on whether the way in which information is presented

minimises the occurrence of functional fixation and therefore leads to a more effective decision-

making process (decision outcome). The findings of these studies indicate that some forms of

presentation formats enhance the decision-making process (Stock and Watson, 1984; Dickson et

al., 1986; Iselin, 1988; Vessey, 1991; Mackay and Villareal, 1987; Hard and Vanacek, 1991;

Stone and Schkade, 1991; Anderson and Kaplan, 1992; Ramarapu et al., 1997; Frownfelter-

Lohrke, 1998; Almer et al., 2003; Bizarro and Baldwin, 2004; Hodge et al., 2004). Other studies

suggest that decision-makers experience a reduction in decision performance in completing tasks

when inappropriate presentation formats are used (Vessey, 1991; Vessey and Galletta, 1991;

Umanath and Vessey, 1994; Speier et al., 2003), while another group of studies suggest that

presentation formats do not affect decision performance (Bricker and Nehmer, 1995; Dull et al.,

2003; So and Smith, 2003) and it is the degree of information processing and the type of task

being performed that has the greatest impact on the effectiveness of presentation formats in the

decision-making process.

More recent research has focused on the dissemination of financial information through digital

reporting technology as opposed to the more traditional print-based reporting. In their study,

Hodge et al. (2002; 2004) proposed that appropriate digital presentation formats minimise

functional fixation whereby financial information becomes more transparent irrespective of its

placement. They reasoned that if presenting information in a particular style (i.e. digital

presentation formats) enhances data structure, this would allow users to become more effective

and efficient in information acquisition and usage (Larkin and Simon, 1987). Comparing PDF

format (non-searchable) with XBRL format (searchable), Hodge et al. (2004) found that

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participants who used the PDF format incurred higher levels of functional fixation than XBRL

participants at the initial information gathering stage of the decision-making process. This led to

PDF participants proposing a sub-optimal investment strategy compared, for example, to the

XBRL participants who were able to identify and extract a wider range of relevant and important

information.

The empirical component of the Hodge et al. (2002; 2004) study was in the context of stock

option compensation with key financial information either recognised within the financial

statements or disclosed in the notes to the financial statements. MBA students were used as

surrogates for professional decision-makers. Arguably, their research findings may be context

and participant specific and not generalisable to other settings. This study extends Hodge et al.

(2002; 2004) by examining the relationship between digital presentation formats and functional

fixation using three forms of digital presentation formats – PDF, HTML and XBRL. The current

study is located in the context of accounting for investment property and uses professional

subjects who are actively engaged in investment making decisions.

3. RESEARCH FRAMEWORK AND HYPOTHESES

In this section we present the research framework and hypotheses underpinning the empirical

component of this study. The framework is based on the premise that the form of presentation

format is an important characteristic of an input into the decision making process and therefore

influences resulting judgements under conditions of uncertainty created by alternative

placements of key information.

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Decision-making is a cognitive process that leads to the selection of a course of action. In its

basic form, the decision-making process involves three sequential stages: input, processing, and

output (Libby and Lewis, 1977; Beach and Mitchell, 1978; Hogarth, 1980; Einhorn and Hogarth,

1981; Cloyd, 1995; Roberts, 2002). The input stage is concerned with the source and form of the

information made available to decision makers. The information processing stage is seen to

encompass the primary tasks of decision-making; that is, acquiring information, evaluating the

relevance of different items of information, and weighting the importance of specific items for

the decision task at hand. The output stage is concerned with the decision. The framework

proposes that presentation format influences the performance of decision makers to acquire, to

evaluate and weight information in forming a judgement (decision) on a firm’s financial

performance.

For the purposes of this study the three digital presentation formats of PDF, HTML and XBRL

form one group of independent variable. Bosak and Bray (1999) and Abdolmohammadi et al.

(2002) distinguished between PDF, HTML and XBRL on their ability to process information

where PDF allows no information processing, HTML allows static information processing and

XBRL allows dynamic information processing. In their work, Hodge et al. (2002; 2004)

distinguished between XBRL and PDF on the basis of their search capabilities. They described

XBRL as a searchable technology that enabled directed searches and the simultaneous

presentation of financial statements and related footnote information (including notes to the

financial statements) whereas non-searchable technologies, such as PDF, do not allow directed

searches and simultaneous presentation. They found that XBRL made information presented

outside of the financial statements more transparent and consequently, the participants who used

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XBRL achieved a more optimal investment decision outcome compared to participants who

used, for example, PDF.

Prior studies have suggested that functional fixation may occur at all stages of the decision-

making process (Hodge et al., 2002; 2004; Maines and McDaniel, 2000). The framework

therefore proposes that presentation format may influence the performance of decision makers to

process information and form a judgement when alternative accounting models and methods are

used. Accordingly, a second group of independent variable focuses on the alternate placement of

information which for some accounting transactions and/or events could either be recognised

within the financial statements (recognition policy) or in the notes to the financial statements

(disclosure policy). There is a dearth of literature that examines the potential of different forms

of digital presentation formats to minimise the occurrence of functional fixation, especially

within the accounting context of financial statement recognition or notes to financial statements

disclosure. Hodge et al. (2002; 2004) argued that decision-makers were more likely to rely on

information that was recognised within the financial statements but were less likely to draw on

relevant information that was disclosed in the notes to the financial statements. Hopkins (1996)

observed that decision-makers would integrate items of disclosure if they accidentally found the

information item and it was relevant to their decision-making models.

