On the heels of this week’s excellent presentation by Christian Leuz and related discussion about the factors related to potential IFRS adoption in the U.S., I was reminded of a very interesting and related article written by George T. Tsakumis, David R. Campbell, Sr., and Timothy S. Doupnik that appeared in the Journal of Accountancy in February titled, “IFRS: Beyond the Standards.”

In the article, the authors point out the non-trivial potential implications of culture and language in shaping the outcome of efforts to move toward a single set of global accounting standards.

In brief, even if IFRS were to be adopted across the globe without modification, significant differences among countries in culture, specifically along dimensions such as attitudes toward uncertainty, individualism, emphasis on performance and achievement, and the acceptability of hierarchy and unequal power distribution are likely to significantly affect the ways in which common standards are interpreted, applied and enforced.

Likewise, differences in spoken language can have large impacts.  For after the extensive drafting, due process, and deliberation of the IASB (and FASB on joint projects), all of which takes place in English, the adopted standards must then be translated into the local languages of all IFRS countries.  As anyone who has studied a second language knows, there are times when there simply aren’t non-English equivalents to English words and phrases. 

One very telling example given in the article involves translation of the word “remote,” which has five distinct meanings in English and does not translate readily without ambiguity into either French or German.

Accordingly, in a domain as dependent on precision of wording as accounting standard-setting, it is easy to imagine that there might be circumstances where the meaning intended by the standard setter is altered when translated from English into other languages.  According to the article, at the end of 2006, IFRS had been translated into 40 different languages.  The likelihood of alterations in meaning grows with each additional language.

Given the increasing prevalence of theories and methods from the linguistics literature in (especially psychology-based) accounting research that I seem to be noticing in recent years, it seems that these convergence-related issues might be ripe for psychological-linguistics- or general linguistics-based exploration.  For example, is there empirical evidence of the magnitude of this potential problem for interpretation of financial statements, earnings forecasting, or valuation?  Could academic research shed light on the degree of difficulty that accounting standard setters face related to this issue or how it might be mitigated by changes in the standard-setting process?  Similarly, is there evidence from sociology or elsewhere that could help inform standard setters about the likely impacts of cultural differences on the interpretation of international accounting standards?  Could such work be adapted and extended to the accounting literature?