Cognitive Load Theory: Why It’s Important for International Business Teaching and Financial Reporting

ABSTRACT

Cognitive load theory (CLT) has rarely been applied in the area of financial accounting. This research demonstrates that by using CLT, financial accounting and reporting can benefit in the areas of teaching and decision making. The CLT indicates that by reducing the load of complex concepts in the working memory, a more efficient result is obtained from the expected output. A real example on International Accounting Standard (IAS) 40 on Investment Properties (IP) is used to analyze the assimilation of the true and fair view concept. This standard permits the use of either the fair value or cost value model. Additionally, the study examines whether financial presentation formats are relevant for understanding financial information. The main results show that adequate financial presentation formats reduce extraneous load, and where presentation formats cannot be changed, results can be improved by decreasing cognitive load through dedicating more time to teaching the more complex option. This research aims to aid international business education by recommending these findings to standard setters and improving education material.

KEYWORDS:

• Cognitive load theory
• Fair value
• True and fair view
• IAS 40 Investment Properties
• Principles of Disclosure IASB

Acknowledgements

The authors acknowledge the financial contribution from the Spanish Ministry of Innovation and Science (research projects DER2009-09539, ECO2010-17463, ECO2010-21627, DER2012-33367, ECO2015-66240-P, DER2015-67918P), Castilla-La Mancha regional Ministry of Education and Science (research Project POII10-0134-5011) and Alcalá University, Madrid (research project CCG2014/HUM-036 and CCG2016/HUM-056).

Notes

¹ The discussion paper “Disclosure Initiative—Principles of Disclosure” seeks to improve IAS 1, Presentation of Financial Statements.

Additional information

Funding

The authors acknowledge financial contributions from the Spanish Ministry of Innovation and Science (research projects DER2009-09539, ECO2010-17463, ECO2010-21627, DER2012-33367, ECO2015-66240-P, DER2015-67918P), Castilla-La Mancha Regional Ministry of Education and Science (research project POII10-0134-5011), and Alcalá University, Madrid (research projects CCG2014/HUM-036 and CCG2016/HUM-056).

Notes on contributors

Laura Parte

Laura Parte, Associate professor in Financial Economics and Accounting at the Universidad Nacional de Educación a Distancia (UNED) in Madrid (Spain).

Anne M. Garvey

Anne M. Garvey, Visiting Professor in Accounting at the Universidad of Alcalá (UAH), Madrid, Spain. Associated Professor (accredited ANECA). Fellow member of the ACCA. Doctor in Accounting (UAH).

José Antonio Gonzalo-Angulo

José Antonio Gonzalo-Angulo, Full professor of Financial Economics and Accounting at the University of Alcalá (Spain), where he is currently Head of the Department of Economics and Management.