Academic journal article Journal of Business and Accounting

Radar Charts and the Paradigm of Cognitive Fit: Implications for Accounting Research and Practice

Academic journal article Journal of Business and Accounting

Radar Charts and the Paradigm of Cognitive Fit: Implications for Accounting Research and Practice

Article excerpt

INTRODUCTION

Decision-makers in all but the smallest organizations typically rely on information supplied by others in the organization as a basis for their decisions. Two aspects of this information are important. First, information must be relevant to the decision, and second, information must be organized and communicated in an effective manner. The quality of the decision ultimately made, then, is a function of and is constrained by both of these aspects of information. The importance of decision quality extends to all organizational levels and all business disciplines. However, in this paper, we choose to focus on the potential for decision quality improvements in specific accounting-related applications. We do this by connecting the theory of cognitive fit to accounting-related decision contexts and introducing how utilizing a specific type of graphical representation, a radar chart, could improve decision quality.

Accounting education: Contemporary accounting education addresses the concept of information relevance as it relates to decision-making. For example, management accounting courses examine in some detail specific types of decisions commonly made by managers. The focus in these courses is on identifying relevant information in decision-making with some attention paid to how that information might be reported effectively to management. Auditing courses typically are structured around the macro decision process that culminates in an overall audit opinion. A number of preliminary decisions must be made which contribute to the overall decision about which type of audit opinion is most appropriate. Again, the focus is on relevant information related to decision-making but with very little attention given to how information might be communicated effectively to decision-makers. Financial accounting courses differ from management accounting and auditing courses in that financial accounting courses are not structured around decisions made by those receiving and using information. Decision-makers external to the organization may use the information in a variety of ways. Therefore, the issue of identifying relevant information is not directly addressed. However, information relevance is indirectly addressed in the sense that the content of general purpose financial statements is assumed to be relevant if compiled according to Generally Accepted Accounting Principles (GAAP). In other words, information contained in financial statements is relevant because GAAP rules were developed to promote relevance. Likewise, the issue of how to communicate financial statement information effectively is addressed only in the context of GAAP requirements.

The issue of how to effectively communicate relevant information to the decisionmaker is typically not addressed in contemporary accounting education. The primary reason is that accounting curricula are heavily weighted toward financial accounting, which accepts the format of general purpose financial statements as a given. Therefore, there is little need to discuss the merits of alternate modes of communication when, in general, accountants have no discretion in the matter. However, this logic does not apply in auditing or in management accounting.

External auditors follow Generally Accepted Auditing Standards (GAAS) which results in relatively prescribed processes when it comes to selecting auditing procedures and appropriate audit opinions. However, as auditing procedures are performed, information is gathered and communicated to senior audit personnel who use the information for decisions related to the timing and extent of subsequent auditing procedures and ultimately in selecting an appropriate audit opinion. External auditors do have discretion with regard to how information is communicated for these types of decisions. Examples of this would be alternative methods of presenting results of analytical review procedures and internal control evaluations to senior audit personnel. …

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