Its degree of vagueness, or complexity, its stability over time, its definition, all this might change with the differing contexts in which the concept is applied in practice (see Pitcher, 1967; Stegmüller, 1989; Wittgenstein, 2005, Sections 47, 79, 87, 88, 593). Still such a concept might in all of these circumstances be perfectly serviceable (Dennis, 2008). So can we postulate a collective representation, in this technical sense, about SoF? The most fundamental difference between Wittgenstein and Searle is that Wittgenstein even questioned whether humans can actively and without presumptions collectively create sign, signified and the connection between both (e.g. Baker and Hacker, 2009).
For lessors – who are by law financial institutions – the formal treatment leaves a tangible asset on their balance sheet, instead of a financial asset, which is not neutral as per French application of the Basel II agreement. We base our arguments first on Searle’s concept of social facts as collective intentionality, and second on Wittgenstein’s propositions on the determination of the meaning of words and ideas. We find that the assumption of a common principle (SoF) before accounting harmonization, as well as after, is false. Instead, different national meanings of SoF before harmonization are reflected in different wordings during harmonization and result in still different meanings after harmonization. Even before assessing whether harmonization is met de facto, we compare legal environments to assess whether, de jure, that is logically prior to the application of the law, it is taking root in wording and meaning.
The only way to achieve harmonization is to change one or more socially constructed realities until they become identically constructed. The underlying conceptual understandings are likely to differ across communities, including communities of different user groups arising from the different perceived purposes of financial reporting in the first place. The means of trying to communicate the various understandings are also likely to be interpreted differently by the recipient as compared with that envisaged by the sender.
We can postulate a series of collective representations of SoF, each understood, despite fuzzy boundaries, by different related, but non-identical, examples of use in varying “collective representations” (Searle) or varying “language games” (Wittgenstein), both these terms being used in a precise technical sense. Wittgenstein understood concepts such as SoF in his later philosophy as receiving their meaning from the way they are used (Wittgenstein, 2005, Sections 20, 43, 421; transposed to accounting by Lyas, 1993; Dennis, 2008). Wittgenstein chose this quite uncommon starting point because he considered it to be a misleading simplification to reduce the link between language and reality to one of an arbitrarily chosen and nominalist correspondence between concepts and reality (see Kenny, 1974; Baker and Hacker, 2009). After IFRS adoption in Europe, many studies revealed that differences in application remained (Kvaal and Nobes, 2010, 2012), potentially explained by national patterns and habits (Zeff, 2007), even between listed firms supposedly less constrained by national rules.
Philosophy of language and accounting
However, this requires much more effort and knowledge than the simple use of a law. Despite being enacted, SoF suffers a flexible applicability, limited by specific rules. The principle does not work as a general principle overarching the individual valuation criteria. This may result from the philosophy behind the Italian Civil Code, where law defines practical application ex ante. The application of the SoF principle is limited by strictly regulated bookkeeping rules, reducing the role of professional judgment.
The financial statements were used for national statistics, measurement of achievements of centrally planned targets and price setting (Jaruga and Bailey, 1998 as cited by Wojtowicz, 2015). In 1989, the non-communist government embarked on a program of reconstruction of a free market economy. The 50-year break in the functioning of Polish capital markets resulted in the absence of relevant laws and institutions. In practice, it implied a lack of experience and unwillingness to take decisions on one’s own. This resulted in detailed accounting laws leaving little philosophy of language and accounting room for individual judgment. Transfer of part of the decision-making authority to an individual under the SoF principle increases individual freedom in the performance of tasks.
Germany
What theoretical insights can we build on or advance as we try to be rigorous accounting researchers, meanwhile respecting and even cherishing difference? As we publish to advance knowledge (and our careers), what role do we play in including and helping the local communities that we engage with? And, to assist us in this, what role can journal editors, peer reviewers and publishers play? We suggest that, in the first instance, explicit journal policies on translation would be essential (see, e.g. Steyaert and Janssens, 2013; Tietze, 2018).
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- While Alexander et al. (2018) are concerned with the philosophical underpinnings of meaning and interpretation, their detailed examination of the implementation and interpretation of the “substance over form” concept in seven national settings is undoubtedly useful for legislators, standard setters and regulators.
- The situation may not induce misunderstanding of SoF which is known in consolidation, and may be involved in individual accounts, even if not formally acted on as a principle.
