By far the most common type of viol

By far the most common type of violation involves starting the vertical axis at a point other than zero. Most often this results in a graph that exaggerates the magnitude of an increasing trend. Sometimes, however, it smoothes the magnitude of a decreasing trend. Graphs that reverse the chronological sequence on the x-axis have also been found in annual reports.
An interesting question is why such graphs exist in annual reports. The answer is that there are no authoritative guidelines for graphing financial data, nor are there any authoritative guidelines for auditing such graphs. In the United States, SAS No. 8 discusses the auditor’s responsibility for “other information” contained in annual reports. Although it requires the auditor to determine whether such information, which would include graphs, is materially consistent with the audited financial statements, on guidelines for assessing material consistency are provided. Moreover, improperly designed graphs in annual reports always include accurate data values that match the numbers in the financial statements. Therefore, the question is not whether the graphs reports accurate numbers, but whether visual distortions of those accurate numbers matter. There is some research evidence that improperly designed graphs can affect decisions, but much additional work is needed before definitive conclusions can be drawn. If such evidence is forthcoming, guidelines for preparing, and auditing, graphs of financial data are likely to follow.