Impediments to harmonization are therefore found not only in the varying applications of the law, but at the prior stage in the wording of the law itself and in the impossibility of “noise-free” linguistic communication of this wording of the law. The situation could be explained by the historical and cultural contexts of the development of accounting in Poland (Kosmala, 2005; Kosmala-MacLullich, 2003; Wojtowicz, 2015). This history includes the times of governmental interventionism, with emphasis on credit protection and tax collection (Second Republic 1918–1939), including significant German influences. During the centrally planned economy period from the late 1950s, accounting was reduced to bookkeeping based on the legal form of the transactions.
- The UK speaks of “transactions and other events and conditions,” whereas the Accounting Directive uses “transaction or arrangement,” Poland refers to “events, including business transactions,” etc.
- SoF was part of a different language game, that is why a more exact delimitation of the concept was needed.
- Therefore, at first glance, Article 6.1(h) implies only a vague priority of an undefined “substance,” presumably over an unmentioned, possibly legal, form.
There is no common European (accounting) community yet, but there is a variety of differently overlapping sub-communities, which goes across different countries. This situation, and not merely bad translation, represents a significant obstacle to harmonization. In this statement, the economic view is understood to be part of the legal system and only to exist within the context – and therefore, language game – of the legal system. The consensus today is that the economic view is a general juridical method of teleological interpretation of law (e.g. Beisse, 1981; Florstedt et al., 2015). In other words, in the German system the production of an institutional fact that reduces a multitude of collective intentionalities to one “acceptable” is delegated to jurisprudence.
However, Kamla and Komori (2018) primarily call for interdisciplinary accounting researchers engaged in cross-cultural research to “help raise awareness of their role and identity as ‘cultural brokers’” (p. 1874). We show that similar concepts following close objectives ultimately have opposite consequences on the authority of accounting rules. The question is to understand who should define and reveal this substance to the users of financial information.
Poland
But in the other four countries, Austria, Germany, Poland and Romania, different translations introduce the concept of “economic” (wirtschaftlichen, economic, ekonomicznej) in relation to the “substance.” Surprisingly, the words “form” or “legal form” do not appear – express or implied – in any of the versions. Our investigation of the enactment of the SoF principle refers to seven countries (Austria, France, Germany, Italy, Poland, Romania and the UK), with a view to the principle’s country-specific origins, the implementation of the Directive and its current interpretation. Our sample of countries covers the cultural and political diversity in Europe, with Latin, Germanic, Anglo-Saxon and communist influences on legal frameworks, language and accounting practices. The AAAJ special issue returns, with its final two papers, to conceptual and philosophical themes. Hayoun (2018), drawing on de Saussure (2006, 2011) and Barthes (1968, 1993, 1994, 1997), suggests a semiotic perspective on knowledge construction in accounting – in particular with regard to asset recognition and measurement.
They will always emanate from some explicit or implicit attitude, belief or framework (substance in some sense). The user of the resulting financial statements must try to make sense of them, through the fog of subjective uncertainty which our theoretical exposition demonstrates. Comparisons between the results of different subjective uncertainties, which investors and other decision makers crucially have to make, will in the general case be even more difficult if the mind-set (perceived or unperceived substance) of the rules is unfathomable.
The TFV induces a potential override of any rule that would prevent it, at least in the UK, France and Romania. In Italy, however, the override is limited to exceptional cases, suggesting that the rules should normally be “fair” enough to be followed. The case reveals that the principle comes with an objective to inform the reader on an economic patrimony, instead of a pure property rights approach, but this is introduced in a system where codified norms and the legal classification of transactions and contracts prevail. The objective of SoF is of course to obtain a TFV, in all the countries in the sample, although given the subjectivity and institutional specificity of both these concepts this is little more than a legalistic truism. The origins of the international and British SoF principle (meaning the idea rather than the precise wording) appear to lie in practice, in procedures adopted and applied in concrete cases without explicit argumentations (Rutherford, 1988), which could explain the undefined meaning of the principle today.
The SoF principle in European accounting rules
This is perhaps the easiest way to implement SoF in a system where the traditional “collective representation/language game” was very different from that inherent in SoF. Since accountants are used to following the legal form of a document, then it is necessary to avoid any conflict between the legal form and the economic substance. Besides, in each country the “legal form” is likely to carry with it unavoidable rights and obligations, often unstated but automatically embraced. Italy modified the Civil Code to include the notion, while France did not, as the substance-based intention of parties should already be formal. Both attempt to define the accounting consequences of a civil law concept, having one accounting rule per transaction, but they fail in some cases that should be reviewed, or distinguished.
