MEASURING MEANING IN ACCOUNTING:
SHARING CONNOTATIONS OF
UNDERPINNING CONCEPTS
by
Keith A. Houghton
Fitzgerald Professor of Accounting
The University of Melbourne
April 1998
Correspondence can be directed to:
Fax: +61 3 9349 2397
Email: [email protected]
The author gratefully acknowledges the helpful assistance of many people including
C. Boland, J. Cotter, J. Hronsky, C. Ikin, C. Jubb, R. Lourens, B. Stening and participants at
the Annual Conference of the British Accounting Association 1998 and at workshops at the
University of Tasmania and the University of Southern Queensland.
MEASURING MEANING IN ACCOUNTING: SHARING
CONNOTATIONS OF UNDERPINNING CONCEPTS
ABSTRACT
Communication is central to accounting, and effective communication is, in part,
dependent on the presence of shared meanings of relevant concepts between parties to
a communication process. Within the framework originally proposed by Osgood et al
(1957), this study measures the meaning of concepts fundamental to financial
reporting. Subjects comprised four groups: accountants, bankers, managers and
private (non-institutional) shareholders.
The three ‘professional’ groups (accountants, bankers and managers) shared similar
three-dimensional cognitive structures; while private (‘naive’) non-institutional
shareholders had a simpler, unidimensional structure within which they hold meaning.
While significant between-group differences in meaning were found, there was
considerable shared meaning between accountants on the one hand and bankers and
managers on the other.
KEYWORDS:
MEANING, ACCOUNTING, COMMUNICATION,
CONCEPTUAL, FRAMEWORK, SEMANTICDIFFERENTIAL.
MEASURING MEANING IN ACCOUNTING: SHARING
CONNOTATIONS OF UNDERPINNING CONCEPTS
1.0
COMMUNICATION, ACCOUNTING AND SHARED MEANING
Many would share the view that accounting involves communication. The writers of
several classic works in accounting have observed that communication is central to
accounting. For example, Littleton and Zimmerman (1962, p46) noted that “... the tool
of analysis that we call accounting has always had communication as an objective”;
while the American Accounting Association (1966, p1) define accounting as “... the
process of identifying, measuring and communicating economic information”
(emphasis added). One of Australia’s scholars, the late Louis Goldberg1 went further,
“It is scarcely an exaggeration to say that the problem of communication is the axial
problem of accounting” (Goldberg, 1964, p348).
The notion that accounting concepts ought to have a clearly defined and shared
meaning has been the motivation behind a number of the conceptual framework
projects in various parts of the world. The argument is that the quality and efficiency
of accounting communication will be enhanced if the building blocks of the
accounting communication process — the basic concepts of accounting such as (asset
and revenue) — have a meaning which is both understood and widely shared.
Communication has been defined as “the process of constructing meaning through the
exchange of symbols” (Johnson, 1977, p5), and as noted by Osgood et al (1957,
pp273-4), “... meaning is critically involved at both the initiation (the intentions being
encoded by the source) and the termination (the signals decoded by the receiver) of
any communicative act”.
Within the communications theory literature, communication has been modelled in
different ways. McCroskey, Larson and Knapp (1971) observed that there are
numerous alternative and competing models that seek to map out the communication
process. Two of the early models of communication were proposed by Lasswell
(1948) and Shannon and Weaver (1949). Both are relatively simple. They see
communication as having an identified sender and receiver, a message, and a channel
by which the message is sent. Building on the earlier work of Carroll (1955),
McCroskey (1968) derived a more complex model said to reflect the imperfections of
the communication process. An important aspect of McCroskey’s model is the
multiple stage process during, and subsequent to, the act of communication.
1
While each of these models differ in some way, they all contain certain basic
components: (1) the meaning of the sender’s intended message, (2) the encoding of
that into a signal, (3) the dispatch of the signal, (4) the receipt of the signal, (5) the
decoding of the signal, and finally, (6) the meaning of the received message. Also,
noise may corrupt the quality of the communication process during certain parts of the
process. As noted above, Osgood et al (1957) observed that meaning was central to
both the sender’s and the receiver’s messages, and for there to be effective receipt of
the intended message, shared meaning of concepts of the message must exist between
the sender and receiver of the message.
2.0
COMMUNICATION: THE DEFINITION AND MEASUREMENT OF
MEANING
If one accepts that communication is central to the function of accounting and
meaning is critical to communication, then the study of meaning is central to the study
of accounting. Leading from this, the study of shared meaning between users and
producers of accounting information is central to the study of the effectiveness of
accounting communication. The need for shared meaning for several key accounting
concepts has been a primary motivation for the various conceptual framework projects
that exist. Indeed in Australia, the importance of the meaning of key concepts is seen
as so crucial that key terms (such as asset and revenue) are, from 1996, incorporated
into newly issued or reissued accounting standards.
However, despite its importance might be argued that shared meaning of fundamental
concepts in accounting is a necessary, but not sufficient, condition of effective
communication in accounting. Incentives may cause messages to be intentionally said
to be misunderstood,2 or actions taken even if the meaning of the message is shared,
may be sub-optimal.
2
2.1
Definition and Types of Meaning
It is widely agreed that meaning is of two types, denotative and connotative.
Denotative meanings are said to “specify something to which you can point and
basically are alike to all those who can comprehend them” (Hilgard, Atkinson and
Atkinson, 1975, p306). Osgood et al (1957) referred to this aspect of meaning as
designative or referential meaning. Connotative meanings “refer to an accumulation
of emotional associations a particular ....[concept] has acquired” (Bruno, 1980, p136).
As a consequence of the sharing of denotative meaning, “individuals are able to agree
upon what the message is”, while “connotative congruity is present only when
individuals’ interpretations of, or reactions to, the message are similar” (Karvel, 1979,
p33). Osgood et al (1957) also acknowledged that it is connotative meaning which
gives rise to a person’s reactions to a concept.
2.2
The Measurement of Meaning
The ability to measure and compare meanings, both between individuals and between
concepts, emerged as a research question in psychology in the 1950s. This early work
resulted in the publication of the seminal work of Osgood et al (1957). Twelve years
later, Heise (1969) cited over one thousand examples of the application of the
technique of Osgood et al (1957) for the measurement of meaning. Citations to this
early work (in the Social Science Citation Index) suggest many hundreds more
applications have occurred in more recent years although only a few of these relate to
research in accounting.
Osgood et al (1957) sought to derive a quantitative measurement for meaning. Their
work gave rise to a measurement tool known as the semantic differential. This tool
consists of pairs of adjectival antonyms (e.g. good-bad, love-hate) interspersed by
several (normally seven) response spaces. Subjects respond by marking the space
between the adjectives which they believe best describes the concept in relation to that
set of antonyms. Kerlinger (1973, p581) described the semantic differential as “a
useful and perhaps sensitive tool to help in the exploration of an extremely important
area of psychological ... concern: connotative meaning”.
The semantic differential measures meaning within ‘semantic space’. Semantic space
is represented by a geometric area, divided into various (normally multiple)
dimensions. These dimensions are often referred to as the cognitive structure within
3
which meaning is held. Osgood et al (1957) found the existence of three “standard”
dimensions of the cognitive structure. Evaluative (represented by the semantic
differential (good-bad), Potency (strong-weak) and Activity (active-passive). This
three dimensional structure is referred to as EPA. The meaning of a concept is
measured by the placement of that concept on the axes of these dimensions. The
validity of this type of research instrument and the application of the EPA structure to
the domain of accounting has been analysed and confirmed (see Bagranoff, 1990 and
Houghton, 1988 respectively).
3.0
PREVIOUS LITERATURE
In reviewing much of the relevant accounting literature, Bagranoff (1990) observed
that there were two groups of studies; (a) the early work undertaken in the 1970s,
including Haried (1972 and 1973), Oliver (1972) and Flamholtz and Cook (1978) and
Karvel (1979); and (b) a series of more recent papers. This second set of research now
includes: Houghton (1987a, 1987b and 1988) Houghton and Messier (1991),
Houghton and Hronsky (1993), Bagranoff, Houghton and Hronsky (1994) and
McNamara and Moores (1995).
