Effects of diagram format and user numeracy on understanding cash flow data

An issue of longstanding concern in accounting information systems is the effective presentation and communication of financial data to users with little accounting background. Cash flow statements in particular have been singled out as difficult to interpret. To increase user understanding of cash flow data, this study explores the potential merits of diagram formats, as well as possible effects of the user’s numeracy skills. The study covers an experiment (N = 100) in which users were queried on their understanding of the cash flows of a real-world company, and in which type of format was either a cash flow statement or a cash flow diagram. Understanding was measured by three different concepts: interpretation accuracy, company diagnosis, and clarity of presentation. The study confirms that, on those measures, diagrams do not necessarily outperform cash flow statements, and that format familiarity (irrespective of the type of format) is a key driver in understanding cash flows. In addition, the study finds that numeric preference, but not numeric ability, helps in understanding cash flow data. The study discusses the sobering implications for designers of accounting information systems.