Too good to be true.

• Author: Roy, J. Paul-Emile
• Position: Use of graphics in performance reports

In performance-reporting graphics, the medium is the message

It's not surprising that the vast majority of corporate annual reports contain charts and graphs. After all, graphics are a visually appealing, concise, effective means of communicating performance information to shareholders, regulators, clients, customers and the media.

When presented properly, graphics can convey useful information for decision-making - information that is understandable, relevant, reliable and comparable. They can readily highlight significant trends and clarify relationships in corporate performance data, such as investment return (earnings per share, cash flow per share), financial strength (debt to equity, cash flows to debt) and management performance (return on equity, return on sales, return on assets).

Despite the benefits, however, using graphics poses numerous pitfalls. Even with powerful computer software packages, most performance-reporting graphics (for example, column, line, bar and pie charts) still are developed largely by intuition. The basis for choosing, designing and constructing them is not widely understood - and they often produce misleading or incomprehensible results.

Canadian companies' concern over potentially misleading graphics was raised recently by Bill Buchanan, FCA, the overall judging coordinator for the 1997 Financial Post Annual Report Awards, which recognize the best performance-reporting models. He says, "The use of charts and graphs has become widespread, particularly in the management discussion and analysis section of reports. This is a significant trend, considering the average MD&A is now 11 or 12 pages. A 1993 study by the Canadian Institute of Chartered Accountants found that many charts and graphs can be misleading because of the way they are designed and constructed. There is evidence that not much progress has been made to date."

Buchanan expressed this concern on behalf of the judging groups which, collectively, represent the key stakeholders in performance reporting in Canada, but the concern isn't restricted to that country. It's an international phenomenon, as evidenced by a 1996 study undertaken for the Institute of Chartered Accountants in England & Wales that examined 300 reports from top companies in Australia, Europe and the United States. It found that annual report graph design and construction often are poor.

Is seeing believing?

According to the study, "There was also evidence of selectivity...