3.1
The Early Accounting Literature
Of the earlier research Haried’s work stands out as very important. Haried (1972)
developed scales (semantic differentials) relevant to the field of accounting, and
proposed a seven-dimensional structure of meaning. The structure was presented in
the face of substantial counter-evidence (Osgood et al 1957, and others) and without
testing for the robustness or replicability of the structure. Further, his selection of a
subset of these scales (used in Haried, 1973) was not based on any obvious scientific
criteria. Haried (1973), based on that subset, used a mixture of both mailed
questionnaires and experiments to measure the meaning of five groups of subjects.
His measurement, based on a newly re-constituted seven dimensional structure, made
comparisons only between the accountant group and the ‘user’ groups; no betweenuser comparisons were made. Further, his analysis was not based on a comprehensive
test of differences. Re-analysis of Haried’s data revealed a three-factor solution with
comparability for the three professional or ‘sophisticated’ groups, with a simpler
structure for ‘unsophisticated’ users (Houghton, 1988).
4
Other early work (Oliver, 1974, Flamholtz and Cook, 1978 and Karvel, 1979) also
contributed to the field, although in a less substantive way than Haried. In the case of
Oliver (1974) substantial between-subject differences were found in meanings,
although the study could have benefited from “superior scale-selection criteria”
(Oliver, 1974 p312). Flamholtz and Cook (1978) examined the meanings of more
traditional versus newer concepts (e.g. human resource accounting). They concluded
that differences were observable, however, their conclusions appeared to be based on
the initial (rather than rotated) factor structure.
Karvel (1979) found the study of measured meaning could be extended to the field of
auditing. However, this study suffered from serious non-response bias and other
methodological difficulties.
3.2
Research in the 1980s and 1990s
Recent papers are generally more rigorous in methodology. McNamara and Moores
(1995) examined the underlying cognitive structure of undergraduate students,
concluding it was multi-dimensional; and raised an important question as to the nature
of the concepts measured (simple ‘terms’ versus complex ‘conventions’). Houghton
(1987b) found that the cognitive structure of students changed during their
progression through an accounting education program. Houghton (1987a) found that
naive users and sophisticated producers (accountants) had different cognitive
structures when developing their meaning of the concept “true and fair view”, a
common concept relevant to accounting in the British Commonwealth and recently
included as the over-riding requirement in International Auditing Standards. The
naive shareholders developed only a simple structure, the accountants a complex one
similar to the Osgood et al (1957) EPA structure.
Houghton and Messier (1991), like Karvel, examined meaning in auditing and found
both bankers and auditors had multi-dimensional cognitive structures. Important
differences in meaning were observed for revised workings used in different versions
of U.S. audit reports.
Also, Houghton and Hronsky (1993) examined the similarity between final year
accounting students (educated but inexperienced) and accounting practitioners
(educated and experienced) and found significant differences in meaning of many key
accounting concepts. The conclusion drawn was that experience played a significant
5
role in the construction of meaning. Bagranoff, Houghton and Hronsky (1994)
examined the effect of differing national (and regulatory) environments on meaning
and found that differences existed between U.S. and Australian environments. An
interesting finding given moves to internationalize or harmonize accounting rules
across many national boundaries. Hronsky and Houghton (1997) showed a clear link
between important accounting policy decisions of subjects and their meaning of key
terms used in their judgement process. The implication of this being, that measuring
meaning is a window on the decision process between receiving a message and taking
an economic decision relating to that message.
3.3
Conclusions to be Drawn from Previous Literature
The principal conclusions that can be drawn from the previous literature fall into two
categories: theoretical and methodological.
In terms of theory, Haried (1972 and 1973) contributes to the literature by
demonstrating that the general notion of measuring meaning through the semantic
differential technique could be applied to the accounting domain.
Oliver (1974) confirms the significance of the contribution of Haried. While possibly
being correct in accepting the EPA structure, Oliver’s use of the scales of Osgood et al
(1957), without adaptation to the accounting domain of meaning is less valid than
Haried (1972). Karvel (1979) also confirms the importance of Haried (1972 and
1973), and shows the scales developed by Haried (1972 and 1973) to be robust within
the auditing (and arguable/accounting domain).
McNamara and Moores’ (1995) most important theoretical contribution is that level of
meaning (simple terms versus more complex concepts) might be an important issue
for future research. Houghton (1987a) also shows the need for testing for the
configurational differences between the underlying cognitive structures of naive
subjects as compared with more expert or experienced ones. Houghton (1987a) shows
that cognitive structures can change with relevant education. Houghton and Hronsky
(1993) illustrates the role that experience brings to the development of meaning while
Hronsky and Houghton (1997) directly links meaning and accounting related decisions.
Bagranoff et al (1994) showed the relevance of shared meaning across national
boundaries.
6
In terms of method, the succession of studies shows a steady progression and
enhancement of the research method (and data analysis) used. In particular, the
construction and testing of the reliability of the cognitive structure has become a
substantially more rigorous and reliable process.
4.0
FOCUS OF THE PRESENT STUDY
Accounting standard setters and others in regulatory positions in various parts of the
world have taken a considerable interest in the meaning of basic accounting concepts.
They have undertaken or sponsored a number of conceptual framework projects –
there have been several in the English speaking world alone. While this appears to be
crucially important to such people, there is no known empirical study of the meaning
of these concepts that are considered by some as the building blocks of financial
reporting. This study seeks to measure the meaning of these basic accounting
concepts fundamental to the financial reporting process. It tests the following general
hypothesis (stated here in the null form):
Ho1
There are no significant differences between the meanings of
fundamental accounting concepts held by identifiable parties to the
accounting communication process (senders and receivers), and
The first hypothesis tests between-group differences in meaning; that is, a test to
verify whether there is a shared meaning of these concepts in accounting
communication or not.
Given the previous literature, certain differences between various parties to the
accounting communication process (subject groups) are expected to play a role in
determining between-group differences in the meanings of concepts. One would
expect that differences in the presence or absence of systematic training3 in accounting
should give rise to differences in meaning. Also, as noted by Haried (1973) and
observed in Houghton (1987a) so also would differences in level of so-called
“sophistication”4. In this context sophistication is intended to relate to the presence of
work related business experience. For example, a manager or accountant has
everyday work experience in business by virtue of his or her occupation while a
private (non-institutional) shareholder by virtue of their day-to-day occupation, may
not.5
7
Thus, two further hypotheses (also in the null form) are to be tested:
Ho2
There are no significant differences between the meanings of
fundamental accounting concepts held by ‘sophisticated’ parties to the
accounting communication process and those who are
‘unsophisticated’, and
Ho3
There are no significant differences between the meanings of
fundamental accounting concepts held by parties to the accounting
communication process who have formal financial training and those
who do not.
In relation to Ho2, re-analysis of the data of Haried (1973) (Houghton, 1988) showed
incompatibility between his ‘sophisticated’ and ‘unsophisticated’ groups. That is, the
cognitive structures within which meanings were held were not shared by both groups.
The same may be true for those with and without training in finance and accounting.
Thus, Ho2 and Ho3 might be restated in terms of differences between cognitive
structures rather than measured meaning.
Ho4
There are no significant differences between the cognitive structures
within which the meanings of accounting concepts are held by
‘sophisticated’ parties to the communication process and those who are
‘unsophisticated’, and
Ho5
There are no significant differences between the cognitive structures
within which the meanings of accounting concepts are held by parties
to the accounting communication process who have financial training
and those who do not.
The expectation is that the principal contribution made by this study will relate to an
assessment of the extent of shared meaning of fundamental accounting concepts
between parties to the accounting communication process. It will provide the first
empirical evidence of the need for the definitions that much of the world seems to
regard as necessary for the future of accounting. Additional contributions will be
made by (1) verifying the relevant dimensions of the cognitive structures used by
those involved in accounting communication, (2) the further development of a robust
8
and reliable semantic differential research instrument relevant to the accounting
domain of meaning; and (3) the description and use of methods by which future
accounting studies can test for comparability of factor structures between subject
groups.
The remainder of this paper is divided into six sections covering:
(a)
(b)
(c)
(d)
(e)
(f)
Selection of Subjects and Concepts;
Task Setting and Instrument Administration;
Responses and Subjects’ Characteristics;
Analysis of Semantic Differential Data;
Results; and
Limitations and Conclusions.
