Pacific Accounting Review

Does including pictorial disclosure of intellectual capital resources make a difference?

Natasja Steenkamp Jill Hooks
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Natasja Steenkamp Jill Hooks, (2011),"Does including pictorial disclosure of intellectual capital resources
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PAR
23,1 Does including pictorial
disclosure of intellectual capital
resources make a difference?
52
Natasja Steenkamp
Central Queensland University, Mackay, Australia, and
Jill Hooks
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Massey University, Auckland, New Zealand

Abstract
Purpose – This paper seeks to examine the extent to which pictures are used to communicate
intellectual capital (IC) information and the changes in volume of IC disclosure when pictures are
included.
Design/methodology/approach – A content analysis was conducted to determine the impact that
pictures have on IC reporting (ICR) results. In determining the extent to which pictures are used in
corporate annual reports the paper compares frequencies of IC reported in pictures as proportions of:
total IC reported, total pictures and total pages. A key assumption underlying content analysis is that
the volume of disclosure signifies the importance of the item(s) being disclosed. The paper compares
the volume of IC items disclosed with and without pictures to determine which items firms signal as
being most important. Using these volumes the paper determines which of the sampled firms use
pictures as a popular reporting mechanism to disclose their IC resources.
Findings – A significant portion (42 per cent) of ICR is made in picture form and the majority of
pictures (66 per cent) communicate messages about IC resources. Therefore, the volumes of IC items
disclosed change significantly when pictures are included. It is found that many firms use pictures to
disclose their IC resources, particularly employees and brands which may indicate that these are their
most important IC items.
Practical/implications – A significant part of IC is reported in picture form in annual reports.
Excluding pictures when analysing content in annual reports will result in ICR not being fully
captured, a partial understanding of what IC is disclosed and misunderstanding of what IC items firms
consider as being important.
Originality/value – The authors incorporate pictures into their content analysis. Pictures are not
normally included in IC disclosure studies.
Keywords Intellectual capital, Visual media
Paper type Research paper

1. Introduction
An objective of accounting is to provide information about business activities to a wide
range of users to assist them in making economic and other decisions about the
organisation. This information is generally disclosed in financial statements.

Pacific Accounting Review
Vol. 23 No. 1, 2011
pp. 52-68
q Emerald Group Publishing Limited
0114-0582
DOI 10.1108/01140581111130661
The authors are grateful for helpful comments on earlier drafts of this paper from colleagues at
the 2007 APIRA and AFAANZ conferences and for input from participants at the 2007 European
Institute for Advance Studies in Management Conference on Visualising, Measuring and
Managing Intangibles and Intellectual Capital. They also acknowledge the helpful feedback from
Mike Bradbury.
 However, concern has been expressed that the traditional financial reporting system Pictorial
ignores relevant information about “new economy” organisations (Drucker, 1993) that disclosure
are dependent on intangible assets in their value-creation processes (Bontis, 2001;
Clikeman, 2002; Firer and Williams, 2003). In this respect, financial statements have
been criticised for being irrelevant and deficient because, they do not reflect the real
value of a business (Canibano et al., 2000; Dyckman and Zeff, 2000; Mouritsen et al.,
2004). The literature widely claims that intellectual capital resources are major wealth 53
creators and significant value drivers (Allen, 2002; Guthrie et al., 2001; Lev and Zambon,
2003; Robertson and Lanfranconi, 2001; Rylander and Peppard, 2003; Vandemaele et al.,
2005). Such intellectual capital (IC) resources include people’s knowledge, creativity and
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intellect (referred to as people-based assets), brands, reputation, organisational