Germany
(2003), “On economic reality, representational philosophy of language and accounting faithfulness and the ‘true and fair override’”, Accounting and Business Research, Vol. Currently, the accounting of unlisted companies, for both individual and consolidated statements, is regulated by the enactment of the Accounting Directive22. First, while new in some countries, it expanded worldwide through the use of IFRS2.
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The omission of any centralized description of this principle favored the diversity in practices in the different countries. But differences in understanding and use are rooted in the above-mentioned differences in the national patterns characterized by different cultural environments, legal systems and history. Not only do the local wordings to integrate this principle differ, but the results tend to show that the underlying (socially constructed) meaning of the principle may itself differ from one country to another, in line with the theory of language. This AAAJ special issue on language and translation in accounting arose from our own growing understanding of how translation affects accounting research, practice and education. We acknowledge, in our own papers included here (Evans, 2018b; Kamla and Komori, 2018), that this understanding is lacking in some of our earlier publications (e.g. Evans, 2009; Evans and Honold, 2007; Kamla, 2012, 2014). What soon became clear to us is that this lack of understanding and the “deadening silence” (Kamla and Komori, 2018) on the issue is widespread in accounting research more generally, where a little attention is given to language and translation.
3 Why should substance and form differ?
Indeed, the substance principle exists in consolidation; in individual accounts some rules follow the principle, too. That is because, being inter-subjectively constructed by means of collective intentionality, institutional facts become objectified; in other words, they are not dependent on a particular human being’s attitude toward them. It should be emphasized that “form” (rules) do not arise out of nowhere and out of nothing.
Even in civil law countries such as Austria, we find borrowings from the UK SoF principle, and as Poland with Germany, and Romania with France and Russia demonstrate, there were identical developments at certain times in history. Taking up such similarities and differences would require the building up of epistemic communities around shared meanings across Europe, and sensitivity to the area of application and the boundaries of a certain language game for certain concepts covering several countries in Europe. Using the philosophical lenses, we actually question the common understanding of the SoF principle. The use of different wordings, especially when these wordings existed before the Directive, the lack of any definition at the European level and the resulting variety in practical rules, all tend to confirm that different communities within Europe share different frames of social and institutional facts. They are, however, overlapping between countries, such as the tax background of the principle in Austria and Germany; the communist past in Poland and Romania; civil law in Austria, France, Germany and Italy.
The lack of equivalence (see Evans, 2018b) is a theme in several of the papers included in this AAAJ special issue (Kamla and Komori, 2018; Marini et al., 2018; Alexander et al., 2018; Nobes and Stadler, 2018). “Having regard to” means that one must look at it and genuinely consider it in the overall context concerned, but one may then go against it if it is rational within that (socially constructed) context so to do. Therefore, at first glance, Article 6.1(h) implies only a vague priority of an undefined “substance,” presumably over an unmentioned, possibly legal, form. Transferring these considerations to the present discussion leads to the expectation that the meaning of the SoF notion depends on the language game (broadly the country) in which it is applied, unless there is a general meaning to cover all countries, i.e. with collective assignment across countries.
- The notion of “economic view” has not been influenced by the increasing use of IFRS.
- The language policies and practices of professional service firms also provide several avenues for research, as suggested by Detzen and Loehlein (2018).
- We identify four different country-groups, which already suggest diverse “collective intentionalities” – UK common law, France and Italy civil code, Germany and Austria tax code, and Poland and Romania ex-communist.
- The current accounting system shows a discontinuity between individual and consolidated accounts (Hoarau, 1995) and too much influence from taxation that tends to divert accounting from its original information goal (Tort, 2012).
- This hinders harmonization, consistency and comparability of statements among firms and countries.
- Poland and Romania both have an accounting history which is rooted in statistical requirements of the communist economic regime, where there was no room for any notion of SoF.
But increasingly, in our engagement with practice and academe, we could not help notice the critical power of language and the importance of translation. In spite of this, with a very few exceptions, accounting largely appears to neglect translation – both as a research opportunity and as a methodological and epistemological consideration (Evans and Kamla, 2015). Therefore, while we expected a degree of neglect of language and translation from accounting research when we began to work on this AAAJ special issue, as we delved deeper we found that the level of this neglect was striking.
Strangely enough, accounting is not in line with tax where a substance-based analysis prevails, at least on the lessee’s side (de Brébisson, 2018). Tax law has evolved, sometimes inspired by IFRS concepts such as the substance principle (Rossignol, 2007). On the lessor’s side though, tax law retains a formal approach, which allows for a fiscal deficit over the first years of the contract.