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3 Aug. 2016

Australia and Korea take lead role in improving consistency of global accounting

Australia and Korea are taking a lead role in tackling practical issues around the consistency of International Financial Reporting Standards (IFRS), with the launch of a new report on differences in the interpretation of common accounting terms in Korea and Australia.

In a joint project, the Australian Accounting Standards Board (AASB) and the Korean Accounting Standards Board (KASB) looked at whether words such as ‘likely’, ‘probable’ and ‘certain’ tend to be interpreted differently between Korea and Australia. These and similar words (known as ‘terms of likelihood’) are commonly used to determine the accounting treatments that should be applied, so consistent interpretation is critical to ensuring comparability of financial statements across jurisdictions.

The Research Report Accounting Judgments on Terms of Likelihood in IFRS: Korea and Australia, identifies a number of issues, including:

• Australian and Korean accountants interpreted certain terms differently: for example, Korean accountants interpreted the term ‘probable’ as requiring a significantly higher threshold of probability than Australian accountants
• Some terms of likelihood are interchangeable when translated into Korean: for example, the terms ‘virtually certain’ and ‘reasonably certain’ are both translated as the same Korean word
• Some terms in practice appear to be interchangeable in both Australian and Korean contexts: for example, the terms ‘likely’ and ‘probable’ are applied in virtually the same way by Australian accountants.

Kris Peach, Chair of the AASB, commented: “IFRS enhances the comparability of financial statements across countries, but interpretation and translation issues must be taken into consideration.  IFRS are translated from English into many languages, but in practice some English terms cannot be readily translated, and business and cultural contexts can result in different interpretations of common terms.

“This research highlights the importance of simple and clear language in standard setting, and supports the need for the IASB to narrow the number of terms used and for effective outreach in different jurisdictions to help ensure requirements are clearly understood.”

The research has implications not just for the application of IFRS in Korea and Australia, but globally.  It includes a number of recommendations for the International Accounting Standards Board (IASB) to consider, including reducing the number of different terms of likelihood, and developing guidance to clarify their meaning.

Hans Hoogervorst, Chair of the IASB, said: “The IASB is committed to improving the communication of financial information, and this requires our standards to be clearly understood and consistently applied around the world.  The KASB-AASB research on how specific terms used in IFRS Standards are translated and interpreted across languages provides interesting food for thought. An earlier version of this paper led to a lively discussion among accounting standard setters at the Accounting Standards Advisory Forum, which advises the IASB.  We welcome research and input from national standard-setters.”

The Report is available at http://www.aasb.gov.au/Research-Centre/Research-Reports.aspx

Media enquiries:
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