Omission bias refers to the human beings’ tendency to evaluate a wrongful omission (e.g. a deliberate omission of a negative information) less harshly than a wrongful commission, although the consequences are often the same. Several psychological studies have shown that this bias is widespread as wrongful commissions can cause greater condemnation and public concern. However, the omission bias in financial reporting has not been surprisingly empirically investigated. Companies may prefer omitting negative information rather than providing misleading/false information as they believe users perceive omissions in a less negative way, because of the omission bias. The aim of the paper is to test whether potential annual reports’ readers are affected by omission bias when they view financial graphs displaying a negative trend. We test with an experiment whether techniques of favourable omission and commission via graphs affect the users, even though the information is still displayed via other formats (a table or a text). The paper shows that users perceive performance graphs’ omissions not to be morally wrong. On the other hand, they perceive distracting the reader via another indicator graphed (number of branches) and via favourable distortions as morally worse techniques compared with cases of omissions and, even more, of correct representation. After being taught impression management and after having revealed the preparers’ intentions, users seem to evaluate wrongful commissions still more harshly than omissions. Thus, omission bias does not seem to be removed or significantly reduced by revealing the preparers’ disclosure intention or by teaching users the correct graphical design and the risks of impression management. Overall, our results show that potential annual reports’ users suffer from an omission bias. The study contributes to the impression management literature showing the importance of incorporating a psychological perspective that takes into account cognitive biases.
Key-Words: Financial Reporting