capabilities, relationships with customers and suppliers and information technology
(Andriessen, 2006; Lev, 2001; Mouritsen et al., 2004). A plethora of terms are used in the
literature when referring to these resources, such as “intangibles”, “intangible assets”,
“knowledge assets” and “intellectual capital” (Fincham and Roslender, 2003b; Lev,
2001). These terms are sometimes used interchangeably (OECD, 2008) and in various
combinations such as intangible capital (Tomer, 2008), intellectual assets (Bismuth and
Tojo, 2008; Litschka et al., 2006; Robertson and Lanfranconi, 2001), intangible resources
(Bontis et al., 1999) and knowledge resources (Grover and Davenport, 2001). For the
purpose of this study, we use the term “intellectual capital”. Although there is no
commonly accepted definition of IC most definitions seem to agree that it constitutes
non-physical assets, which are viewed as sources of probable future economic profits
and, to some extent, can be retained and traded by a firm (OECD, 2008).
Despite the fact that IC is acknowledged as the major contributor to the market value
of many firms operating in knowledge and service industries, IC is generally not
included in the balance sheet of firms (Beattie and Thomson, 2007), because it does not
meet the recognition criteria of an asset and the value cannot be measured reliably. If IC
is as important as claimed, it would seem likely that firms would find alternative forms
of communicating information about IC resources. In this respect, Davison and Skerratt
(2007, p. 109) investigated the reporting patterns of FTSE 100 companies and reported:
[. . .] an overwhelming 94 per cent of the page content is estimated as being concerned with
intangibles and includes all those aspects of corporate activities that a businessman would
recognise as being important, but which traditional accounting does not communicate.
Accounting researchers have been interested to determine how companies disclose aspects
of their IC (Burgman and Roos, 2007; Fincham and Roslender, 2003a; Guthrie et al., 2006).
Many studies have used content analysis as a method to examine IC reporting (ICR) in
annual reports in various countries (Abeysekera, 2008; Abeysekera and Guthrie, 2004;
April et al., 2003; Boedker et al., 2005b; Bozzolan et al., 2003; Brennan, 2001; Goh and Lim,
2004; Guthrie et al., 2006; Schneider and Samkin, 2008; Steenkamp, 2007; Vandemaele et al.,
2005; Vergauwen and van Alem, 2005; Whiting and Miller, 2008). However, a review of
these ICR studies raises questions about the coding of pictorial information and confirms
Beattie and Thomson’s (2007) claim that IC research mainly discusses methodological
issues in abstract terms. Some authors do not indicate whether pictures are included in their
analyses (April et al., 2003; Bozzolan et al., 2003; Goh and Lim, 2004; Vandemaele et al., 2005)
while others specifically state that pictures are not included (Schneider and Samkin, 2008;
Whiting and Miller, 2008). Findings of studies that included pictures are quite different
 PAR from the studies that presumably, excluded pictures. Beattie and Thomson (2007, p. 160)
23,1 state: “The range of choices available to researchers in terms of analysing and measuring IC
disclosure further hinders interpretation and comparability”. They argue that the focus of
academic journal articles should change temporarily to make the methods themselves the
focus in order to resolve the problems of interpretation and comparability of findings
across ICR studies. Beattie and Thomson (2007) suggested that alternative communication
54 formats found in corporate annual reports should be considered, and others (Abeysekera,
2003; Davison and Skerratt, 2007; Guthrie et al., 2004; Steenkamp and Northcott, 2007) have
highlighted the importance of including pictorial information. We pursue this avenue and
focus on this methodological issue that has had little attention in ICR research.
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The aims of our study are, first, to ascertain the extent to which pictures are used to
communicate IC information in annual reports of New Zealand companies; second,
to determine the changes in the volume of disclosure of IC items when pictures are
included and third, to determine which firms mostly use pictures to disclose their IC
resources. Our study is different to other ICR content analyses conducted in New Zealand
(Schneider and Samkin, 2008; Whiting and Miller, 2008) because we include pictorial
information. Our aim is to highlight the importance of including pictures when reporting
on IC disclosures in corporate annual reports. We examine the extent to which pictures
are used to depict IC items and hypothesise that pictures are an important means of
communicating IC information.
The remainder of the paper is structured as follows. Section 2 discusses the reporting
of IC. Section 3 outlines the research method and the techniques used to conduct the
content analysis. Section 4 presents our findings, which are further discussed in Section 5.
The paper ends with a conclusion followed by some ideas for further research.