Figure 1 provides a diagrammatical representation of the theoretical framework that underpins

the research and identifies the various stages of decision making as dependent variables and it is

around these variables that the following null hypotheses are developed.

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Presentation formatsPDFHTMLXBRL

Information processing stages

AcquisitionEvaluationWeightingDecision

Users’ characteristicsExperienceFamiliarity

Placement of information RecognitionDisclosure

Figure 1: Research framework

Dependent variables Independent variables

Confounding variables

(a) Information Acquisition

In the context of this study, information ‘acquisition’ refers to an informed decision maker2

reading the financial statements and accompanying notes and detecting sufficiently well for

future recall the specific cues relating to the valuation model used to report investment

properties. The framework indicates that different digital presentation formats can influence

whether decision makers read all investment property related information.

H1: The choice of digital presentation format does not impact on the performance of decision-makers’ to identify the accounting valuation model used to account for investment properties, irrespective of the placement of relevant information.

(b) Information Evaluation

Information ‘evaluation’ involves the decision maker assessing the information acquired. That is,

having identified and read the relevant information, the decision maker will also perceive visible 2 It is to be expected that participants in the experimental exercise reported in this study have sufficient technical knowledge to understand the accounting-calculation effect when reporting an investment property within the financial statements and which is dependent on whether a Cost model or Fair Value model of accounting is used.

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characteristics of that information such as, for example, change in fair value of investment

property. The framework indicates that different digital presentation formats can influence

whether decision makers correctly evaluate the change in investment property fair value,

regardless of where that change is reported.

H2: The choice of digital presentation format does not impact on the performance of decision-makers’ to evaluate the change in investment property fair value, irrespective of the placement of that information.

(c) Information Weighting

Information ‘weighting’ refers to a perceived importance placed by the decision maker on the

evaluated information characteristic when forming a judgement or decision. Studies have shown

that decision-makers gave different relative weightings of importance to information items due to

functional fixation (Hopkins, 1996; Hirst and Hopkins 1998). For example, information items

recognised within financial statements were found to be more influential to a decision outcome

than information items disclosed in the notes to the financial statements (Maines and McDaniel,

2000). In other studies (e.g., Beaver and Landsman, 1983; Beaver and Ryan, 1985; Bernard and

Ruland, 1985; Landsman, 1986; Harris and Ohlson, 1987) information recognised in the Balance

Sheet was found to be more influential than information recognised in the Income Statement.

Lipe and Salterio (1999) found that information users mentally grouped similarly located items,

hence increasing the relative weighting of importance of one placement over another when

making the final decision.

In the context of this study, information ‘weighting’ refers to the importance for decision makers

to adjust for the change in the investment property’s fair value, for both balance sheet and

income statement effect, when undertaking financial analysis for comparative purposes. The

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framework therefore indicates that different digital presentation formats can influence decision

maker’s assessment of the perceived importance of an information item.

H3: The choice of digital presentation format does not impact on the perceived weighting given by decision-makers’ to information on the fair value of the investment property, irrespective of the placement of that information.

(d) Decision Outcome

The sequential process of decision making implies that the qualitative outcome at each stage of

the decision making process is influenced by the decision maker’s performance at the preceding

stage. Thus we would expect that the quality of the investment decision to be dependent on the

decision maker being able to similarly acquire and evaluate investment property information

using all three digital presentation formats and irrespective of where the information is placed.

Studies have also found that functional fixation exists in the decision stage (Maines and

McDaniel, 2000; McDaniel et al., 2002). Decision-makers’ decisions are affected when

comparisons are made between two firms adopting different accounting models (Hodge et al.,

2004). In their study, Hodge et al. (2004) found weak support for the XBRL presentation formats

to reduce functional fixation when compared to the PDF format. This study extends Hodge et al.

2002; 2004) by re-examining the impact of digital presentations formats on alleviating functional

fixation (if any) in an investment decision task. The following hypothesis is developed:

H4: There is no significant difference in decision outcome from the choice of presentation format, irrespective of the placement of information.

Prior studies have suggested that decision-makers’ work experience, familiarity with

technologies used in the decision-making process and personal characteristics such as gender,

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confidence and cognitive style, may influence the effectiveness of different presentation formats

to enable an optimal decision outcome (Sabherwal and Grover, 1989; Bamber, 1993; Brown and

Eining, 1996; Nouri and Douglas-Clinton, 2006). In their study, Kalchelmeier and Messier

(1990) found that experience moderates decision performance since the more experienced

decision maker brings added skills to their interaction with different presentation formats.

Mackay et al. (1992) found that the greater the familiarity with a particular presentation format

then the better the performance in achieving an optimal decision outcome. Therefore, it is

possible that the decision-makers’ level of task experience and knowledge of digital presentation

formats may have an influence on the way in which decision-makers engage in the decision-

making process (Roberts, 2002; Hodge et al., 2004). The empirical analysis undertaken in this

study includes tests that control for work experience and technology familiarity.

4. RESEARCH DESIGN

This study uses an experimental design to examine the impact of different forms of digital

presentation format on an investment decision-making process in situations when information of

relevance is reported in different locations. Specifically, this study examines whether different

forms of digital presentation format minimise the effects of functional fixation when two

alternative accounting models are used to report on changes in an asset’s (i.e. investment

property) value. This section provides an overview of the research design underpinning the

experiment.