5.0
SELECTION OF SUBJECTS AND CONCEPTS
5.1
Subject Groups
Previous studies involving the measurement of meaning in accounting have identified
bankers (Oliver, 1974, Karvel, 1979 and Houghton and Messier, 1991); financial
analysts and securities dealers (Haried, 1973, Oliver, 1974, Karvel, 1979); managers
(Flamholtz and Cook, 1978, Karvel, 1979); small investors (Haried, 1973 and
Houghton, 1987a); accounting educators and students (Haried, 1972 and 1973,
McNamara and Moores, 1995, Houghton 1987b and Houghton and Hronsky, 1993)
and the preparers of accounting reports; (Haried, 1972 and 1972, Oliver, 1974,
Flamholtz and Cook, 1978, Karvel, 1979, Houghton 1987a, Houghton and Messier
1991, Bagranoff et al 1994 and Houghton and Hronsky, 1993). Interestingly, while
the measurement of meaning of likely institutional shareholder decision-makers has
been measured (financial analysts), non-institutional (i.e. private) shareholders have
been largely ignored in previous research.
While it is not feasible to include all parties interested in the accounting
communication process, or even all major classes of parties. In this study, three types
of users, representing different characteristics of consumers of accounting reports are
used; accountants, as preparers of accounting reports, are also included.
9
Consistent with some of the previous literature, the three user groups included in this
study can be categorised across certain important variables. Haried (1973) classified
his users into two categories; “sophisticated” and “unsophisticated”. This
classification is operationalized with reference to the subject’s working environment.
Those within the business community (such as accountants, financial analysts and
managers) were seen by Haried (1973) as “sophisticated” while small investors and
students as “unsophisticated”. Another and possibly more useful label would be the
presence or absence of a business working environment.
In addition, these user groups can be differentiated on the basis of level of financial
training. Again, to use Haried’s (1973) work, several differences were observed
between one ‘sophisticated’ group who possessed financial training (financial
analysts) and another ‘sophisticated’ group who were likely not to have such training
(lawyers). This study will also address the question of the impact of the presence or
absence of financial training on meaning.
The user groups involved in this study might be classified on these two dimensions in
the following manner:
‘Sophistication’
Financial Training
Low
High
Low
private shareholders
-
High
non-financial managers
bankers
The ‘high’ training classification and ‘low’ level of “sophistication” is not represented
and no group is likely to fulfil the appropriate criteria. This classification permits the
testing of Ho2 and Ho4 (‘sophisticated’ vs ‘unsophisticated’, differences as to
meanings and cognitive structure), and Ho3 and Ho5 (financial training vs no
financial training).
PLACE TABLE 1 HERE
10
5.2
Subject Selection
For reasons explained below in Section 6.2 ‘Instrument Administration’, a major
constraint on the availability of subjects for the four subject groups was their ability to
gather at a specified location so that their tasks could be completed in a controlled
environment. The data was collected during four classes/seminars, one for each of the
four groups.6
5.3
Concept Selection
Over the past several years, there have been a large number of research projects into
the conceptual framework of accounting. The conceptual framework projects include
those in the USA, (FASB 1985) Australia (AARF 1992) and that of the International
Accounting Standards Committee (1989), amongst others. In 1992, the Australian
Accounting Research Foundation (AARF) issued its conceptual framework in the
form of Statements of Accounting Concepts including the definition of each of the
concepts that underpin financial statements (assets, liabilities, revenue, etc.) and
accounting conventions and characteristics. More recently the Australian profession
has taken the policy position of defining basic accounting concepts in newly issued
accounting standards.
The concepts included in this study are: ASSET, LIABILITY, OWNERS’ EQUITY,
REVENUE, EXPENSE and PROFIT. They were chosen from those identified in a
number of leading accounting monographs7 and are generally consistent with those
used in several conceptual framework projects and more recently issued accounting
standards.8
In addition to the six concepts, one further concept was added. The concept PROFIT
is not neutral, it represents one aspect, or one side, of the common North American
concept NET INCOME. To provide some balance to this description of net income,
the concept LOSS was also included.
5.4
Scale Selection
All but one of the prior studies adopted scales from either the original work of Osgood
et al (1957) (including Flamholtz and Cook, 1978; Karvel, 1979; and Oliver, 1974), or
the first of Haried’s studies (including Haried, 1973; Karvel, 1979; McNamara and
11
Moores, 1982; Houghton 1987a and 1987b; Houghton and Messier, 1991; Houghton
and Hronsky, 1993 and Bagranoff et al, 1994). Haried (1972) was the only
accounting study specifically to develop semantic differentials (scales) for the
measurement of meaning of accounting concepts. As noted in Houghton (1988),
Haried’s (1972) factor or cognitive structure was open to question, as was his choice
(Haried 1973) of the subset of his scales to represent the accounting semantic domain.
After substantial multi-phase pre-testing, using advanced undergraduate accounting
students and practising accountants and bankers, an instrument based on 22 semantic
differential scales was shown to:
(1)
cover multi-dimensional semantic space (that is, it revealed more than
one factor);
(2)
exhibit characteristics of stability (as shown by tests for factor
comparability);
have relevance to accounting (loading heavily onto one or other of the
dimensions found to apply to meaning within the accounting domain);
and
not cause subject fatigue.
(3)
(4)
One sample page of the final instrument, together with the instructions given, is
included in the appendix.
The 22 scales were drawn from a critical re-analysis of the work of Haried (1972 and
1973) found in Houghton (1988), have been subjected to substantial pre-testing and
have been used in the more recent literature (e.g. Bagranoff et al 1994, Houghton and
Hronsky, 1993).
12
6.0
TASK, SETTING AND INSTRUMENT ADMINISTRATION
6.1
Task
Consistent with previous semantic differential studies, the task of the subjects was to
place a tick in one of seven spaces between the adjectival pairings. A description of
the task can be seen in the appendix.
The exact specification of the task and the description of the instructions was also the
topic of extensive pilot testing. The subjects were presented with the concepts in a
randomised order.
6.2
Instrument Administration
To ensure a high level of control and minimize non-response biases the instrument
was administered using a laboratory setting. The selected concepts were, as noted
above, randomised within their own classifications. The order of scales were also
randomised with left and right hand sides randomly “flipped”. Each concept was
presented on a separate page, with the concept at the top of the page.
In addition to the basic semantic differential task, biographical and work experience
data was collected at the end of the data collection process to ascertain the
representativeness of each of the subject groups to their respective populations.
7.0
RESPONSES AND SUBJECT CHARACTERISTICS
7.1
Subject Sample Characteristics
Descriptive statistics of the subjects are provided in Table 1. As can be seen there are
some surprising similarities between the subject groups (for example, age for the first
three groups listed). However, the critical test is the representativeness of the samples
with their respective populations. Comparisons can be made with reports of both
bankers and accountants as information exists for each of these groups. In each case
few differences were found. Perhaps the only difference worthy of mention is the
over-representation of accountants in public practice compared with those in industry
and commerce. While it is acknowledged that this may give rise to a difference in
13
relation meaning, the direction of this is unknown9 and, therefore remains a limitation.
In all, responses were provided by 42 accountants, 43 bankers, 57 managers and 52
private non-institutional shareholders.
7.2
Subjects’ Performance of Tasks
The present writer attended each of the sessions and was responsible for the
instrument administration to all subject groups. This ensured that each administration
was conducted in an identical fashion.
Of the raw responses to the various concepts, there were only two of the total possible
responses where the ‘no meaning’ option was used. In addition, the occasional
uninterpretable response by subjects caused a small amount of missing data (less than
1%). These were excluded from the analysis reported below.
8.0
DATA ANALYSIS
8.1
Structure of Data Analysis
The data analysis is of two types, that which is confirmatory and relating directly to
the hypotheses, and that which is exploratory. The exploratory analysis primarily
relates to the quantification of meanings of the concepts. This phase of the analysis
could address questions such as: ‘Is PROFIT significantly more controllable than
LOSS?’ or ‘Is LIABILITY more measurable than ASSET?’ This exploratory
analysis provides a first quantification of the meaning of fundamental accounting
concepts. It provides the first empirical measure of concepts which will be of interest
to the standard setters who seek to provide definitions of those basic accounting
concepts.
The first stage of the analysis comprises an overall test of significance (multivariate
analysis of variance) based on all semantic differentials, all four groups and all
concepts.
The second stage of the analysis involves a data-reduction procedure to find the
underlying dimensions of the responses; this represents the underlying cognitive
structure within which meaning is held by each of the subject groups. These
14
underlying cognitive structures are tested for both within- and between-group
comparability.