2. Reporting of IC
2.1 Voluntary ICR
In recent years, a range of initiatives have emerged that assist firms in voluntarily
reporting IC. According to Fincham and Roslender (2003b), the most renowned
contribution to the IC debate emanated from Skandia AFS[1]. In the early 1990s, this
Swedish financial services conglomerate started to actively manage their IC (Edvinsson,
1997; Edvinsson and Malone, 1997), and developed the Skandia Navigator[2] (Brennan
and Connell, 2000; Fincham and Roslender, 2003b). The Skandia Navigator was
published for the purpose of internal management use in order to provide a more
balanced overall picture of the firm’s operations, which included accounting for IC
(Gallego and Rodriguez, 2005; Ordonez de Pablos, 2005).
As well as the Skandia Navigator development, the “measuring intangibles to
understand and improve innovation management” (Meritum) project (Meritum, 2002
cited by Fincham and Roslender (2003b)) contributed to the development of IC reports.
The Danish participants in the Meritum project developed one formulation of an IC report,
an IC statement (ICS) (Fincham and Roslender, 2003b). The ICS is designed to bridge the
gap in traditional financial statements by providing information about how intellectual
resources create future value (Mouritsen et al., 2004). Lev and Zambon (2003) regard the
implementation of ICS in various organisations, particularly in the Nordic countries, as
one of the most significant responses to IC accounting. By the end of 2002, about
100 Danish organisations and firms, including large firms quoted on the stock exchange,
had followed the ICS approach (Bukh, 2003). Many researchers have investigated ICR
 practices in ICS (Bornemann and Leitner, 2002; Fincham and Roslender, 2003b; Lev and Pictorial
Zambon, 2003; Mouritsen, 2003; Mouritsen et al., 2004; Ordonez de Pablos, 2005).
However, since the ICS is not common practice worldwide, a number of studies have
disclosure
investigated voluntary ICR practices in corporate annual reports.
According to the literature, the annual report is a corporate public relations and
communications document (McKinstry, 1996) and is a primary information source
(Beattie and Jones, 1992). Moreover, managers use annual reports as a reporting 55
mechanism to signal what is important, and hence, annual reports are regarded as
highly useful sources of information (Guthrie et al., 2004; Unerman, 2000). This study
investigates IC disclosures in corporate annual reports using content analysis
methodology to quantify the extent of ICR.
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2.2 Frameworks
Effective content analysis is dependent on a clearly defined framework.
The framework used in this study (Table I), classifies IC into three categories, internal,
external and human capital and is similar to the framework of Guthrie et al. (2004), which
is based on the relatively well-established IC framework of Guthrie and Petty (2000).
We modified the Guthrie et al. (2004) framework as follows: the IC item “financial
relations” was reclassified to the external capital category, which, based on its operational
definition[3] better fits this category; and the IC items “customers” and “customer
satisfaction” were combined as their operational definitions overlap. Other changes relate
to aspects identified in the framework of Abeysekera (2003) such as: adding the IC item
“technological processes” to the item “management processes”; changing the name of the
IC item “company name” to “corporate image building” to be more descriptive of the item;
and adding “franchising agreements” to “licensing agreements”.

2.3 ICR by pictures

Graves et al. (1996, p. 83) acknowledge the promotional aspects of annual reporting and
consider that the use of imagery in US annual reports “serves the rhetorical purpose of
arguing the truth claims of those reports and the social constructs they represent”. As a
form of rhetoric, images are concerned with communication and can be used to persuade
(Smith, 2007) and to influence an audience (Scott, 1994). The literature posits that every

Internal capital External capital Human capital

1. Intellectual property 6. Financial relations 13. Employee

2. Management philosophy 7. Brands 14. Education
3. Corporate culture 8. Customers and customer 15. Training
satisfaction
4. Management and technological 9. Corporate image building 16. Work-related
processes knowledge
5. Information/networking systems 10. Distribution channels 17. Entrepreneurial
spirit
11. Business collaborations
12. Licensing and franchising
agreements
Table I.
Note: Operational definitions and examples of these IC items are available on request from the IC framework applied
corresponding author in study
 PAR piece of communication from the firm goes to build image (Sridhar, 2000), that annual
23,1 reports are a major communications medium (McKinstry, 1996), that messages
conveyed in annual reports support the image of a firm and its members (Conrad, 1985)
and that annual reports may be a visual medium through which firms seek to create and
manage their images (Preston et al., 1996). Importantly, Simpson (2000) has shown that
imagery may be used to establish the identity of the corporate personality in the minds of
56 consumers.
Visual images include pictures, charts, diagrams and graphs and are powerful
communication tools (Davison, 2007; Davison and Skerratt, 2007). Pictures have become
a favoured visual image because accounting narratives are difficult to read (Jones and
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Shoemaker, 1994) and pictures provide “a forum to communicate information to

shareholders in a language they understand” (Anderson and Epstein, 1996, cited by
Simpson (2000, p. 242)). They are, therefore, important elements of the annual reporting
package. According to Hooper et al. (2003) glossy, colourful pictorial reports have now
surpassed the traditional reporting of financial information in annual reports. Beattie
and Jones (1992, p. 291) argue that “the human capacity to remember visual patterns is
superior to memory for text or numerical tabulations”. Therefore, the literature supports
our contention that visual images disclosed in annual reports are an integral part of the
reporting process and as such must be included in a comprehensive analysis of what and
how firms voluntarily report IC information. Any content analysis study that ignores
pictures is likely to result in an incomplete representation and since volume of disclosure
signifies the importance of the item(s) being disclosed (Unerman, 2000), this is a
particularly important issue. Researchers who focus only on the verbal portions of
messages:
[. . .] not only miss the information contained in pictures and non-verbal sounds, they even fail
to interpret the verbal content appropriately because that content is modified by its
combination with picture messages (Graber, 1989, p. 145).
Beattie and Thomson (2007) demonstrated that IC would not be fully captured if pictures
are ignored. They argue that non-narrative forms of disclosure have been found to provide
an immediate and effective means of disclosure in annual reports and hence, suggest that
other visual forms of communication, including pictures, should be included in
content-analytic studies. Davison and Skerratt (2007) conducted a study of pictures
contained in the annual reporting documents of the top 100 UK-listed companies. They
found that about 94 per cent of pictures communicated intangible aspects of firms’
businesses. Thus, if pictures are ignored, we obtain only a partial understanding of what is
disclosed about IC and we may misunderstand what information firms perceive as being
important. Concern for a better understanding of IC disclosures motivated our study.