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Participants

Sixty-two New Zealand public accounting practitioners volunteered to participate in this study.

Public accountants were chosen as the research subjects because they perform a broad range of

accounting-based services including advising clients on investing strategies and activities (Vera-

Munoz et al., 2002). Accounting practitioners also have knowledge and understanding of

financial statements and as such are described as professional users of financial statements

(Goldwater and Fogarthy, 1995).

Previous studies (Hodge, 2001; Dull et al., 2003; Hodge et al., 2002; 2004) have often used

students as proxies for professional users as they were readily available as participants and have

some degree of accounting skill (Libby et al., 2002). However, using students as proxies for

professional users can be problematic as they are likely to differ from professional users in that

they may lack advanced accounting and investment skills and practical experience (Stedry, 1960;

Birnberg and Nath, 1967; Anderson, 1988; Vera-Munoz et al., 2001). The way in which the two

groups acquire and process information is also different (Yates, 1990; Bouwman et al., 1995;

Hunton and McEwen, 1997). Students, in general, have limited working experience and their

analytical techniques may be less developed than, for example, experienced accounting

practitioners (Vera-Munoz et al., 2002). Therefore, the use of professional users as participants

in this study contributes to the broader understanding of the impact of digital presentation

formats on the information processing stage.

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Research Instrument

The research instrument consists of an experimental task and a post experimental questionnaire.

The experimental task requires participants to complete an investment making decision and is

adapted from Hodge et al. (2004). The experiment revolves around the fictitious financial

statements of two firms: Firm A and Firm B. Each set of financial statements comprise an

Income Statement, a Balance Sheet, Notes to the Financial Statements, and a Statement of Cash

Flows. The financial statements for each firm are prepared in accordance with the same

accounting policies with the exception of the way in which a change in investment property

value is accounted for (i.e. fair value model or cost model). For the purposes of the experiment,

Firm A is the control firm which recognises at all times the fair value of investment property in

the financial statements while Firm B is the treatment firm, which would either recognise the fair

value of investment property in the financial statements or disclose the change of fair value in the

notes to the financial statements (refer to Table 1).

Table 1: Differences in Accounting Policy on Change in Fair Value

PARTICIPANT

‘RECOGNITION’ GROUP

PARTICIPANT

‘DISCLOSURE’ GROUP

Firm A and Firm B adopt the Fair value model

whereby investment property is recorded at fair

value in the balance sheet and any gains or losses are

recognised in the income statement (Fair value

model).

Firm A adopts the Fair value model

Firm B adopts the Cost model whereby investment

property is recorded at cost value in the balance

sheet and the gains or losses are disclosed as notes

to the financial statements (Cost model).

Firm B outperforms Firm A. Firm A outperforms Firm B unless participants put

the financial position and results of the two firms

on equal footing.

Firm A is the control firm and Firm B is the manipulated firm.

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Participants were divided into two groups. Participants in the first group, hereafter referred to as

the ‘Recognition Group’ received a set of financial statements relating to Firm A and Firm B that

have both been prepared using the same accounting policies and, specifically, where the change

in fair value of the investment property has been accounted for using the fair value model (i.e.

new fair value recognised in the balance sheet and corresponding gain recognised in income

statement). Participants in the second group, hereafter referred to as the ‘Disclosure Group’,

received the same set of financial statements for Firm A as received by the Recognition Group

(i.e. based on the fair value model), however the financial statements of Firm B were

manipulated whereby the change in fair value of Firm B’s investment property was accounted for

using the cost model (i.e. asset remains in balance sheet at cost, but information on change in fair

value is disclosed in the notes to the financial statements). The participants were required to

calculate four ratios: return on assets, return on sales, return on fixed assets and fixed assets

turnover. These four ratios were chosen as they include assessing information items related to

investment property.

The material is developed in such a manner that when both firms adopt the fair value model,

Firm B outperforms Firm A. For example; a participant in the Recognition group would calculate

the ratio for return on fixed assets for Firm A as 14.4% and Firm B as 16.2%. However, when

Firm A adopts the fair value model and Firm B adopts the cost model, then Firm A outperforms

Firm B on the key ratios. For example: a participant in the Disclosure group would calculate the

ratio of return on fixed assets for Firm A as 14.4% and Firm B as 12.73%. Of particular interest

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to this study is whether, when calculating the key financial ratios and making the investment

decision, participants in the Disclosure Group make appropriate adjustments to Firm B’s

reported investment property values to recognise change in fair value and associated gain on

revaluation. For example: if a participant in the Disclosure group has made appropriate

adjustments to Firm B’s reported investment property, then the ratio of return on fixed assets for

Firm A would be 14.4% and for Firm B would be 16.2%, the results of which would then be

similar to those calculated by the Recognition group.

The financial statements for both firms were then converted into three digital presentation

formats: PDF, HTML and XBRL. These presentation formats are technologies available to

preparers of financial reports in the dissemination of financial performance and position

information. The conversion of the financial statements into XBRL was made using Microsoft

Excel. Microsoft Excel was chosen as this is similar to the model XBRL financial statement

developed by XBRL-NZ (XBRL-NZ, 2004). Further, professional users often use Microsoft

Excel when performing decision analyses (Beattie and Pratt, 2003). The financial statements in

the three presentation formats (PDF, HTML and XBRL) were then uploaded to a webpage.