The final stage of the analysis involves the comparison of the various groups’
placements of the concepts in the shared underlying shared cognitive structure. An
overall test of significance (multivariate analysis of variance) is used to assess the
significance of any differences in measured meaning.
8.2
Overall Test of Differences in Raw Responses
A comprehensive test of differences in the raw responses of subjects between both
concepts and groups can be achieved by way of multivariate analysis of variance
(MANOVA). Although this is not a measure of differences in meaning within the
Osgood et al (1957) framework, it show differences in subjects’ raw responses to the
semantic differentials. The dependent variables are the groups’ responses to the
semantic differentials, the independent variables are the concepts (asset, profit etc.)
and all four groups of subjects (bankers, accountants etc.).
The results show highly significant differences between both the concepts (F = 12.01,
P < 0.01) and the groups (F = 4.24, P < 0.01). In addition, there was a significant twoway interaction between those variables (F = 48.83, P < 0.01). A significant
interaction means that the effect of the variable ‘groups’ was not uniform across the
various categories of the other dependent variable ‘concepts’. As a result of this
highly significant interaction, it is not possible to conclude that significant differences
exist in the responses between all groups over all concepts.
The presence of this interaction should not be viewed as a major difficulty. It may “...
simply mean that the relationship between the two independent variables and the
dependent variables is very complex” (Young and Veldman, 1977, pp 363-4).
Ultimately, however, the continual presence of such an interaction could mean that it
“... may be necessary to proceed by analysing each state separately” (Blalock, 1979,
p525). This more detailed analysis is reported below.
15
8.3
Data Reduction - Factor Analysis
Analysis of the raw data, that is, the responses to the individual semantic differentials,
can provide information about the presence of differences in the perceptions of
subjects belonging to different groups. While this information is interesting, it is not
consistent with the notion of the ‘dimensionality of semantic space’ defined and
described by Osgood et al (1957).10
The conventional procedure used to determine the factor structure is to factor analyse
the total population of subjects’ responses to the semantic differentials. However, this
ignores possible between-group differences in that structure. Given that different
groups may perceive the meaning of concepts within different dimensions or
structures (Foa and Foa, 1974), collapsing across groups would cause the loss of
potentially considerable, and valuable, insights into the perceptions of meaning of the
different groups. More importantly, as shown in Houghton (1988), it may cause one
or more groups to have meanings of concepts placed within factor structures that are
not applicable to that group. In short, the procedure of collapsing across groups may
significantly corrupt the analysis of each group’s cognitive structure.
In this study each group of subjects is factor analysed independently. Table 2 shows
the eigen values for the first eight factors for each of the four groups. It can be seen
from this table that differences in the factors are apparent between the four groups.
PLACE TABLE 2 HERE
Using the simple scree test, a three factor structure would appear to be applicable for
three groups: accountants, bankers and managers. The private (non-institutional)
shareholders have a much more pronounced difference between the first and second
factor eigen values than the other groups, suggesting a single or unidimensional
structure. Thus, the scree test results lead to a conclusion that private shareholders
have a cognitive structure dissimilar to the other groups. This is consistent with the
notion that the lower the level of training or expertise with a field, the simpler is the
cognitive structure (Foa and Foa, 1974).
A more elaborate method for establishing the appropriate number of valid underlying
factors was suggested by Everett and Entrekin (1980) and Nunnally (1978). Their
factor comparability test is based on a comprehensive measure of the correlation of the
16
factor scores pertaining to each factor. Each group was randomly split into two subgroups of equal or approximately equal size and, their factor scores were compared by
a Pearson correlation. For this study a correlation of 0.894 was accepted as
comparable, that is where 80 percent of the variance between the two halves of the
group was shared. The results of this analysis are shown in Table 3.
The results reported are the Pearson correlations for each solution, commencing where
a four-factor model was tested, and concluding with the comparable solution. These
earlier solutions are included so that the importance of finding a comparable solution
can be assessed. As can be seen from Table 2, a non-comparable solution is highly
unstable, and measurement of meaning within such a structure would be open to
question on the grounds of reliability.
PLACE TABLE 3 HERE
While the three ‘professional’ groups (accountants, bankers and managers) exhibited
signs of stability or comparability with a three-factor solution, the private shareholder
group failed to show within-group stability until reduced to a single-factor solution.
This suggests a lack of direct comparability between that group and all others.
While a case for within-group comparability or stability can now be sustained, it has
not yet been proven that comparisons between the remaining three groups are valid.
While the number of factors is consistent between the three groups the nature of the
three factors for each of the groups is not necessarily comparable. Between-group
comparability forms the next stage of the analysis.
Factor correlation of the three groups, accountants, bankers, and managers, was
measured in two ways. First, a correlation between the factor scores of each group
and the total overall factor scores for all groups was calculated. The second set of
correlations reported are group-by-group. This second test is preferable because of the
problem of self-correlation within the first measure. Both sets of results are reported
in Table 4.
PLACE TABLE 4 HERE
As can be seen, all correlations are significant (p< 0.001) and exceed 0.9. In almost
every case more than 90 percent of variance is shared; that is, the comparability is
17
clearly within the bounds previously specified. One may conclude, therefore, that
accountants, bankers, and managers share comparable factor or cognitive structures
with respect of these basic accounting concepts.
The finding that the shareholders do not share the same factor structure as the
managers, accountants and bankers, results in the rejection of Ho4. That is, there are
significant differences between the cognitive structure of ‘unsophisticated’ and
‘sophisticated’ parties to the accounting communication process11. Given that
managers and bankers (as well as accountants) share the same structure, Ho5 is not
rejected. The presence or absence of financial training of itself does not cause a
significant difference in cognitive structure.
8.4
Factor Matrix Interpretation and Factor Labelling
The nature of the factors can be determined by reference to the factor loadings on the
three between- and within-group comparable factors. Table 5 shows these loadings.
PLACE TABLE 5 HERE
The conventional means by which factors are labelled is based on the similarities
shown between the semantic differentials that load heavily on (are highly correlated
with) the relevant factor. The cut-off level of correlation between factor and scale
which is used is a matter of judgement. The higher it is the more limiting the
procedure becomes; the lower, the more ambiguous. Consistent with almost all the
recent literature, a 0.5 level of correlation has been adopted. On this basis, the most
heavily loading semantic differentials for the factors across all three groups are shown
in Figure 1:
PLACE FIGURE 1 HERE
The heavily loading factors vary little between the three groups and the total of all
three groups is shown above.
Probably the most straightforward factor to label is the third. All the scales relate to
some form of ‘Activity’: flexible, dynamic, variable etc. The second factor is almost
as straightforward to describe. All the scales here relate in some way to measures of
substantiveness: tangible, real, objective, measurable, exact. Thus, this factor could
18
be labelled ‘substantiveness’. This notion of substantiveness is akin to Osgood’s
(1957) ‘Potency’. Given that much of the existing literature refers to the original
work of Osgood et al (1957), the label used by them is employed here: ‘potency’.
The first of the three factors is the least easily labelled. One heavily loading scale ‘long term-short term’ (with a loading of 0.52) seems misplaced and might more
logically be placed under ‘Activity’. Of the seven remaining heavily-loading scales,
four match the heavily loading scales of Haried’s ‘Evaluation’ factor (Haried 1972,
p388): ‘bad-good’, ‘beneficial-adverse’, ‘safe-risky’, ‘strong-weak’. The remaining
scales seem to suggest some ‘manageability’ characteristic to the dimension. This
aspect of the evaluative dimension may simply be a reflection of the uniqueness of the
accounting domain. Just as ‘clean-dirty’, ‘sweet-sour’, ‘fragrant-foul’ and the like
were scales found by Osgood et al (1957) to be relevant to the evaluation of concepts
in the general domain of meaning, ‘planned-unplanned’, ‘expected-unexpected’,
‘necessary-unnecessary’, might be relevant to evaluations made in the accounting
domain.
Keeping in mind the possibly unique features of the accounting domain, the three
factors are labelled: (1) Evaluative; (2) Potency and (3) Activity.
These labels are consistent with those evolved from the work of Osgood et al (1957),
and with more recent work in accounting (see Bagranoff et al, 1994, Hronsky and
Houghton, 1997, Houghton, 1987a, 1987b and the re-analysis of Haried’s work in
Houghton, 1988). However, it is noted that the “manageability” characteristics of
Factor 1 appear to relate particularly to the accounting domain.
