Lost in the FOG: Growing Complexity in Financial Reporting – A Comparative Study

Abstract

This study investigates the evolving readability of financial reporting by analyzing Item 7 of the 10-K reports over a 26-year period, utilizing a dataset of nearly 200,000 reports retrieved from SEC EDGAR filings. Our analysis reveals a significant decline in the readability of these reports over time, measured using the Fog Index. Specifically, we find that the number of years of schooling required to comprehend these texts increases by nearly one month each year, indicating a growing inaccessibility of financial reports for a substantial portion of the population. To contextualize these findings, we extend our analysis to include data from diverse financial corpora, encompassing almost 10 million documents. While most financial texts have shown a systematic increase in readability over the past decades, the Wall Street Journal emerges as a notable exception, exhibiting a moderate decline in readability—though at a much slower rate compared to Item 7. This study highlights the widening gap in financial text accessibility and underscores the need for more readable financial reporting.

Keywords: Readability, Financial Reporting, Item 7, 10-K, Fog Index, NLP, Plain English, BloombergGPT

JEL Classification: G10, G14