Pilot study and data collection

A pilot study was conducted before commencing the main experiment to ensure that the

experiment and post experiment questionnaire captured the data relevant to testing the

hypotheses. Two public practitioners participated in the pilot study. One participant had

difficulty in accessing one of the presentation formats and this indicated a possible need for

participants to be offered assistance in accessing the research material.

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Participants had the opportunity to complete the research exercise in the researcher’s presence.

Hodge (2001) refers to these participants as ‘in-lab’ participants. Alternatively, participants

could elect to access the research material on their own. Hodge (2001) refers to these participants

as ‘out-of-lab’ participants. This latter option provides participants who may, for example, have

significant work commitments, the opportunity to participate at a more convenient time.

To ensure that in-lab and out-of-lab participants attempted the experimental task in a similar

manner (such as minimal prolonged breaks during the experiment), the participants were

requested to complete the various tasks in one sitting (session). To assess whether the two groups

had completed the tasks in a similar manner, the average time taken by each of the two groups to

complete the experiment was compared. The participants were also instructed to rely solely on

the information provided in the experiment material when completing the various tasks. To

assess the accuracy of extracting relevant values and the correct calculation of the four ratios

requested in the research material the two groups were compared.

Finally, the participants were allocated a particular digital presentation format. Each participant

was advised to complete the research material based on the allotted presentation format. The

purpose of such allocation was to ensure equal distributions across each of the three digital

presentation formats. Figure 2 summarises the basic setup of the experiment including the

number of participants allocated to each of the different digital presentation formats and

combinations of accounting policies used in the preparation of Firm A and B’s financial

statements and accompanying notes to the financial statements.

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Figure 2: Experiment Setup

Experiment procedures

The experiment was conducted in a series of sequential events. All participants are provided with

two envelopes. The participants commence the experiment by opening the first envelope which

contains a CD. Material on the CD includes an instruction page, a homepage containing general

information about the line of business that the two firms are involved in, and the financial

statements of the two firms converted into the three digital presentation formats. The participants

begin their analysis by viewing each firm’s homepage. In each of the firm’s homepage, the

participants are requested to click on to their assigned presentation formats. The presentation

includes the financial statements and relevant notes to the financial statements for the particular

firm.

Experiment Material

Recognition group Disclosure group

PDF HTML XBRL PDF HTML XBRL

Firm ARecognition

Firm ARecognition

Firm ARecognition

Firm ARecognition

Firm ARecognition

Firm ARecognition

Firm BRecognition

Firm BRecognition

Firm BRecognition

Firm BDisclosure

Firm BDisclosure

Firm BDisclosure

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After reviewing each of the firm’s financial information, the participants are asked to calculate,

for each of the two firms, the four specified key ratios. The purpose of requiring participants to

calculate the ratios is to determine if they are aware of the accounting model adopted by the two

firms in relation to investment properties. The participants are then asked to evaluate the

financial performance and earnings potential of Firm A and Firm B and decide how much out of

a total of $10,000 they would invest in one firm or across both firms.

Once the participants completed the experiment exercise, they were asked to open the second

envelope which contains the post experimental questionnaire. The post experimental

questionnaire includes two sections. The first section asks the participants to identify the

accounting model adopted by the two firms (i.e. fair value model or cost model) and if they have

evaluated the two firm’s information on investment property. The second section solicited

participant demographic information.

Measurement of Dependent Variables

The impact of presentation formats is measured at the four stages of information processing:

acquisition, evaluation, weighting and decision outcome. Information acquisition for hypothesis

1 is measured by the participants’ ability to correctly recall the model adopted by Firm A and

Firm B. The financial information set for each of the two firms received by participants in the

Recognition group have been prepared using the same accounting model (i.e. Fair value model)

when accounting for investment properties whereas the financial information set received by

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participants in the Disclosure group have been prepared using different accounting models to

account for investment property (i.e. Fair value model for Firm A and Cost model for Firm B). If

participants in the Disclosure group correctly identify the different models adopted by each firm,

this indicates that the particular presentation formats used by participants had reduced functional

fixation (caused by the use of different accounting models and alternate placement of

information) in the information acquisition stage (Hodge et al., 2004). Therefore, the percentage

of correct model identifications by the Disclosure group would be similar to the percentage of

correct model identifications by the Recognition group. The level of success by participants to

correctly identify the accounting model(s) used is the dependent measure.

Information evaluation is measured according to whether the participants have evaluated the

relevant information related to investment property in their decision-making process. For Firm

A, this information is included in the balance sheet (property investment is shown at fair value)

and in the income statement (gain arising from the difference between fair value and cost)

irrespective of whether the participant is in the Recognition group and the Disclosure group. For

Firm B, the investment property is accounted for and reported to participants in the Recognition

group using the fair value model whereas, for participants in the Disclosure group, the

investment property is accounted for and reported using the cost model (that is, asset is shown in

balance sheet at cost value and information regarding the asset’s fair value and cost value is

presented in the notes to the financial statements). The participants’ response of either “yes” or

“no” to a question on whether they identified the relevance of information pertaining to

investment property, in their decision-making process, is the dependent measure to test

23

hypothesis 2 relating to the impact of presentation formats on the information evaluation stage of

decision making.