3. Research method and techniques of analysis

Beattie and Thomson (2007) highlighted the need for a thorough explanation of
methodological issues. In this section, we explain the choices made in analysing and
counting pictures in a content analysis.
Building on Steenkamp and Northcott (2007), we analyse the 2007 annual reports of
the 28 largest (based on market capitalisation) New Zealand firms’ annual reports.
We examine the impact pictures have on the extent and the volume of ICR to illustrate
how the inclusion of pictures influences our understanding of ICR and of how companies
 report such resources (Boedker et al., 2005a; Guthrie et al., 2001; Mouritsen et al., 2004). Pictorial
We find that including pictorial information is an important methodological issue in
content analytic ICR research. Although it may be argued that the coding and recording
disclosure
of pictures may increase the subjectivity of the frequency count and that it is difficult to
code pictures accurately, we found that the difficulties presented when coding pictures
are not any different to those presented when coding texts. Krippendorff (2004)
noted that texts have no objective qualities, which means they are dependent on the 57
meaning the reader brings to the text. Similarly, Steenkamp and Northcott (2007, p. 19)
comment that “a text does not have a single meaning that can be “found” and
“described”. Rather, it may convey a multitude of messages to different people, or even to
a single person”. The meanings in pictures are also subjective but we consider including
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pictures is important in order to recognise all IC disclosures in quantifying the extent of

reporting. Therefore, we analysed the entire contents of the annual reports.

3.1 Categories of classification

In determining what IC was disclosed, the three IC categories and 17 IC items shown in
Table I were used.
We chose themes as the recording unit[4] and a paragraph as the context unit for
coding text. To ensure the most fitting IC item is coded in pictures, the chosen context
unit is the picture and its surrounding texts. It is important to consider the surrounding
texts (including the caption of a picture) when interpreting the message conveyed.
For example, a picture portraying a human being could be representing an employee or a
customer. Here, the caption and surrounding texts assist in making a decision about
what IC is disclosed.
Defining the categories of classification clearly and operationally enhances a study’s
reliability (Guthrie et al., 2004; Wimmer and Dominick, 2003), and minimises confusion,
vagueness and ambiguity about the information analysed. To enhance this study’s
consistency and reproducibility, categories of how IC is disclosed were devised in line
with prior ICR studies. Our focus in this study is on form of disclosure as shown in
Table II. To ascertain the form of disclosure, texts and visual images were separated.
Two subcategories of visuals were created: charts and pictures.

3.2 Counting of disclosure

Two indices are typically used to count recording units: an index of presence and an
index of frequency (Krippendorff, 2004). An index of presence is the simplest kind of
counting (Carney, 1972) and counting stops as soon as one instance is found. However,
detecting and recording the presence of a particular item “does not capture the volume of
IC information being disclosed” (Beattie and Thomson, 2007, p. 151) and “is a very
partial analysis of the amount of IC disclosures in annual reports” (Beattie and Thomson,
2007, p. 140). An index of frequency is used as a means of quantitative assessment

Categories Form
Sub-categories Visual images
Sub-sub categories Written texts Charts Pictures
Table II.
Disclosure type In narrative As charts, diagrams, tables, As pictures and Categories of
(operational definition) written form graphs and figures photographs how IC is reported
 PAR whereby “every occurrence of a given attribute is tallied” (Holsti, 1969, p. 122). Based on
23,1 the viewpoint that volume of disclosure signifies the importance of item(s) disclosed
(Unerman, 2000), this study captures the volume of IC items disclosed with and without
pictures. Hence, an index of frequency is used and every occurrence of reporting IC
information is counted. The results presented as frequencies in the tables in Section 4
indicate how many times IC items were reported. Reference to frequencies of pictures
58 means the number of pictures counted.
Three key issues arose in counting frequencies in this study: repetitive messages,
disclosing multiple IC items in a context unit and disclosing multiple (rather than
repetitive) messages in a context unit. We applied simple rules when counting in texts,
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and in visual images (distinguishing between pictures and charts).

