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Accounting Narratives and the Fog Index: A Research Review

Lookup NU author(s): Dr Ekaete Efretuei


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Accounting researchers still use the fog index readability formula, although many consider it error prone and too simplistic to capture apposite narrative complexity. We investigate these propositions by reviewing studies that analyse the fog index of company filings between 2008 - 2020. Based on our review of the fog index content and trait validity reported in these studies, we classify the findings into (1) arguments for the fog index, (2) arguments against it, and (3) current proposals in the literature on what the fog index measures with respect to the purpose of corporate reporting. The arguments for the fog index include: objectivity, easy adoption, and association with disclosure decision outcomes, while arguments against it include: poor specification for financial disclosure document users and unidimensionality. The current proposals suggest that there have been limited studies addressing the challenge of disentangling the information and obfuscating components of fog index narrative disclosure complexity and that the impact of narrative complexity on investor types remains unclear. This allows the review to propose considerations when undertaking a readability research study. This study is limited to the fog index readability formula to allow for a specific contribution to the literature with respect to this formula that is widely used in accounting research. However, the issues identified are applicable to other accounting narrative readability formulas. The review concludes by identifying areas for future research.

Publication metadata

Author(s): Efretuei E, Hussainey K

Publication type: Review

Publication status: Unpublished


Year: 2021

Notes: JEL Classification: M40, M41, M49. Data Availability: Data are available from public sources cited in the text