Information weighting is assessed by participants’ decision to include or exclude the information

related to investment property in their calculation of the four financial ratios for each of the two

firms. The difference in the sum totals of the ratios calculated for Firm A and Firm B by

participants in the Recognition group and the sum totals of the ratios calculated for Firm A and

Firm B by participants in the Disclosure group are compared. If the Recognition group and the

Disclosure group, using the same digital presentation formats, give the same level of importance

(i.e. weighting) to information related to investment properties, then the sum totals of the ratios

calculated by each of the two groups would be similar and any difference should not be

significantly different from 03. However, the greater the difference between the sum totals of the

two groups, then the stronger the indication that a higher proportion of participants in the

Disclosure group gave less weighting to the full range of reported information on investment

property than participants in the Recognition group4.

The dependent variable decision outcome is measured by the participants’ percentage of

investment in Firm B5. The set of financial information provided to participants in the

Recognition group, for both Firm A and Firm B, were prepared using the same accounting model

whereas participants in the Disclosure group received two sets of financial information prepared

using two different accounting models. If the participants in the Disclosure group adjusted for 3 This approach is the same as Hodge et al. (2002; 2004).4 This argument is based on the notion that participants would reach the same results if they were provided with the same information. Since the only manipulated information in the experiment is the accounting method for investment properties, any difference in results is likely to be caused by participants with the manipulated information failing to give appropriate weight to the information item related to the investment properties.5 This choice of using the percentage of investment in Firm B as a dependent measure is consistent with Hodge et al. (2002; 2004).

24

the difference in the accounting models and placed the two firms at par, then their investment

decisions should favour Firm B and therefore the percentage of investment in Firm B would be

higher than the percentage of investment in Firm A6.

5. RESULTS

Participants

Table 2 shows the extent of the participant’s professional experience and their level of familiarity

with digital presentation formats. Participants have substantial work experience with twenty-two

percent of the participants having more than 20 years’ working experience and half of the

participants having more than 10 years of working experience. The table also shows that a higher

proportion of participants were familiar with PDF (83%) compared with HTML (51%) and

XBRL (8%). This is not surprising as PDF is used more widely as a reporting format (Baldwin et

al., 2004). The small number of participants who were familiar with XBRL may be attributed to

its more recent emergence as a digital reporting technology (Baldwin et al., 2004)7.

Table 2: Participants’ demographic attributes

Panel A: Level of accounting experienceExperience Number of subjects PercentLess than 5 years 15 24.25 to 10 years 15 24.211 to 15 years 12 19.416 – 20 years 6 9.7More than 20 years 14 22.6Total 62 100.0

6 The participants may also place both firms at par using the cost model. However, because the information related to Firm A does not include information on the cost value of the investment property in the balance sheet, the participants were not able to assess that both firms were using the Cost model as they were requested to rely solely on the information provided in the experiment material. The cost value of the investment property is intentionally left out to lead participants who choose to put both firms at par to use the Fair value model. 7 The participants who were familiar with XBRL had some exposure to XBRL either from becoming members of XBRL-NZ, conferences or involvement with a pilot study performed by XBRL-NZ. The pilot study involved 12 listed companies and was completed in 2005.

25

Panel B: Familiarity with presentation formats

Familiarity(1: not familiar- 7: Very familiar)

PRESENTATION FORMATSPDF HTML XBRL

Number of subjects Percent



7 24 38.7 9 14.5 2 3.26 18 29.0 12 19.4 2 3.25 20 16.1 11 17.7 1 1.64 3 4.8 10 16.1 2 3.13 2 1.6 7 11.3 5 8.12 0 0 3 4.8 12 19.41 6 9.7 10 16.1 38 61.3

Total 62 100.00 62 100.0 62 100.0

The participants in this study completed the experiment in either in-lab or out-of-lab settings.

Table 3 provides a comparison between the two groups in relation to the amount of time taken to

complete the experiment. Twenty three participants attempted the research instrument in an in-

lab setting while 39 participants chose to complete the research instrument in an out-of-lab

setting. The average time to complete the experiment in-lab was 13 minutes while the out-of-lab

was 15 minutes. A t-test shows no significant differences between the two groups (p=0.159).

This indicates that in-lab and out-of-lab participants completed the experiment in a similar

timeframe (such as no prolonged breaks during the experiment).

Table 3: Descriptive statistics of time taken to complete the experiment

Completion timeNumber of

subjectsTime to complete the experiment

Mean Std deviation Std error meanIn-lab 23 13.6087 6.72674 1.40262Out-lab 39 15.8974 5.71607 0.91530

The participants were asked to complete the experiment using only the information presented in

the research instrument. However, because the participants were allowed to complete the

experiment in an out-of-lab setting, there is a possibility that the participants might have

26

accessed information outside of the research material. If the participants relied solely on the

information in the distributed research material when completing the experiment, the accuracy in

extracting and calculating ratios between the in-lab and out-of-lab participants should not be

significantly different. The participants were asked to calculate a total of 4 ratios for each firm

and these can be used to determine whether there were any significant differences in the source

of information used to inform their calculations. Table 4 provides a comparison between the two

groups in relation to their accuracy in calculating the ratios.

Table 4: Participants’ information usage

Panel A: Descriptive statistics of accuracy in calculating ratios

Completion timeNumber of

subjectsAccuracy in calculating ratios

Mean Std deviation Std error meanIn-lab 23 4.3043 2.85139 0.59456Out-lab 39 5.0769 2.67920 0.42902

Panel B: T-test for in-lab and out-of lab experiment

T Df Sig.Mean

differenceStd. error difference

95% confidence interval of the difference

Lower UpperEqual variances assumed

-1.071 60 0.288 -.77258 0.72131 -2.21540 0.67025

The mean accuracy score for in-lab participants is 4.3 while for the out-of-lab participants is

about 5. A t-test indicates no significant differences between these two groups (p=0.288). This

suggests that the in-lab and out-of-lab participants attempted the experiment by relying solely on

the information provided in the experiment instrument.