3.2.1 Counting in texts. Repetitive messages in different context units were recorded
as separate counts, as “repetition is a communication strategy used for emphasis and
reinforcement and signals the importance placed by management upon those messages”
(Beattie and Thomson, 2007, p. 140). However, as “repetition of a given attribute within a
sentence, paragraph or items does not change the tally” (Holsti, 1969, p. 121), repetition
within a context unit (paragraph) was recorded only once in the study.
It is possible that multiple IC themes could be interpreted in a context unit, which will
have a direct impact on the volume of IC disclosure. Hence, Beattie and Thomson (2007)
advise to be transparent regarding the choices made as to which theme to code. One way
to identify what IC item is disclosed is to determine which IC item is dominant in the
context unit. Another way, which Beattie and Thomson (2007) followed, is to identify
how many pieces of IC information are provided in each sentence and to determine to
which IC items each piece of IC information relates. Both methods are subjective.
However, the subjectivity can be reduced by developing comprehensive coding rules.
Similar to Beattie and Thomson (2007), when multiple IC items were disclosed in a
context unit (paragraph), one count was recorded for each IC item reported in this study.
Furthermore, multiple (rather than repetitive) messages about an IC item conveyed in a
context unit were interpreted as accentuated messages that emphasised the importance
of the IC item. Consequently, multiple counts were recorded.
3.2.2 Counting in pictures. Quantifying IC disclosures in pictures is more
complicated than counting in written texts. The only prior study that we are aware of
that provides guidance in quantifying ICR in pictures is that of Steenkamp and
Northcott (2007) and the only prior study that we are aware of that devised rules for how
to code and count pictures is that of Steenkamp (2007). While these rules are exploratory
in nature they can be used as a starting point for future research. Accordingly, we applied
the following coding rules:
.
code the dominant IC item identified in the context unit;
.
record repetitive messages in different pictures as separate counts;
.
record one count per picture even if there are multiple “appearances” of the
dominant IC item within the picture. For example, a picture representing five
employees is recorded as one count (frequency) only; and
.
record one count per picture regardless of the size of the picture.

The last coding rule simplifies the process but raises the question: should pictures be
given more weight because they take up more space than words, or because “a picture
 tells a thousand words”? There is no definitive literature that states that large pictures Pictorial
convey more information than small pictures or that a picture should count for twice as disclosure
much as a sentence, therefore, we treat pictures as of equal size. We did, however, take
the size aspect into account when we calculated the proportion of the annual report
devoted to pictures in Table IV.
3.2.3 Counting in charts. As shown in Table II, tables, figures, graphs, charts and
diagrams, are included in this grouping. In order to count disclosures presented in this 59
way, each cell in a table, for example, was taken to provide one piece of IC information
(Beattie and Thomson, 2007). However, if information in a chart referred to one specific
IC item, only one count was recorded per chart.
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3.3 Reliability and validity

The annual reports were coded by two coders[5]. Similar to Whiting and Miller (2008),
after a training period of three annual reports, the coders separately coded the same two
sets of annual reports for reproducibility. The inter-rater reliability was very high
(94.7 per cent agreement) with only a few coding differences between coders. During the
coding process, some challenging issues were found that were unique to a particular
data set. These were deliberated, which resulted in further refining of the coding
instrument. This process is supported by Krippendorf (2004, p. 130) who states: “[. . .]
inter-rater agreement is based on two people who have worked together intimately in the
development of a coding scheme, and who have engaged in much discussion of
definitions and disagreements”. To assess the stability of the coding, similar to the
test-retest which Bozzolan et al. (2003) performed, one annual report was coded a second
time by both coders two weeks later. The results were analysed and yielded a result of
96.8 per cent. Since no significant inter-temporal coding differences between the first
and second rounds of coding were found no other annual reports in the selection were
coded twice.
Some concern has been expressed about the reliability of content analysis regardless
of whether single or multiple coders are used, for example, Krippendorf (2004, p. 213)
states: “Two coders in the same event who hold the same conceptual system, prejudice or
interest may well agree on what they see but still be objectively wrong”. It is difficult to
address this concern. However, the IC framework and categories of classification applied
in this study are based on well-established coding instruments used by many
researchers across a wide range of data and, therefore, it is considered that the coding
instrument and its application in this study are sufficiently reliable to draw fair
conclusions. In addition, the coding rules were applied carefully and consistently and
this adds to the reliability of the findings.
To validate evidence, Krippendorff (2004) argues content analysts must empirically
demonstrate the context sensitivity of their research. This study’s context sensitivity is
demonstrated in descriptive accounts that support its structural and semantic validity.
The structural validity is demonstrated by descriptive accounts of the treatment of text
and visual images and the rules of inferences devised by Steenkamp (2007). Semantic
validity is described as “the degree to which the analytical categories of texts [and
visuals] correspond to the meanings these texts [and visual images] have for particular
readers or the roles they play within a chosen context” (Krippendorff, 2004, p. 323).
The semantic validity of what IC items[6] are coded and the variables categorising
how[7] IC is reported are demonstrated in their operational definitions.
 PAR 4. Findings
23,1 We first present results to indicate the extent to which pictures are used in annual reports
to communicate IC information. Then we identify changes in the volume of IC disclosure
when pictures are included. Further discussions are reported in Section 5.

