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Readability: A Measure of the Performance of the Communication Function of Financial Reporting.

James E. Smith¹; Nova P. Smith²

¹ Assistant Professor of Business Administration at the College of William and Mary. 1 · ² Master of Education degree with major in Reading from The University of Arizona. 2

Abstract The article focuses on readability as a measure of the performance of the communication function of financial reporting. Financial reports are prepared for a specific purpose. The premise adopted in this article is that the function of financial reporting is to communicate selected financial information. If this communication function is not performed, then financial reporting is nonutilitarian. Communication has been long recognized as a function of financial reporting. Communication occurs in financial reporting only if the meanings intended by the information source are assigned to the financial statement messages by the destination. Proper meaning assignment necessitates that the information source encode and transmit the selected messages such that the destination is capable of assigning the intended meanings. Ideally, the information source should be able to objectively measure the degree to which the intended meanings will be assigned to the selected financial statement messages. No such objective measure exists that can be applied to the entire financial statements. However, an objective measure does exist that can be applied to the footnotes to the financial statements. This measure is termed readability.

DOI

10.2308/tar-4488890

Volume

46 (3)

Pages

552-561

Language

en

Export

BibTeX

Sources

crossref openalex