The effects of context, terminology, and expertise on the understandability of accounting concepts : a laboratory experiment

The purpose of this study is to determine the effects of expertise, context, and terminology on the understandability of accounting concepts. An understandability conceptual framework was developed to give theoretical support to the investigation of these three variables. A laboratory experiment using a 2X2X2 experimental design was conducted. A total of 146 master of business administration students was randomly assigned to the four low level of expertise cells, and 155 accounting students were randomly assigned to the four high level of expertise cells. Context was operationalized by presenting accounting concepts within financial statements. A context and a no-context level were studied. Two types of terminology, descriptive and technical, were used to operationalize the terminology variable. The dependent variable, understandability, was operationalized by measuring the ambiguity in accounting concepts. The more ambiguous accounting concepts are, the less understandable they are. A multi-method approach was undertaken to measure ambiguity and to give it construct validity. Three methods were used: (1) a discrete association method, (2) a limited association method, and (3) a similarity-dissimilarity judgment method. The first two methods gave uncertainty measures which were used as ambiguity measures. The data obtained by the third method, via a probabilistic multidimensional scaling algorithm (PROSCAL), gave a variance measure in semantic perceptual space. The measure given by the second method was chosen for data analysis purposes. Analysis of variance was used to test the three main effects, two second order interaction effects and four contrasts of interest. Significant differences were found concerning two main effects, terminology and expertise, and for one contrast. The context variable was not significant. Results suggest that terminology and expertise have an effect on the understandability of accounting concepts. Although the accounting profession does not have control over the users' expertise level, it could improve the terminology used to present information. The use of a more descriptive terminology could help users to better understand financial accounting information.