Manipulation check

Before testing the four research hypotheses, a manipulation check was performed to assess

whether the results of the experiment could be attributed to the impact of the presentation

formats in processing of information in the situation of alternate placements of information (i.e.

27

recognition versus disclosure), and not to the decision-makers’ ability to recall information (i.e.

working memory capacity)8.

The manipulation check was performed by requesting the participants, in the post experiment

questionnaire, to identify the accounting models adopted by Firm A and Firm B. The participants

were requested to not view the webpage information after completing the experimental exercise.

The manipulation check, adapted from Hodge et al. (2002), examines the accuracy of the

participants in identifying the accounting models adopted by the two firms in the experiment.

Within each situation, if the results show significant differences in model identification, this may

indicate that the participants’ working memory capacities differ significantly. For example, if

the results show significant differences in model identification within the recognition group,

where both firms adopt the same model for accounting of investment property, this would

indicate that presentation format and/or participants’ working memory capacities affect

accounting model identification. If the results show no significant differences, that would

indicate that either presentation format does not affect accounting model identification or there

are no significant differences in participants’ working memory capacities. A new variable, model

identification, was developed to code whether the participants correctly identified the model

adopted by the two firms.

Table 5 presents the results of the manipulation check using Multinomial logistic regression

analysis. The table is divided into three panels. Panel A presents the descriptive statistics of the

accounting model identification under each of the three digital presentation formats, and the

8 Working memory is the “workspace” within memory, separate from long-term memory, responsible for temporary storage and information processing (Roberts, 2002). Studies have suggested that working memory capacity differs among decision-makers (Baddeley, 1992; Engle, 1996).

28

results of testing for any significant differences between presentation formats by participants in

the Recognition group. Panel B provides the descriptive statistics of the accounting model

identification under each of the three digital presentation formats, and the results of testing for

any significant differences between presentation formats by participants in the Disclosure group.

Panel C presents the descriptive statistics of accounting model identification under each of the

three digital presentation formats, and testing for any significant differences between

presentation formats by all participants. All results show no significant differences between the

presentation formats, which suggests that there are no differences in the working memory

capacities of participants allocated to each of the three presentation formats.

29

Table 5: Manipulation check

Panel A: Descriptive statistics for the Recognition groupPresentation formats

Information acquisition PDF HTML XBRLN Percent N Percent N Percent

Correctly identified the model 4 26.7 5 33.3 6 40.0Incorrectly identified the model 7 43.7 5 31.3 4 25.0Total 11 35.4 10 32.3 10 32.3

Model fitting criteria

Likelihood ratio tests

Effect -2LL Df X² Sig.Presentation formats 9.592 2 1.199 0.549

Panel B: Descriptive statistics for the Disclosure groupPresentation formats






Panel C: Descriptive statistics of all participantsPresentation formats






30

Acquisition

Multinomial logistic regression is used to examine hypothesis 1 which proposes that the form of

digital presentation format does not impact on decision-makers’ performance in the acquisition

of information in an accounting ‘recognition versus disclosure’9 situation. Table 6 presents the

results and is divided into two panels: Panel A presents the descriptive statistics of information

acquisition and Panel B provides the results of Multinomial logistic regression that tests the

likelihood of significant difference in information acquisition between presentation formats.

The results indicate that more participants in the Recognition group correctly identified the

accounting model adopted by Firm A and Firm B (48%) in comparison to participants in the

Disclosure group (35%). However, the difference between the two groups is not significant

(p=0.273). Participants who were presented with the XBRL presentation formats had a higher

success rate in identifying the accounting model adopted by both firms correctly (52%),

compared to participants who were presented with PDF (40%) and HTML (33%) presentation

formats. However, the difference between presentation formats on the ability of participants to

correctly identify the accounting model used (information acquisition) is not significant

(p=0.417). Testing the interaction between presentation formats and placement of information on

information acquisition, the results indicate that any difference is not significant (p=0.914).

9 For brevity, the phrase ‘recognition versus disclosure’ (not to be confused with participants designated as Recognition group and Disclosure group) is used in this section to describe the alternate placement of financial information relating to change in fair value of investment property when accounted for under different accounting models (i.e. the term recognition pertains to the use of the Fair value model, and the term disclosure pertains to the use of the Cost model).

31

Table 6: Effect of presentation formats and recognition versus disclosure on decision-makers’ acquisition

Panel A: Descriptive statistics of information acquisition

Format GroupIdentify Model B

Correctly Percent Incorrectly PercentPDF Recognition

Disclosure43

36.3630.00

77

63.6470.00

Total 7 33.33 14 66.67

HTML RecognitionDisclosure

53

50.0030.00

57

50.0070.00

Total 8 40.00 12 60.00

XBRL RecognitionDisclosure

65

60.0045.45

46

40.0054.54

Total 11 52.38 10 47.62

Total RecognitionDisclosure

1511

48.3935.48

1620

51.6164.52

Panel B: Multinomial logistic regression10



Effect -2LL Df X² Sig.Presentation 18.495 2 1.751 0.417Recognition Group versus Disclosure Group 17.946 1 1.202 0.273Presentation x Recognition versus disclosure 16.744 2 0.180 0.914

The results above may have been influenced by other factors such as the participants’ work

experience and familiarity with presentation formats. Table 7 presents the results of testing the

interaction between presentation formats and recognition versus disclosure on information

acquisition when controlling for work experience and familiarity with the presentation formats.