4.1 Extent of ICR

60 Table III presents the results of total frequencies recorded in the three forms of
disclosure defined in Table II: text, charts and pictures.
Although the most common form of IC disclosure is text, Table III shows that pictures
are a significant form of IC disclosure representing 42 per cent of all IC disclosures.
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4.2 Proportion of pictures in annual reports

We illustrate the impact that pictures have on the overall ICR results of the study by
showing the proportions of pictures in annual reports in three ways in Table IV. Panel A
shows the number of IC pictures as a proportion of the total number of pictures.
To indicate the space that IC pictures occupy in annual reports, Panel B shows the total
number of pages of annual reports included in the sample and the proportion of pages
taken up by pictures while Panel C shows the number of pages of IC pictures as a
proportion of the total number of pages of pictures.
Panel A in Table IV illustrates that 66.4 per cent of all pictures in this study conveyed
a message about IC. To determine the space that pictures occupy in annual reports,
we used a grid to measure the picture sizes relative to the size of the pages. Panel B shows
that 8.6 per cent of the total number of pages are occupied with pictures and Panel C that
54.9 per cent of these picture pages are pictures about IC information[8]. This emphasises
the importance of including pictures in determining firms’ overall IC disclosures.

Form of disclosure Total frequencies %

Texts 918 53
Table III. Charts 93 5
Frequencies of ICR Pictures 722 42
per form of disclosure Total 1,733 100

Number of pictures Proportion (%)

Panel A
IC pictures 722 66.4
Non-IC pictures 365 33.6
Total pictures 1,087 100
Panel B
Pictures 204 8.6
Non-pictures 2,174 91.4
Total pages 2,378 100
Panel C
Table IV. IC pictures 112 54.9
Proportions of pictures Non-IC pictures 92 45.1
in annual reports Total pictures 204 100
 4.3 Volume of disclosure with and without pictures Pictorial
We illustrate the impact that pictures have on the volume of disclosure and hence, on our disclosure
understanding of what IC items firms regard as being the most important. We also
identify firms that use pictures to report their IC.
4.3.1 Most frequently reported IC items. Table V shows the frequencies recorded for
each of the 17 IC items with and without pictures. As stated in Section 3.2.2, only one
count per picture was recorded regardless of how many times the IC item appeared in the 61
picture and regardless of the size of the picture. Thus, the frequencies shown in Table V
record how many times IC was reported and do not provide information about the
number of pictures or the number of IC items represented in pictures. Table V also shows
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how the ranking (shown in brackets: one being the IC item with the highest number of
times recorded) changes when pictures are included and excluded.
Notably, when pictures are included employees moved from the third to the first rank
and brands moved from the seventh to the third rank. Table V clearly shows that
messages about these two IC items are mostly conveyed in picture form and that the
majority of the pictures in the sample are about these two IC items. More than half
(64 per cent) of the pictures depict aspects of human capital (in particular employees) while
34 per cent of the pictures depict aspects of external capital (particularly brands). Items of
internal capital are less easily shown in picture form (2 per cent). These results indicate
that if pictures are not taken into account when analysing IC content in annual reports then
the volume of IC disclosures are understated and the IC items firms signal as being most
important to them are overlooked.

