Readability and Understandability: Different Measures ofthe Textual Complexity of Accounting Narrative

Adopts an empirical approach to demonstrate that a marked difference exists between the terms “readability” and “understandability”, suggesting that “reading ease”, as measured by formulae like FLESCH and LIX based on word and sentence complexity, conveys data which may be different to that conveyed by tests of the understandability of the message. The CLOZE method is used as a measure of understandability with audiences of differing accounting sophistication to measure the predictability of the narrative and to demonstrate inter‐group and inter‐formulae distinctions. Analysis of the results suggests that readability and understandability are different concepts and that standard setters should pay more attention to “understandability” as a desirable characteristic of accounting disclosures since there is a danger that the intended messages are of a complexity beyond the sophistication of the target audience.