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IFRS terminology is inconsistent in itself

Despite the International Accounting Standards Board’s efforts to unify, older terminology can still be found at any given time. This may be partly because standards are only altered or replaced one by one. Partly, though, it also reflects the multiple meanings of particular terms in a particular language, which, when subsequently translated into other languages, often seem confusing. Finally, sloppy or careless translations and insufficient coordination with other translators can also be blamed.

For a number of reasons, terms are sometimes interpreted in a particular manner for a particular standard. This is most often true for expressions other than the key words used throughout the standards, such as certain general-language verbs, adjectives or adverbs in a very specific context. One example of such a case, where the standard even makes this explicit, can be found in the footnote to IAS 37 paragraph 23. The English and German versions read as follows:

English: “[1] The interpretation of ‘probable’ in this standard as ‘more likely than not’ does not necessarily apply in other standards.”

German: “[1] Die Auslegung von ,wahrscheinlich‘ in diesem Standard als ’mehr dafur als dagegen sprechend‘ ist nicht zwingend auf andere Standards anwendbar.”

Moreover, the fact that a particular interpretation can be explained clearly and seems logical in one language does not necessarily mean that the same holds true in another language. This can result in even more complex translation issues (see the discussion in Section 4.6 below). Overall, a rich variety of inconsistencies can be detected, with a few examples given below.

In some cases, a multitude of terms is used apparently at random. The English term unrecognised, or its formal variant not recognised, for example, has at least four different German translations. Interestingly enough, all four can also be found in one single standard, IAS 12, putting paid to the argument that different translations will be found in different standards. Table 21.2 shows the variant translations.

Table 21.2: German translation variants of unrecognised

German translation

In IAS 12

Other occurrences

nicht erfasst

Paragraph 22

e.g., IAS 18, 34, 39

nicht hilanziert

Paragraphs 21 A, 37

e.g., IFRS 1, IAS 1

nicht angesetzt

Table of contents, paragraph 21A

e.g., IAS 37, 38

nicht herucksichtigt

Paragraph 80

Not with this meaning

Even more interestingly, the term nicht herucksichtigt is, to my knowledge, not used in the sense of unrecognised anywhere else in the standards. In fact, it is used for a variety of English expressions, as can be seen in Table 21.3.

Table 21.3: English equivalents of nicht herucksichtigt

English phrase

Used in standard

not reflected

IAS 34, paragraph 16(h)

no consideration is given

IAS 36 paragraph 107

to he excluded

IAS 1, paragraph 89

not to he taken into account

IAS 37, paragraph 51

not considered

IFRS 4, paragraph 17 (a) (ii)

The overall effect of this plethora of equivalents is, of course, detrimental to the idea of uniform and systematic terminology. Especially those dealing with IFRS on a nonregular basis can easily be confused, and misinterpretations may be the result.

Three more examples of inconsistencies in German are of interest. First, there may be a recurring inconsistency within one standard. IAS 12, for example, uses two different German equivalents for the English term tax jurisdiction. In paragraph 63, amongst others, it is translated as Steuergesetzgebung, while paragraph 68A, for example, uses the expression Steuerrechtskreis. Although both translations seem valid, the use of two different terms might still cause confusion.

Second, inconsistencies arise due to cultural factors, i.e. inequivalence in accounting systems and thus terminology. One good example of a general difference between English and German, apparently also relevant in other cultures, can be found in IAS 16 paragraph 21. The two versions are given below, where the highlighted terms show the divergence in use (bold print added):

English: “For example, income may be earned through using a building site as a car park until construction starts. Because incidental operations are not necessary to bring an item to the location and condition necessary for it to be capable of operating in the manner intended by management, the income and related expenses of incidental operations are recognised in profit or loss and included in their respective classifications of income and expense.”

German: “Einnahmen konnen zum Beispiel erzielt werden, indem der Standort fur ein Gebaude vor Baubeginn als Parkplatz genutzt wird. Da verbundene Geschaftstatigkeiten nicht notwendig sind, um eine Sachanlage zu dem Standort und in den vom Management beabsichtigten betriebsbereiten Zustand zu bringen, werden die Ertrage und dazugehorigen Aufwendungen der Nebengeschafte ergebniswirksam erfasst und in ihren entsprechenden Ertrags- und Auf- wandsposten ausgewiesen.”