Excluding pictures Including pictures

IC item Rank Frequency % Rank Frequency %

Internal capital category

Intellectual propertya 11 25 2.50 10 32 1.80
Management philosophy 10 27 2.70 11 27 1.60
Corporate culture 5 58 5.70 7 58 3.30
Management and technological processes 6 51 5.00 8 54 3.10
Information and networking systems ¼ 15/16 14 1.40 14 21 1.20
External capital category
Financial relations 14 19 1.90 15 19 1.10
Brands 7 48 4.70 3 245 14.10
Customers and customer satisfaction 4 59 5.80 5 72 4.30
Corporate image building 8 41 4.10 6 71 4.20
Distribution channels ¼ 15/16 14 1.40 16 17 0.90
Business collaborations 12 24 2.40 12 26 1.50
Licensing and franchising agreements 13 22 2.20 13 22 1.30
Human capital category
Employees 3 129 12.80 1 578 33.30
Education 2 184 18.20 4 192 11.10
Training 9 34 3.40 9 37 2.10
Work-related knowledge 1 250 24.70 2 250 14.40
Entrepreneurial spirit 17 12 1.10 17 12 0.70
Total 1,011 100 1,733 100
Table V.
Notes: aIntellectual property comprises patents, copyrights and trademarks; the absolute frequencies Frequencies and rankings
for these three attributes are: patents (nine counts), copyrights (zero counts) and trademarks (12 counts) of the 17 IC items
 PAR 4.3.2 Sampled firms. To demonstrate the effect that pictures have on our understanding
23,1 of which firms use pictures to report their IC we present the sector, industry, total assets
and the frequencies with and without pictures of the companies in our sample in
Table VI.
The most significant change in the frequencies is for Infratil Ltd, who used
110 pictures to communicate IC information. The 2007 annual report of Infratil included
62 99 pictures of employees. Another significant change in the frequencies when pictures
are ignored is for The Warehouse Group who used 53 pictures to communicate IC
information in their 2007 annual report. This firm included 20 pictures about brands and
22 about employees. Overall, all firms, except Contact Energy Ltd, have some pictures
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which depict IC. All of the primary sector firms use a substantial number of pictures
depicting IC items as do the two property sector firms and 57 per cent of the service
sector firms have 20 or more pictures depicting IC. Large firms in the energy sector have
a smaller number of IC pictures than other firms.

5. Discussion
We found pictures are a significant means of communicating IC information in
New Zealand firms’ annual reports. More than one-third of all IC disclosures are made in
picture form, almost two-thirds of the pictures are about IC and more than half of the
space which pictures occupy in annual reports relates to IC information. We also found
that all but one firm in the sample used pictures to communicate IC information and that
some firms used a large number of pictures. These results support our claim that
pictures are popular reporting mechanisms for IC. There are a number of reasons why
this is so. First, visual images have become an integral part of corporate annual reports
(Hooper et al., 2003; Preston et al., 1996), and are a transparent medium to send messages
to investors and the public. In this respect, photographs are the favoured visual medium
(Preston et al., 1996). Second, the role of annual reports has evolved from conventional
communicator of financial information to “storytelling” (Hooper et al., 2003) and pictures
are an interesting way of enhancing the story. This “story-telling” is done through a
network of mostly narratives and visualisations, giving a holistic view of operations,
value creation capacities, activities and processes. Third, in accord with Unerman’s
(2000) view, firms use pictures strategically to communicate to stakeholders (who may
not have either the time or inclination to read every word in the annual report), what they
perceive as intangible value drivers, i.e. relationships and resources that contribute to a
firms’ competitive advantage. Fourth, pictures are more easily remembered than text
(Beattie and Jones, 1992) and have persuasive power, memorability and
understandability (Unerman, 2000). Therefore, including pictures in content analytic
studies matters as it influences our understanding of how IC is reported.
The results indicate that including pictures influences the volume of ICR, in particular
for two IC items: employees and brands. When the 17 IC items coded for are ranked,
employees are the most frequently disclosed item and brands the third most frequently
disclosed item when pictures are included. Yet, when pictures are excluded, employees
rank only third and brands seventh. We acknowledge that employees and brands are
easily represented pictorially and hence, the high frequencies for these two IC items.
However, another possibility is that firms in our study perceive these IC items as
valuable and important intangible value drivers.
 Pictorial
Total Frequencies Frequencies
assets excluding including disclosure
Firm Sector Industry ($m) pictures pictures

Auckland International Services Ports 2,906 91 98

Airport Ltd
Air New Zealand Ltd Services Transport 4,944 57 81 63
AMP NZ Office Trust Property Property (single) 1,429 33 71
Briscoe Group Ltd Services Consumer 172 5 30
Cavalier Corporation Ltd Goods Textiles and 166 21 39
apparel
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Contact Energy Ltd Energy Energy (single) 4,971 14 14