The results indicate that work experience and familiarity with a presentation formats are not

important covariates (p=0.403 and p=0.864). The overall results of testing hypothesis 1 indicate

that the null hypothesis is not rejected.

10 The results combine two tables: that is, the main effect of the independent variables and, the interaction between the independent variables. The chi-square statistic is the difference in -2 log-likelihoods between the final model and a reduced model. The reduced model is formed by omitting an effect from the final model. The null hypothesis is that all parameters of that effect are 0.

32

Table 7: Work experience and familiarity with presentation formats in information acquisition

Multinomial logistic regression Model fitting

criteriaLikelihood ratio tests

Effect -2LL Df X² Sig.Work experience 77.145 1 0.700 0.403Familiar with presentation formats 76.474 1 0.029 0.864Presentation x Recognition versus disclosure 79.480 5 3.035 0.695

Evaluation

Hypothesis 2 proposes that the digital presentation formats do not impact upon decision-makers’

information evaluation in the context of recognition versus disclosure situations. Table 8 presents

the results of the effect of presentation formats on information evaluation. The table is divided

into two panels: Panel A presents the descriptive statistics of information evaluation and Panel B

provides the results of Multinomial logistic regression that tests the likelihood of significant

difference in information evaluation when using different presentation formats.

Table 8 shows that 58% of the participants in the Recognition group and 42% of the participants

in the Disclosure group evaluated the relevance of information related to investment property.

However the difference between the two groups is not significant (p=0.146). Participants

presented with the XBRL presentation formats were more likely to evaluate the information

related to investment property (67%) compared to those participants who were presented with

the PDF (29%) and HTML (55%) formats. The p value of 0.029 indicates that there are

significant differences between the presentation formats on information evaluation. However, the

results indicate that the interaction between presentation formats and placement of information is

not significant (p=0.766).

33

Table 8: The effect of presentation formats and recognition versus disclosure on users’ evaluation

Panel A: Descriptive statistics of information evaluation

Format GroupEvaluate information related to investment property

Yes Percent No PercentPDF Recognition

Disclosure 4 2

36.3620.00

7 8

63.6480.00

Total 6 28.57 15 71.43

HTML RecognitionDisclosure

7 4

70.0040.00

3 6

30.0060.00

Total 11 55.00 9 45.00

XBRL RecognitionDisclosure

7 7

70.0063.64

3 4

30.0036.36

Total 14 66.67 7 33.33


1813

58.0641.94

1318

41.9458.06

Panel B: Multinomial logistic regressionModel fitting


Effect -2LL X² Df. Sig.Presentation 23.676 7.053 2 0.029Recognition Group versus Disclosure Group 18.733 2.110 1 0.146Presentation x Recognition versus disclosure 16.623 0.533 2 0.766

Covariates for work experience and familiarity with presentation formats were also tested to

determine their importance to information evaluation. Table 9 shows that familiarity with

presentation formats is a marginally important covariate for information evaluation (p=0.097).

Nevertheless, the overall results indicate that hypothesis 2 is not rejected.

Table 9: Work experience and familiarity with presentation formats in information evaluation

Multinomial logistic regressionModel fitting


Effect -2LL X² Df. Sig.Work experience 67.062 0.003 1 0.958Familiar with presentation formats 69.810 2.751 1 0.097Presentation x Recognition versus disclosure 75.660 8.601 5 0.126

34

Weighting

Hypothesis 3 states that there is no significant difference in the effect of presentation formats on

decision-makers’ information weighting in recognition versus disclosure situations. Table 10

presents the results of the effect of presentation formats on information weighting and shows that

when comparing the two participant groups, participants in the Recognition group had a mean

sum total of 10.0823, whereas those in the Disclosure group had a mean sum of 9.5058.

However, the difference of 0.5765 is not significant (p=0.666). The results also show that the

effect of presentation formats in decision-makers’ weighting is not significant (p=0.138) and the

interaction of presentation formats and placement of information on information weighting is

also not significant (p=0.578).

Table 10: The effect of presentation formats and recognition versus disclosure on decision-makers’ weighting

Panel A: Descriptive statistics of information weightingFormat Group Number of subjects Mean Std. Deviation

PDF RecognitionDisclosureTotal

111021

7.99278.98708.4662

3.604584.954114.21899

HTML RecognitionDisclosureTotal

101020

8.97608.84408.9100

3.083102.325832.65887

XBRL RecognitionDisclosureTotal

101121

13.487010.579111.9638

12.239565.471059.19749

Total Recognition Disclosure

313162

10.08239.50589.7940

7.615624.429606.18528

Panel B: UNIANOVASource of variance Df F Sig.Presentation 2 2.051 0.138Recognition Group versus Disclosure Group 1 0.189 0.666Presentation x Recognition versus disclosure 2 0.554 0.578

35

Table 11 presents the results of the impact of presentation formats on information weighting

when controlling for work experience and familiarity with presentation formats. The ANCOVA

results show that work experience and familiarity with presentation formats are not important

covariates in information weighting (p=0.520 and p=0.867). These results support the acceptance

of hypotheses 3 that presentation formats does not impact on information weighting in the

context of recognition versus disclosure.