In English, the term income is used consistently here. Generally the use of terminology in German is also very consistent, maybe even more so than in English. However, in certain instances, there is considerable variety in the terms used, often with very precise differentiations between individual terms. Unfortunately, not everybody uses the many terms available in such a precise manner, which seems to be the case in the example above, as in a narrow sense Einnahmen und Ertrage are not the same thing.

The reason for the divergence here is the different tradition and development of the respective cost accounting systems in German- and English-speaking countries, which developed almost completely independently from each other. The German system is very rich in clearly defined terms and categories. In this particular instance, there are different terms for positive and negative changes in assets, as shown in Table 21.4. Although doubtless of relevance to experts (and much hated by business students), these distinctions are, in all likelihood, rarely made outside the field of cost accounting. Hence the surfeit of terms for very similar concepts is also a liability, as it is folly to rely on the exact use of any of the terms, as the usage in IAS 16 proves.

Table 21.4: German cost accounting terminology (based on Controllingportal 2014)

Asset type

Defined as

Positive change

Negative change

Cash assets

Cash

+ sight deposits

Einzahlung

Auszahlung

Monetary assets

Cash assets + receivables - liabilities

Einnahme

Ausgabe

Total assets

Monetary assets + non-monetary assets

Ertrag

Aufwand

Operating assets

Total assets - non-operating assets

Leistung

Kosten

The fact that in English there are no clear distinctions between any of the expressions used as equivalents of those in the change columns also gives rise to a related translation problem. Thus the difference between Kosten and Aufwand in German does not exist in English. Quite often, translators mistakenly use the terms costs and expenses respectively, assuming equivalence. In English, however, costs and expenses are used interchangeably. The effect is that the English terms are then interpreted to mean two different things, while they in fact refer to the same concept. The translation of income also causes problems in other languages, such as Swedish (Dahlgren and Nilsson: 2009; Norberg and Johansson 2013: 37-42) and Finnish (Kettunen 2011:12-14). Given the centrality of the concept of income, such inequivalence does not bode well. Barker (2010) even argues that some concepts, including income, are altogether wrongly defined in IFRS.

Third, there are cases of the “exceptional use” of a particular equivalent, apparently unmotivated, when normally another would be used. The term hedging relationship, for example, is translated into German as Sicherungsbeziehung throughout, but in IFRS 1 paragraph 1 B5 (formerly paragraph 29) it is translated as Sicherungsgeschaft. Similarly, the expression reporting entity is generally translated as berichtendes Unternehmen, which is also used in the definition in IAS 24 paragraph 9. Yet in IAS 26 paragraph 2, the German term is Berichtseinheit.

Inconsistencies, though, are by no means restricted to languages other than English, where they might be explained as arising from the translation process. In English, for example, the standard term for profits not distributed to the shareholders is reserves, as found for example in IAS 1 paragraph 79 b). In both IAS 16 paragraph 41 and IAS 38 paragraph 87, however, the terms used are surplus, revaluation surplus, and retained earnings. The German term is Rucklage. In the German version, in these three instances the terminology is used consistently and thus we find Riicklage, Neubewertungsrucklage and Gewinnriicklage. What is more, in IAS 32 paragraph AG 25, the term reserves is used to mean something completely different, namely funds set aside for potential future liabilities (in German, Ruckstellungen). This is in direct contradiction to the official term provisions, which is even the name of IAS 37.

The probable reason for this is American usage, where reserves, although generally having the same meaning as in British English, is occasionally used in the sense of provisions. This underlines the hybrid nature of IFRS between British and American English referred to earlier, which here causes a language problem.

Finally, while the footnote to IAS 29 mentioned above established that “(a) ‘market value’ was amended to ‘fair value’, and (b) ‘results of operations’ and ‘net income’ were amended to ‘profit or loss’”, both IAS 34 paragraph 16A c) and IAS 32 paragraph 25 still use the term net income. Overall, the prevalence of inconsistently used terms is a weakness throughout IFRS as, despite the numerous changes and improvements to the standard, correcting these flaws seems to be very low on the agenda of standard setters.

 
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