Assurance reporting and the communication process: impacts on report users' perceptions and decision-making

Abstract

This thesis investigates the effectiveness of communication between assurors and assurance report users, and the role that assurance reports play in this process. It comprises two behavioural experiments undertaken in the context of: (i) wording changes to the audit report (developed product) using shareholders as participants; and (ii) the role of assurance and type of assurance provider for corporate social responsibility reporting (evolving product), using financial analysts as participants. In both studies effectiveness of communication is examined in terms of report users’ perceptions and investment decision-making. The theoretical framework used in these studies is adapted from a communications model developed by Shannon and Weaver (1949), and supplemented by psychology research focused on source credibility (Birnbaum and Stegner, 1979). Two key elements of the communication process are recognised; the: (i) message transmitted; and (ii) source of the message. The first element is considered in the first experiment; the second element in the second study. Useful feedback is provided to standard-setters. From the first study, report users’ perceptions are not impacted by changes to the wording of the audit report. However, in the second experiment they are affected by differences in the source of the message. In terms of trustworthiness, financial analysts perceive the credibility of the source of corporate social responsibility information to be significantly greater when assured. For a company in an industry with stronger incentives to report positive corporate social responsibility information, they perceive the credibility (trustworthiness, overall credibility) of the source of the information to be significantly greater when assured. They also discern differences between types of assuror whereby the credibility (trustworthiness, expertise, overall credibility) of the source of information is perceived to be greater when assured by a professional accountant than a sustainability expert. A contribution of these experiments is the analysis of report users’ investment decision-making, as well as their perceptions. Differences in the message and source of the message for assurance reporting have no impact on report users’ investment decisions. Differences in characteristics of report users (familiarity with reports, extent to which reports are understandable) appear to impact report users’ perceptions and merits further examination.