9.0
RESULTS: MEASURING THE MEANING OF ACCOUNTING
CONCEPTS
9.1
Analysis of Variance
The level of difference, across all three factors, by concept (1 to 7) and subject group
(1 to 3) can be assessed by multivariate analysis of variance. The result shows that as
one would expect there are highly significant differences between the meanings of the
concepts (F = 73.37, p £ 0.001); and while there is no group main effect (F = 1.05, p
= 0.39), there is a significant two-way interaction (F = 2.61, p £ .001). Given this
19
interaction, the analysis of the group effect proceeds on a concept-by-concept basis
(see Table 6).
PLACE TABLE 6 HERE
While there is much shared meaning (that is, meanings not significantly different to
each other), some important between group differences in meaning can be observed.
For example, all but one of the concepts, EXPENSE, shows significant between-group
differences with respect to the Evaluative dimension; the concept ASSET, shows
significant between-group difference with respect to the Potency factor; and concepts
measuring net income, PROFIT and LOSS, shows significant between-group
differences on the Activity dimension.
The results reported in Table 6 show that significant between-group differences in
meaning does exist. Thus, subject to the limitations set out below, Ho1 is rejected.
Universal shared meaning of these concepts does not exist between the three subject
groups. This conclusion relates to comparisons between all groups not to individual
pairings of groups (accountants v bankers, accountants v managers and bankers v
managers).
9.2
Placements of Terms Concepts: Comparisons of Individual Groups
9.2.1
Accountants v Bankers
The comparison between accountants and bankers represents a comparison between
groups which both have some financial training and expertise. In addition, within
Haried’s (1973) framework, they are both “sophisticated” that is, they both have
occupations that involve a business environment. That is, by virtue of the nature of
their experience, they have exposure to the financial business world.
Thus, a
comparison between accountants and bankers is a comparison between financially
trained, sophisticated preparers of accounting reports on the one hand, and financially
trained, sophisticated users of such reports on the other. A significant difference
between these groups’ meanings of basic accounting concepts would imply a serious
failure in accounting communication and would supply a substantial motivation for
the work of those who wish to define the basic building blocks of accounting.
20
A comprehensive test between the accountants and bankers (multivariate analysis of
variance) across all three shared factors and for all seven concepts, shows a significant
difference between the meanings of concepts, but neither a significant difference
between groups, nor a significant interaction between concept and group. Specifically,
the results are: concept/group interaction, F = 1.21, p = 0.17; concept, F = 73.33, p =
0.01; group, F = 1.13, p = 0.34. Thus, on the basis of this overall test, one would
reject the hypothesis that difference exists between the meanings held by bankers and
those held by accountants. That is, there is a high level of shared meaning between
these two groups in respect of these concepts.
This lack of a overall significant difference does not, however, mean that there are no
individual concepts for which there are significant differences, or no single dimension
or factor where such differences exist. Examination of between-group differences on
a concept-by-concept basis did reveal some significant differences (at a 0.05 level),
although none were highly significant (at a 0.01 level). Table 7 details the results of
an analysis of variance between the groups on a factor-by-factor and concept-byconcept basis. Panel C of Table 7 shows the quantification of the concepts (or
placement of the concept within the cognitive structure) with the relevant cognitive
structure.
PLACE TABLE 7 HERE
In the case of OWNER’S EQUITY, bankers regard this as more positive on the
evaluative dimension (more ‘good’) than accountants and ASSETS as more positive
on the potency factor (more ‘substance’) than accountants. It is possible that bankers
see OWNER’S EQUITY as a positive factor in lowering a bank’s risk in a lending
situation. It is also possible bankers are less cognisant of the difficulties of
recognition and measurement (‘substance’) of some types of assets.
The remaining concepts had placements (the quantified connotative meaning of
concepts) within close proximity to each other. Thus it may be concluded that, in
relation to basic accounting terminology, bankers and accountants have a large
measure of shared meaning.
9.2.2
Accountants v Managers
21
While both non-financially-trained managers and accountants have experience in the
business world, and in that sense would be categorised as sophisticated within
Haried’s (1973) framework, they differ in the nature of their training. Unlike the
accountants group, subjects included in the managers group have no substantial
systematic training in accounting or finance, while the accountants group have, by
definition, such an education.
The results of a multivariate analysis of variance for all concepts between accountants
and managers are not straightforward to interpret. While the ‘concept’ effect is clearly
significant (F = 63.63, p < 0.01), and the ‘group’ effect is not significant (F = 1.22, p <
0.30), there is a significant interaction between the two variables (F = 3.96, p < 0.01).
Re-analysis of the data for each of the three factors shows that the interaction related
only to the Evaluative dimension. Both Potency and Activity show a significant
‘concept’ effect, but neither show a significant ‘group’ effect nor a significant
concept/group interaction. The details of these results are shown in the Panel A of
Table 8.
PLACE TABLE 8 HERE
Examination of differences between accountants and managers on a concept-byconcept basis, eliminating concept/group interaction, shows that for some concepts
there are significant differences (at the 0.5 level) and in some cases highly significant
(0.01 level) differences. Panel B of Table 8 shows these results, Panel C gives the
measured meanings of the individual concepts.
The results show that for the Potency and Activity dimensions, and for some concepts
on the Evaluative dimension, there is a substantial level of shared meaning between
the managers and the accountants. However, there are certain specific differences
between the meaning of concepts on all three dimensions.
As can be seen from Table 8, most of the differences for individual concepts occur on
the Evaluative factor and for terms drawn from the income statement. The only highly
significant differences occur for the two terms which could be used to describe net
income (PROFIT and LOSS). Managers view LOSS as less negative, on the
Evaluative factor (-155), than did accountants, (-237); and PROFIT as less positive
(+29 compared to +57). Perhaps related to this is the result that managers regarded
22
REVENUE as significantly less positive on the Evaluative dimension (+39), than
accountants (+64). The cause of these differences is unclear.
9.2.3
Bankers v Managers
Both the lending bankers and the managers are users, rather than producers, of
accounting reports. In addition, they would both fall within the ‘sophisticated’ that is,
they both work within business-related occupations. Where these groups differ is in
their level of financial training. While lending bankers have some form of systematic
training in accounting and finance, the manager subjects did not. Thus, a comparison
between bankers and managers holds two variables (user/producer classification and
level of “sophistication”) constant, and tests for differences in level of financial
training. This aspect of the data analysis relates, therefore, to Ho3.
The results of a multivariate analysis of variance for all the terms between both user
groups show significant differences between concepts (F = 55.01, p < 0.01) and a
significant interaction between the ‘group’ and ‘concept’ variables. The significant
interaction suggests the need for an examination of the between-group effect on a
concept-by-concept basis. The results of this are shown in Panel B of Table 9 while
the quantification of the meanings is shown in Panel C.
PLACE TABLE 9 HERE
Examination of Table 9 shows the nature of the differences between the bankers and
managers. They are far more extensive than either of the producer/user pairings.
Significant differences are found for all seven concepts on the Evaluative dimension,
as well as two significant differences on the Activity factor and one on the Potency
dimension. This is evidence to reject Ho3; there are significant differences in the
meanings held by bankers on the one hand and managers on the other.
23
9.3
Overall View of Differences Between Pairs
In section 9.1 the conclusion drawn is that there is significant between-group
differences. The preceding analysis based on the pairs of groups which share the same
factor structure points to the fact that much (but not all) of the difference lies between
the intra-user groups. While the conclusion that there are clearly significant
differences between the meanings of the groups still holds true (resulting in the
rejection of Ho1), an important caveat to that conclusion is that the majority of those
differences are attributable to between-user group differences in meaning. This
provides some evidence in support of the basic effectiveness of accounting reports in
the conventional producer/user or sender/user situation.
10.0
CONCLUSIONS, IMPLICATIONS AND LIMITATIONS
10.1
Focus of the Study
It is argued that communication is central to the function of accounting and that
effective communication needs the presence of shared meaning between parties to that
communication process. Given this, the presence or absence of shared meaning
between accountants and users of accounting reports is, therefore, an important issue
in accounting. It further suggests that shared meaning is a necessary (although not
sufficient) condition of effective communication. These general issues are at the heart
of the motivation of several conceptual framework projects.