- The most we can achieve is a greater understanding of the inadequacies of the language medium and the translation process across such media.
- The means of trying to communicate the various understandings are also likely to be interpreted differently by the recipient as compared with that envisaged by the sender.
Italy has quite deliberately changed the wording of its enactment from the previous “economic substance,” to “substance,” exactly following the wording of the Directive in Italian. Romania has maintained its previous usage of “economic” substance (derived from earlier incorporation of IFRS terminology), with the explicit support of the Romanian version of the Directive. The UK has very much ignored the detailed wording of the Directive, deliberately – almost provocatively – bringing in “legal form” in order to contemptuously dismiss it. The consequence is that accounting and legal terms are understood differently in locations with different language and culture. Specific burdens in the functional translation of accounting concepts include the differences between the cultural and historical context of common law and civil law countries, or between Western and former socialist countries of Eastern Europe.
The wording under the Austrian law relates to wirtschaftlicher Gehalt (i.e. economic substance), instead of merely “substance.” This is in line with the German language version of the Directive. In other words, it can be safely assumed that substance for a UK reader is equivalent to wirtschaftlicher Gehalt/economic substance to a German reader. Along this line, although translators can transfer a specific term from one language to the other, readers of the translated text will not decode it in exactly the same manner as native-language speakers reading the original text. “Equivalence” relates to a variety of possible “forms of correspondence between the source text … and the target text …” (Kettunen, 2017, p. 41; Pym, 2014). Ignoring the technical linguistics-related details here, earlier theories proposed that a “natural equivalence” should normally exist, and translation is the process of finding it. Our theoretical framework, however, might suggest that any expectation of such unproblematic natural equivalence between languages, and therefore “automatically valid” translation, is likely to be problematic.
1 In the Accounting Directive
- Transfer of part of the decision-making authority to an individual under the SoF principle increases individual freedom in the performance of tasks.
- … we provide evidence that counters the assertion that digital reporting is simply a different media and that the translation process is simply a “mechanical” one in which the message remains the same.
- Besides, in each country the “legal form” is likely to carry with it unavoidable rights and obligations, often unstated but automatically embraced.
- Also in future the … sentence is valid that the economic view has its place there, where a law might mention certain legal events but does not mean their juridical appearance but instead their legal impact14.
- Accounting harmonization started with the Fourth and Seventh Directives, it then focused on listed companies, with IFRS adoption for consolidated accounts of firms listed on a regulated market.
The Act does not use “substance.” Instead, the words used are officially translated as “business significance” (whereas a literal translation is “economic content”). In the Act, as in the Directive, there is no reference to the “legal form.” The lack of an explicit opposition of these two approaches may make it easier to accept that the business significance of the transaction or agreement generally remains in line with its legal form. Traditionally considered as the “algebra of law” (Garnier, 1947), French accounting rules were made to meet the needs of multiple users of the financial information, namely the state, management, creditors and employees (Colasse and Standish, 1998, p. 16).
France
The complexities inherent in our country studies and the resulting discussion surely show the difficulties of meaningful comparison across country/language epistemic communities. The current status should be understood as the result of a fifteen years long process. SoF was introduced nine years after the fall of communism, through Romania’s concern to get closer to Western Europe.
It seems that Member States were not able to agree on harmonization of the principle (or its rejection) and had to compromise by allowing Member State discretion (Florstedt et al., 2015). This hinders harmonization, consistency and comparability of statements among firms and countries. In summary, the papers in this AAAJ special issue raised many questions for future research. For instance, what type of new knowledge can we create or advance if we take our roles as “cultural brokers,” operating between languages, cultures and contexts seriously? What invisible tensions, contradictions and power relations can we reveal as we incorporate language and translation into our research topics and methodologies?
The Member State option to exempt undertakings within this definition was not implemented. The Standard was issued in 2014, slightly revised in September 2015, and again in 2018.
Poland
The earlier Romanian system had been accustomed rather to a strictly regulated bookkeeping than to professional judgment, and had chosen the Civil-Code-based French accounting as a post-communism model. SoF was part of a different language game, that is why a more exact delimitation of the concept was needed. Under these circumstances, we can reasonably assume that the functional translation prevalence of the economic over the legal was needed to explain what kind of substance and what kind of form were meant.
