IASB-The Accounting Tower of Babel: Language and the Translation of International Accounting Standards

• In Event: Effect of Language and Culture

Abstract

I assess whether IASB translations of IFRS increase within- and between-language financial statement comparability. Although translations are not generally associated with a significant change in within-language comparability, cross-sectional evidence suggests that translations may improve within-language comparability when the proportion of fluent-English speakers within a country’s educated class is lowest. Translations are associated with a significant increase in between-language comparability, both in the aggregate and where I predict that the demand for translations is highest (e.g., countries with a low proportion of fluent English speakers). Contrary to predictions, increases in comparability are lower when a country’s language is further from English, suggesting that translations may not be as effective when differences in language are highest. Interestingly, translations are associated with a decrease in comparability in certain subsamples where I predict that the demand for translations is lowest (when there is a higher proportion of English speakers in the general population and for larger firms). Taken together, my evidence suggests that firms facing a larger language barrier (higher linguistic distance from English), or those with more resources (larger firms), may exert more effort to create/utilize alternative sources of translated guidance before the IASB issues a translation. Once issued, some firms continue to use prior translations while others switch to the IASB’s version, leading to a larger variance of interpretations. However, when the likelihood of alternative translations is low, IASB-issued translations may increase between-language comparability. This is the first evidence that IASB’s translations may not affect within-language comparability but generally increase between-language comparability.

Author

• Emily Anne Shafron, University of Georgia