Table 11: Work experience and familiarity with presentation formats in information weighting.

ANCOVA Source of variance Sum of

squaresDf Mean

square F Sig.Experience 16.451 1 16.451 0.429 0.520Familiarity 1.101 1 1.101 0.028 0.867Presentation formats x Recognition versus disclosure 42.544 2 21.272 0.543 0.584

Decision outcome

Hypothesis 4 proposes that there is no significant difference in the effect of presentation formats

on decision-makers’ decision in recognition versus disclosure situations. Table 12 presents the

results on the effect of presentation formats on decision outcome. The table shows that the mean

investment in Firm B (expressed as a percentage of $10,000) by participants in the Recognition

groups is 61%, which reflects the average investment decision when the financial statements of

the two firms were prepared using the same accounting policy for investment property11.

Participants in the Disclosure group proposed a mean investment in Firm B of 40% in the

situation when the financial statements of Firm A and Firm B were prepared using different

accounting policies for investment property. This difference between the two groups is

11 Recall from Table 1 that when the two firms adopted the same accounting policy, then Firm B performed better than Firm A when performance was evaluated on the basis of four financial ratios.

36

significant (p=0.001) which suggests that participants in the Disclosure group may have

experienced functional fixation.

Table 12: The effect of presentation formats on decision-makers’ decision

Panel A: Descriptive statisticsFormat Group Number of subjects Decision Mean Std. Deviation

PDF RecognitionDisclosureTotal

111021

54.454536.000046.1905

26.3110826.4365127.56378

HTML RecognitionDisclosureTotal

101020

67.500037.000052.2500

14.9536321.1081923.70182

XBRL RecognitionDisclosureTotal

101121

60.400047.272753.5238

24.8202423.0611824.25411


313162

60.935540.322650.6290

22.5417223.4142225.04961

Panel B: UNIANOVASource of variance Df F Sig.Presentation 2 0.718 0.492Recognition Group versus Disclosure Group 1 12.725 0.001Presentation x Recognition versus disclosure 2 0.733 0.485

Table 12 shows that participants who were presented with financial statements in the PDF

presentation formats invested 36% of funds in Firm B, whereas participants who received HTML

and XBRL presentation formats invested 37% and 47%, respectively. Although this indicates

that the XBRL participants invested more funds in Firm B compared to PDF and HTML

participants, these differences are not significant (p=0.492). The results also show that the

interaction between presentations formats and accounting models on decision outcome is not

significant (p=0.485).

37

Table 13 presents the results of the impact of presentation formats on decision outcome when

controlling for work experience and familiarity with a presentation formats. The ANCOVA

results show that work experience is a marginally important covariate in decisions (p=0.097).

This indicates that when participants have more working experience in investment decision-

making, the impact of presentation formats on decision outcome when different accounting

models are used by two or more target firms, is less significant than for less experienced

decision-makers. The results indicate that familiarity with presentation formats is not an

important covariate (p=0.973).

Table 13: Work experience and familiarity with presentation formats in decision outcome

ANCOVA

Source of varianceSum of squares Df

Mean square F Sig.

Experience 1510.364 1 1510.364 2.853 0.097Familiarity 0.600 1 0.600 0.001 0.973Presentation formats x Recognition versus disclosure 815.299 2 407.649 0.770 0.468

In summary, the results indicate that functional fixation may exist when making an investment

decision between two firms that adopt different accounting policies. However, presentation

formats does not impact on decision outcome, which suggests that presentation formats do not

reduce functional fixation, indicating that hypothesis 4 is not rejected.

6. SUMMARY AND CONCLUSION

This study examined the effect of presentation formats on the four stages of decision making (i.e.

information acquisition, evaluation, weighting and decision outcome) in the context of different

38

accounting models being used to report key financial information relating to investment

property.

The results indicate that the use of different models (i.e. Fair value model and Cost model) do

not impact on the ability of decision-makers to acquire, evaluate and weight information relevant

to their investment decision. These results are consistent with other studies that examined the

phenomenon of functional fixation in different settings, such as Wilkins and Zimmer (1983)

which identified that different accounting methods do not affect bankers’ assessments, and

Maines and McDaniel (2000) who found that the placement of information either in the

Statement of Comprehensive Income or Statement of Stockholders’ Equity did not affect the

information acquisition stage.

The results in this study are, however, not consistent with other studies that did find the presence

of functional fixation in ‘recognition versus disclosure’ situations (e.g., Hopkins, 1996; Hirst and

Hopkins, 1998; Luft and Shields, 2001; Hodge et al., 2002; 2004). One possible reason for the

inconsistency with prior studies is the study sample and experimental design. For example,

Hodge et al. (2004) used students as proxies for actual decision-makers whereas in this study we

used professional users.

A key finding in this study is that functional fixation exists in the decision outcome stage when

the information is either recognised within the financial statements (Fair value model of

accounting) or disclosed in the notes to the financial statements (Cost model of accounting). The

evidence in this study points to the conclusion that digital presentation formats have not assisted

39

professionals in overcoming the limitations of humans as decision-makers in relation to

functional fixation. This would support the view that until presentation technology provides the

tools to assist users, the alternative options of either ‘recognising’ or ‘disclosing’ key financial

information may lead to different economic consequences.

40

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Alternative diagram to Figure 1:

Question – are there now 2 hypotheses per dependent variable? Impact of presentation format on variable and impact of placement of information on variable?

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