The findings and their implications drawn are divided into three categories as
discussed below.
10.1.1 Cognitive Structures
One of the principal conclusions from this study is that, within specified limits, a three
dimensional cognitive structure applies to the accounting domain. This structure is
found to be applicable for subject groups other than the ‘unsophisticated’ noninstitutional shareholders, and to subjects with different levels of financial training
and different user/producer perspective.
24
In addition to being consistent with most of the more recent research noted above, the
three-factor structure is also consistent with the results of the re-analysis of Haried’s
(1973) data (Houghton 1988) and with the seminal work of Osgood et al (1957).
Osgood et al (1957) believed that, while the semantic differentials relevant to a
particular domain of meaning might vary to reflect that particular domain, there
existed constant or ‘standard’ factors or dimensions. Within the accounting domain it
must be remembered that the evaluative dimension (‘good-bad’) is strongly linked to
the notion of control or manageability. That is, something in accounting which is
controllable, is good.
10.1.2 Between-Group Differences in Meaning
The hypothesis that there exists no between-group differences in meaning is tested for
the three groups that share a comparable cognitive structure, and is rejected. There
was, over all concepts and all three groups, a significant difference in meanings.
However, the breakdown of this analysis found that these differences were not
universal, and that for certain comparisons between individual groups, no significant
differences in measured meaning exist and, even when there are overall differences
between certain pairs of groups, there were no significant differences between them in
relation to certain concepts.
An important finding in this study is that the cause of much of the significant overall
between-group differences for the concepts lies in the differences between the two
user groups, bankers and managers.
The banker/manager comparison is the basis of the hypothesis that relates to financial
training. The lack of shared meaning between these two groups leads to the
conclusion that the presence/absence of formal financial training is a variable that
causes a lack of shared meaning between users of accounting reports.12
Conclusions about the effect of the level of “sophistication” are drawn on a different
basis. The basic finding is that the level of “sophistication” affects the extent of the
complexity of the cognitive structure within which meaning is held. Private
shareholders have a clearly simplistic view as to the meaning of the basic concepts of
accounting.
10.1.3 Meaning and Communication
25
The argument presented at the beginning of this paper was that communication is
central to accounting and that meaning is central to communication, with shared
meaning being a necessary (but not sufficient) pre-requisite for ‘effective’
communication. To the extent that the groups included in this research failed to share
similar meanings, there exists an impediment to fully effective accounting
communication. In relation to the concepts and groups used, we now have an estimate
of the presence, direction and extent of or lack of shared meaning. The presence of
shared meaning in many cases and the absence of it in others has implications for the
conceptual framework that exists and for the recent trend in Australia of including
specific definitions of basic concepts in accounting standards. Given the extent of
shared meaning, the need for these processes and procedures to define basic concepts
is more limited than might have been first thought. In respect of future research, it
would be of interest to observe if the existence of these definitions extends the
presence of shared meaning or has no effect at all.
10.2
Limitations
As with other behavioural studies and studies of shared meaning, the results reported
here and conclusions drawn must be considered in the light of a number of limitations.
Most obvious is the fact that this research involved only four classes of subjects. As
observed in Section 5.1, other subjects are also involved in the accounting
communication process and would be worthy of inquiry. Also, while the concepts
used in the study were all fundamental to financial reporting, they represent only a few
of the total number of concepts relevant to accounting and financial reporting. It may
well be that more technical, less common and/or more controversial concepts show
much lower levels of shared meaning. Concepts in managerial accounting are also
relevant in a different form of accounting communication.
The concepts in this study are single words and are not particularly complex or
elaborate. More complex phases are also worthy of inquiry. In addition, while the
concepts were all clearly placed in appropriate perspective (“from the point of view of
accountants,” etc. - see appendix) and in the relevant context (“in relation to financial
accounting reports”) the inter-relationship of the concepts with other words and with
figures is unmeasured here.
26
This study made certain comparisons between groups, and across the variables,
user/producer categorisation, level of ‘sophistication’ and presence/absence of
financial training. While these variables may be important, there are many others.
Evident in Section 9.1 was unmeasured variance in measured meaning. Other
(omitted) variables may contribute to the lowering of unmeasured or error variance.
Finally, there is one further limitation noted by Osgood et al (1957) and several
subsequent studies. Connotative meaning is important, and has been seen to give rise
to human reactions and behaviour; however, it is not the only aspect of meaning.
While this study often refers to ‘measurement of meaning’, it is only connotative
meaning that is measured.
10.3
Avenues for Future Research
Points raised in the preceding section on conclusions, as well as elsewhere, provide
several avenues for future research. As noted by Karvel’s (1979, p238) study on the
measurement of meaning in auditing, “The potential for research contributing to [the]
understanding of accounting communication is increased by the absence of prior
empirical studies”. While a small number of studies on the measurement of meaning
in accounting now exist, there is still much room for research that might throw new
light on the audit expectations gap.
Many of the limitations noted above present opportunities for further research. For
example, different subject groups and different relevant concepts are obvious
extensions. Relatively recent examples of the application of these techniques
(Houghton and Messier, 1991 and Bagranoff et al, 1994) show the contribution that
this style of research can make to contemporary debate about a variety of issues.
Finally, the linkage between the meaning of accounting communications and the
judgements and decisions made after they have been received is also worthy of further
research. A greater interpretation of the received signal will assist in understanding
how users make judgements on accounting information.
27
10.4
Final Remarks
Much research in accounting measures a signal and the reaction to that signal, and
makes conclusions about the signal from the reaction. In a very real sense, this is a
crude measurement even although it might be made with great precision. It is crude
because it may not measure anything about the complex process that occurs between
the signal and the reaction. The measurement of meaning fills a small part of this
large gap.
This paper demonstrates that the conclusions of Haried (1973), that connotative
meaning, and by inference the semantic differential technique, had no useful
application to accounting research can be put to one side. Indeed, it is possible that
we can learn much about accounting by examining it from a communication
perspective and assessing the extent to which the meaning of the messages sent equal
the meaning received. Understanding the communication process and the sharing of
meaning is not only central to definitions of the basic concepts of financial reporting
identified in the conceptual framework projects, it is pivotal to the worth of
accounting.
28
FIGURE 1
FACTOR 1
FACTOR 2
FACTOR 3
bad-good
necessary-unnecessary
planned-unplanned
strong-weak
safe-risky
beneficial-adverse
expected-unexpected
long term-short term
exact-estimated
measurable-unmeasurable
objective-subjective
tangible-intangible
real-imaginary
variable-consistent
passive-active
static-dynamic
inflexible-flexible
29
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Bagranoff, N.A., The Semantic Differential: A Prescription for Use in Accounting
Research, Journal of Accounting Literature, Vol. 9, pp 65-80, 1990.
Bagranoff, N.A., Houghton, K.A. and Hronsky, J., The Structure of Meaning in
Accounting:
A Cross-Cultural Experiment, Behavioural Research in
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Bruno, F.J., Behaviour and Life: An Introduction to Psychology, John Wiley and
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Carroll, J.B., The Study of Language, Harvard University Press, Cambridge, 1955.
Everett, J.E., and L.V. Entrekin, ‘Factor Comparability and the Advantages of
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Flamholtz, E., and E. Cook, ‘Connotative Meaning and its Role in Accounting
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pp115-39, 1978.
Foa, U.G., and E.B. Foa, Societal Structures of the Mind, Charles C. Thomas, Illinois,
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Goldberg, L., An Inquiry into the Nature of Accounting, American Accounting
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30
Haried, A.A., ‘The Semantic Dimensions of Financial Reports’, Journal of
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Research, Vol. 11, No.1, pp 117-145, 1973.
Heise, D.R., ‘Some Methodological Issues in Semantic Differential Research’
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Houghton, K.A., ‘True and Fair View: An Empirical Study into Connotative
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Houghton, K.A., ‘The Development of Meaning in Accounting: an Intertemporal
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Houghton, K.A., ‘The Measurement of Meaning in Accounting: A Critical Analysis of
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Houghton, K.A. and J.R.F. Hronsky, ‘The Sharing of Meaning Between Accounting
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Houghton, K.A., and W. F. Messier, Jr, ‘The Wording of Audit Reports: Its Impact on
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Hronsky, J.R.F. and Houghton, K.A., ‘The Meaning of a Defined Accounting
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International Accounting Standards Committee, “Framework for the Preparation and
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Karvel, G.R., ‘An Empirical Investigation of Auditor Communication: Connotative
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Kerlinger, F.N., Foundations of Behavioural Research, 2nd edition, Holt Saunders
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32
APPENDIX
GENERAL INSTRUCTIONS
In this questionnaire we are interested in your understanding of a concept used in
annual accounting reports. Though you may feel that it is difficult to generalise, we
would like you to express your opinion about the concept as accurately as you can.