Fletcher Building Ltd Primary Building 4,433 45 71
Fisher & Paykel Appliances Goods Intermed and 1,739 51 76
Holdings Ltd durables
Fisher & Paykel Healthcare Goods Intermed and 274 73 86
Corporation Ltd durables
Freightways Ltd Services Transport 292 16 45
Infratil Ltd Energy Energy (single) 3,729 23 133
Kiwi Income Property Trust Property Property (single) 1,927 35 75
NGC Holdings Ltd Energy Energy (single) 1,027 24 37
NuPlex Industries Ltd Primary Building 920 21 41
The NZ Refining Company Energy Energy (single) 856 60 78
Ltd
Port of Auckland Ltd Services Ports 823 52 72
Port of Tauranga Ltd Services Ports 866 21 46
Sanford Ltd Primary Agriculture and 683 36 82
fishing
Sky City Entertainment Services Leisure and 1,642 47 91
Group Ltd tourism
Sky Network Television Ltd Services Media and 1,780 28 38
comms
Steel & Tube Holdings Ltd Primary Building 248 22 61
Telecom Corporation of Services Media and 8,276 60 77
New Zealand Ltd comms
Trust Power Ltd Energy Energy (single) 2,060 23 32
Toll New Zealand Ltd Services Transport 791 3 5
Tower Ltd Services Finance and 1,546 19 31
other services
Waste Management NZ Ltd Services Finance and 356 26 48
other services
The Warehouse Group Ltd Services Consumer 686 38 91
Westpac Banking Services Finance and 374,821 67 84
Corporation NZ other services Table VI.
Total frequencies 1,011 1,733 IC frequencies per firm

If pictures are excluded from content-analytic ICR studies, our understanding of how IC
is reported and what IC resources are signalled as being important is limited.

6. Conclusion
The overall conclusion is that including pictorial information of IC resources makes a
difference in understanding how and what IC resources are most frequently reported
 PAR in annual reports. We acknowledge that coding and counting of ICR in pictures is more
23,1 challenging than coding and counting of ICR made in texts, yet, our findings indicate
that even though simplistic rules are applied to code and count ICR made through
pictures, if pictures are excluded a significant part of ICR in annual reports is overlooked.
Since the recognition of IC is not permitted in the financial statements and because it
is difficult to quantify IC’s value, using pictures is an effective means to convey IC
64 information especially about employees and brands, and in particular, for readers who
simply glance through annual reports due to a lack of time to read them. Our study
highlights the importance of making IC resources more visible, and the role that pictures
play in creating a big picture of the entity, and providing information on the “true” value
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of the entity in forms and terms other than fiscal values and numerical terms.
We found that annual reports include an interplay of images and texts and that
pictures are a popular and effective reporting mechanism to tell stories about entangled
IC resources in annual reports. Therefore, we support Beattie and Thomson’s (2007)
view that alternative communication formats found in corporate annual reports
(pictures in particular) should be considered in future IC studies. Studies that record and
code only words and numbers and ignore IC reported in pictures result in an incomplete
depiction of how IC is reported, the extent of ICR in corporate annual reports and what
firms perceive and signal as important IC resources.

7. Ideas for future research

Burgman and Roos (2007, p. 29) advocate a mandatory requirement for comprehensive
enterprise value reporting (which includes ICR) as “a voluntary code will not cause the
behavioural shift required to achieve comprehensive, consistent and comparable
operating performance reporting and disclosure”. We have sought to highlight the effort
of New Zealand firms in achieving comprehensive reporting that includes resources that
comprise IC. However, there is a distinct shortage of guidelines and inscriptions that will
make ICR in annual reports visible and recognisable.
Our paper highlights the impact of pictures on ICR content analysis results and thus
the importance of including pictures in such analyses. Even though it is unlikely that the
inclusion of pictorial information in annual reports will be made mandatory, it is equally
unlikely that firms will stop including pictures in their annual reports. Consequently, the
following issues regarding pictures are worthwhile avenues for future research:
managing practical issues that relate to the coding of pictorial information; firms’
intentions for using pictures; and readers’ perceptions of pictures.

Notes
1. Edvinsson was Skandia’s first Director of IC, and was involved in many of the pioneering
efforts on IC management (Brennan and Connell, 2000).
2. Ordonez de Pablos (2005) referred to it as an IC report, and Gallego and Rodriguez (2005)
stated it consists of a “kind” of Balanced Scorecard.
3. “[The] favourable relationships [which] the firm has with investors, bank and other
financiers” (Brooking, 1996, p. 80).
4. Steenkamp and Northcott (2007) discuss the practical challenges presented by different units
of analysis and justify the choice of units.
5. Including a coder experienced in content analysis of IC disclosures.
 6. Operational definitions of these IC items are available on request from the corresponding Pictorial
author.
disclosure
7. Operational definitions are provided in Table II.
8. Davison and Skerratt (2007) found that 94 per cent of pictures communicated intangible
aspects of companies’ businesses.

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About the authors

Natasja Steenkamp is a Senior Lecturer at the Central Queensland University, Mackay campus.
Her research interests are in the area of IC and sustainability.
Jill Hooks is a Professor in the School of Accountancy, Auckland campus of Massey University.
Her research interests relate to financial accounting, corporate annual reporting and environmental
reporting. Jill Hooks is the corresponding author and can be contacted at: j.j.hooks@massey.ac.nz

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