There are no right or wrong answers.
You are asked to consider the concept in relation to certain variables (adjectival
pairings or scales, e.g. GOOD : BAD). The following instructions should assist you in
completing the questionnaire with a minimum of difficulty.
1)
Please indicate your response to each scale by placing a tick [ü] above the
space that best characterises your response.
For example, if you feel that the accounting concept tended to be something
which is controllable, tick as indicated below,
CONTROLLABLE: ü :
:
:
:
:
:
: UNCONTROLLABLE
If on the other hand you feel that the concept is something which tends to be
fairly uncontrollable, tick as indicated below:
CONTROLLABLE:
:
:
:
: ü:
:
: UNCONTROLLABLE
Thus, for each of the scales you should place your tick in any ONE of the
seven SPACES that best represents your view.
2)
If this concept has no meaning to you, (e.g. you have no idea what the concept
is) then do not tick a point on any of the scales, instead please tick
[ü] the box labelled ‘NO MEANING’.
3)
If the concept has some meaning to you but you think the scale may not be
relevant to the concept then tick the mid-point of the scale.
For example, if you understand the concept but do not feel the scale
‘COMPLETE’ : ‘INCOMPLETE’ is relevant then tick as indicated below:
COMPLETE:
: :
: ü :
:
:
: INCOMPLETE
PLEASE ENSURE THAT YOU ANSWER ALL QUESTIONS FROM AN
ACCOUNTANT’S POINT OF VIEW
33
In relation to financial accounting reports the term EXPENSE tends to be
EXACT:
: :
:
:
:
:
: ESTIMATED
BAD:
: :
:
:
:
:
: GOOD
MEASURABLE:
: :
:
:
:
:
: UNMEASURABLE
NECESSARY:
: :
:
:
:
:
: UNNECESSARY
PLANNED:
: :
:
:
:
:
: UNPLANNED
:
:
:
:
:
:
: SUBJECTIVE
TANGIBLE:
: :
:
:
:
:
: INTANGIBLE
STRONG:
: :
:
:
:
:
: WEAK
INDIRECT:
:
:
:
:
:
:
: DIRECT
VARIABLE:
:
:
:
:
:
:
: CONSTANT
SAFE:
:
:
:
:
:
:
: RISKY
COMPLETE:
:
:
:
:
:
:
: INCOMPLETE
: :
:
:
:
:
: REQUIRED
REAL:
:
:
:
:
:
:
: IMAGINARY
BENEFICIAL:
:
:
:
:
:
:
: ADVERSE
TEMPORARY:
:
:
:
:
:
:
: PERMANENT
CONTROLLABLE:
:
:
:
:
:
:
: UNCONTROLLABLE
: :
:
:
:
:
: EXPECTED
PASSIVE:
:
:
:
:
:
:
: ACTIVE
STATIC:
:
:
:
:
:
:
: DYNAMIC
: :
:
:
:
:
: SHORT-TERM
OBJECTIVE:
DISCRETIONARY:
UNEXPECTED:
LONG-TERM:
INFLEXIBLE:
: : : : : : : FLEXIBLE
¨ The concept has NO MEANING for me
34
TABLE 1: Biographical Information: Subject Groups
Group
Accountants
Bankers
Managers
Shareholders
No.
52
43
57
52
Mean
SD
Range
38
17
8
5
25 - 60
4 - 42
4.0
0.7
3-5
Age (years)
Banking Experience (years)
Lending Experience (years)
Competence
(Scale 1-5, self-assessed)
39
17.7
5.0
7
6
3
27 - 51
1 - 32
1 - 20
3.6
1.0
3-5
Age (years)
Experience (years)
Experience (position)
CEO
Deputy
Line Manager
Technical
Sales
Personnel
Competence
(Scale 1-5, self-assessed)
37
7.7
6
7
26 - 56
1 - 24
Age (years)
Practice (years)
Practice
public practice
commerce/industry
Competence
(Scale 1-5, self-assessed)
Age (years)
Number of companies in
which shares held
Competence
(Scale 1-5, self assessed)
35
72%
28%
12%
12%
36%
18%
4%
2.9
1-4
55
4
1.0
2.3
22 - 68
1 - 11
1.8
0.6
1-3
TABLE 2: Principal Components Analysis, Eigen Values by Group
FACTOR
1
2
3
4
5
6
7
8
Accountants
6.28
2.69
2.16
1.08
.98
.93
.79
.77
Bankers
5.33
2.52
1.99
1.33
1.13
1.03
.91
.85
Managers
4.75
2.36
2.12
1.34
1.13
1.05
.97
.82
Shareholders
7.04
1.99
1.56
1.34
1.07
1.03
1.01
.78
36
TABLE 3: Random Split-Halves Comparability of Factor Structure of Each Subject
Group
PEARSON CORRELATIONS
GROUP
NUMBER OF
FACTORS
FACTOR
1
2
3
4
Accountants
4
3
.93
.99
.97
.98
.95
.98
.25
-
Bankers
4
3
.87
.97
.44
.95
.53
.89
.76
-
Managers
4
3
.94
.97
.43
.97
.82
.92
.73
-
Shareholders
4
3
2
1
.23
.89
.61
1.00
.61
.51
.89
-
.58
.71
-
.80
-
37
TABLE 4: Comparability of Factor Structures between Accountants,
Bankers and Managers: Pearson Correlations
PANEL A: GROUPS' FACTORS COMPARED WITH OVERALL
FACTORS
Overall
Factors
Accountants
Bankers
Managers
1
2
3
1.00
1.00
1.00
.98
.95
.98
1.00
.99
.99
PANEL B: GROUP BY GROUP COMPARABILITY
Factors
Accountants
Bankers
Managers
1
2
3
.98
.94
.98
.99
.99
.99
.97
.92
.97
38
TABLE 5: Factor Loadings of Three Groups (Accountants, Bankers and Managers):
After Varimax Rotation
FACTOR
SCALES
Exact-estimated
Bad-good
Measurable-unmeasurable
Necessary-unnecessary
Planned-unplanned
Objective-subjective
Tangible-intangible
Strong-weak
Indirect-direct
Variable-constant
Safe-risky
Complete-incomplete
Discretionary-required
Real-imaginary
Beneficial-adverse
Temporary-permanent
Controllable-uncontrollable
Unexpected-expected
Passive-active
Static-dynamic
Long term-short term
Inflexible-flexible
1
2
3
.05
.81
.01
.67
.68
.25
.15
.64
.17
.22
.72
.25
.37
.11
.84
.48
.35
.65
.16
.02
.52
.06
.66
.02
.77
.26
.26
.59
.66
.17
.49
.01
.04
.49
.22
.74
.01
.26
.43
.29
.13
.09
.06
.05
.13
.09
.11
.18
.05
.03
.15
.17
.13
.66
.21
.06
.07
.09
.08
.32
.02
.02
.67
.77
.31
.68
Note: The signs of the loadings are not reported in Table 4 as they simply reflect
which side of the semantic differential had the positive or negative aspects of
the scale.
39
TABLE 6: Analysis of Variance: Effect of Subject-Groups on Measured Meaning
for Each Factor and Accounting Concept
FACTOR 1
EVALUATIVE
CONCEPT
F
FACTOR 2
POTENCY
FACTOR 3
ACTIVITY
SIGN.
F
SIGN.
F
SIGN.
Asset
4.98
0.01
7.49
0.00
1.12
0.33
Liability
5.91
0.00
1.40
0.25
0.41
0.66
Owners'
Equity
4.31
0.02
1.74
0.18
1.01
0.37
Revenue
4.45
0.01
0.39
0.68
0.46
0.63
Expense
2.75
0.07
0.82
0.92
0.59
0.56
Profit
4.82
0.01
0.19
0.98
6.81
0.00
Loss
12.36
0.00
0.13
0.88
4.67
0.01
40
TABLE 7: Differences in Measuring Meaning Between Accountants and Bankers
CONCEPT
FACTOR 1
EVALUATIVE
F
SIGN.
FACTOR 2
POTENCY
F
SIGN.
FACTOR 3
ACTIVITY
F
SIGN.
Panel A: Overall Accounting Concepts
All Concepts
Concept Effect
Group Effect
Interaction
280.84
0.05
1.68
0.00
0.83
0.12
15.73
2.17
1.00
0.00
0.14
0.42
16.45
0.97
1.01
0.00
0.33
0.42
4.32
0.01
3.65
0.60
0.18
0.02
0.20
0.04
0.92
0.06
0.44
0.67
0.88
0.65
1.68
0.26
0.13
0.15
1.17
2.53
1.71
0.20
0.61
0.72
0.70
0.28
0.12
0.19
Accountant
Banker
Accountant
Banker
+28
+63
+2
+20
+61
-24
+22
+54
+64
+31
+32
+55
-22
+14
-34
+22
+4
+56
+33
+76
+4
-12
+30
-2
+49
+16
+53
-14
Panel B: Individual Accounting Concepts
Asset
Liability
Owners' Equity
Revenue
Expenses
Profit
Loss
2.49
1.97
3.89
0.16
2.47
0.19
0.00
0.12
0.17
0.05
0.69
0.12
0.66
0.98
Panel C: Placement of Concepts on Factors
Accountant
Banker
Asset
Liability
Owners' Equity
Revenue
Expenses
Profit
Loss
+77
-52
+43
+64
-36
+57
-237
+95
-74
+67
+69
-58
+62
-237
Significant between-group differences at .05
level.
1
TABLE 8: Concept Differences Between Accountants and Managers
CONCEPT
FACTOR 1
EVALUATIVE
F
SIGN.
FACTOR 2
POTENCY
F
SIGN.
FACTOR 3
ACTIVITY
F
SIGN.
Panel A: Overall Accounting Concepts
All Concepts
Concept Effect
Group Effect
Interaction
203.58
0.79
9.29
0.00
0.37
0.00
11.62
0.48
1.30
0.00
0.49
0.26
24.28
2.76
1.64
0.00
0.10
0.13
4.19
1.78
2.25
0.01
0.09
0.03
0.20
0.04
0.19
0.14
0.93
0.77
0.86
0.66
1.74
0.80
1.76
0.40
0.21
4.17
3.34
0.19
0.37
0.19
0.53
0.65
0.04
0.07
Accountant
Manager
Accountant
Manag
er
+28
+63
+2
+20
+61
-24
+22
-1
+43
+29
+21
+57
-21
+15
-34
+22
+4
+56
+33
+76
+4
-11
+35
-22
+65
+27
+106
+32
Panel B: Individual Accounting Concepts
Asset
Liability
Owners' Equity
Revenue
Expenses
Profit
Loss
2.97
3.76
0.81
5.10
0.41
7.25
17.73
0.09
0.06
0.37
0.03
0.52
0.01
0.00
Panel C: Placement of Concepts on Factors
Accountant
Manager
Asset
Liability
Owners' Equity
Revenue
Expenses
Profit
Loss
+77
-52
+43
+64
-36
+57
-237
+58
-28
+33
+39
-29
+29
-155
Significant between-group differences at .05 level.
1
TABLE 9: Differences Between Bankers and Managers
CONCEPT
FACTOR 1
EVALUATIVE
F
SIGN.
FACTOR 2
POTENCY
F
SIGN.
FACTOR 3
ACTIVITY
F
SIGN.
Panel A: Overall Accounting Concepts
All Concepts
Concept Effect
Group Effect
Interaction
183.28
0.45
12.41
0.00
0.50
0.00
10.34
3.98
1.60
0.00
0.05
0.14
17.14
5.82
2.10
0.00
0.02
0.05
13.25
1.95
0.01
0.80
0.01
0.00
0.00
0.00
0.17
0.91
0.37
0.92
0.96
0.96
0.00
0.13
0.76
0.85
0.46
14.57
7.94
0.96
0.72
0.32
0.36
0.50
0.00
0.01
Banker
Manager
Banker
Manager
+54
+64
+31
+32
+55
-22
+14
-1
+43
+29
+21
+57
-21
+15
-12
+30
-2
+49
+16
+53
-14
-11
+35
-22
+65
+27
+106
+32
Panel B: Individual Accounting Concepts
Asset
Liability
Owners' Equity
Revenue
Expenses
Profit
Loss
8.97
13.84
9.24
7.32
5.33
6.41
15.05
0.00
0.00
0.00
0.01
0.02
0.01
0.00
Panel C: Placement of Concepts on Factors
Banker
Manager
Asset
Liability
Owners' Equity
Revenue
Expenses
Profit
Loss
+95
-74
+67
+69
-58
+62
-237
+58
-28
+33
+39
-29
+29
-155
Significant between-group differences at .05 level.
1
ENDNOTES
1
Sadly, Professor Emeritus Louis Goldberg passed away in October 1997.
2
This may be a factor in the audit expectations gap where the meaning of an audit report may
be shared in cases where there is no economic benefit to be gained in having differences of
meaning (or misunderstandings). But where litigation may prove useful to a party it is
possible for a user or user group to argue the meaning of the audit opinion is or was unclear
or erroneous.
3
There is an expectation that there will exist differences in both cognitive structure and
measured meaning with the presence of training given the results of Houghton (1987b).
4
Note that in Houghton and Hronsky (1993) both groups of subjects had high levels of
training while one had substantial experience. To the extent experience brings with it
sophistication, then the results of Houghton and Hronsky (1993) are relevant. They found
experience did drive significant differences in measured meaning, although the cognitive
structure within which meaning was held was shared by both experiences and inexperienced
(but well educated) subjects.
5
Given the subject selection method used the private shareholder group would likely have
systematically less rather than more business expertise.
6
They were:
Group
(a) Accountants
(b) Bankers
(c) Managers
(d) Shareholders
Event
Institute of Chartered Accountants in Australia - Professional
Development Week.
“Financial Information for Lending Bankers: Seminar,
Extension Service of a major Australian university.
“Advanced Management Program” (a senior management
program designed for general management). Managers with
financial backgrounds were not invited to participate.
“Understanding Financial Statements” classes run for private
shareholders with no previous systematic training in
accounting or finance.
7
The present study surveyed eleven accountancy monographs widely used in accounting
education in Australia as the basis for concept selection. Those concepts defined or
discussed as being central to the reporting function in a majority of those monographs were
included in the study. Note that the concepts vary from those defined in the Australian
accounting profession’s conceptual framework document SAC 4. SAC 4 does not define
“profit” or “loss” (presumably as this is a residual of revenue and expense) and describes
owners’ equity as simply equity. To the extent the concepts directly overlap, the present
study provides some evidence of both the need for definitions of these concepts and the
extent of existing shared meaning that exists prior to the enunciation of these definitions.
8
In addition, data was also gathered on several qualitative characteristics and accounting
conventions such as historic cost, accrual and the like. Due to size limitations, the results of
that part of the study are to be reported separately.
2
9
Tests on results between those accountants in industry and commerce as opposed to those in
public practice showed no significant differences at the .05 level in measured meaning
between the two occupational activities of the accountants.
10
This result is entirely consistent with Houghton’s (1987a) result in respect of the meaning
of the concept “True and Fair View”, a concept now central to International Accounting
Standards.
11
Osgood et al (1957, p31) pointed out that, “The meaning of a sign has been defined as a
representational mediation process, a complex reaction divisible into some unknown but
finite number of components”. Osgood et al. (1957, p31) further suggested that this reaction
is identified as a point within multi-dimensional space and noted that, “The projections of
this point onto the various dimensions of the semantic space are assumed to correspond to
what component mediation reactions are associated with the sign and with what degrees of
intensity. The essential operation of measurement is the successive allocation of a concept to
a series of descriptive scales defined by polar adjectives, ... it is necessary to determine what
the major dimensions of the semantic space are, [to do this] some form of factor analysis
seems the logical tool for such a multi-dimensional exploratory task”. The ‘factor analysis’
used in the present study is principal components analysis.
12
This result is consistent with the education study of Houghton (1987b) who also found a
formal educational program affected the measured meaning of accounting concepts.
3