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Accounting practices in the U.S. and Europe: law and linguistic issues in an international context/Apskaitos praktika JAV ir Europoje: teisiniai ir lingvistiniai klausimai tarptautiniame kontekste.

Introduction and theoretical background

Starting from 1 January 2005, and with the aim to promoting the harmonization of different practices at the international level, EU publicly traded companies have been required to "prepare their consolidated financial statements in accordance with one single set of accounting standards, namely the International Accounting Standards (IAS)" (Regulation No. 1606 ..., 2004, p. 1). Since then, an extensive body of research has been carried out on financial reporting and the discourse of accounting more generally, in an attempt to shed light on major issues arising from this move towards standardization, which is far from being simple and still under way. In this sense, a wide variety of problems might arise from different perspectives over the reconciliation process. For instance, a number of economists (Cairns, Nobes, 2000; Ong, 2005) have focused their attention on the convergence of IAS, mainly used in Australia, Canada, China, Europe, Japan, New Zealand, Russia and South Africa, with Generally Accepted Accounting Principles (GAAPs), which are adopted by companies operating in the United States and are issued by the Financial Accounting Standards Board (FASB). In general terms, such reconciliation is regarded as being feasible, even though it might prove difficult in the case of highly technical standards or for cultural reasons, namely the "influence of local traditions and cultures, including legal and political systems, financial markets, corporate governance arrangements, auditing and enforcement of legislation" (Evans et al., 2010, p. 2). This aspect is relevant if one considers that, for instance, during Wold War II and with reference to the U.S. system, "Japan did not endorse convergence as not completely sure of the final output of this process" (Roberts et al., 1998, p. 511), with such "non-endorsement which was partly a cultural artefact" (Roberts et al., 1998, p. 511).

In other cases, the research focus has been on significant differences between the concepts of adoption and convergence, as "adoption means that national rules are set aside and replaced [...] countries might also decide to change their national accounting rules. This can be called convergence" (Nobes, Parker, 2000, p. 105). One of the fundamental distinctions between U.S. GAAPs and IAS lies in the fact that the first set of standards is principles-based --that is set out according to a number of guiding principles--while the other set is rule-based, meaning that financial statements need to comply with and follow a series of specific rules. This distinction has been the subject of a wider debate within the academic community, as confirmed by Jeffrey, who argued that "judgements about what are the appropriate accounting standards to apply in a given situation are influenced by whether a rule-based or principles-based system is used" (Jeffrey, 2006, p. 120). This holds particularly true if one recalls high-profile accounting scandals involving for instance Enron and Parmalat, to mention only two. In this sense, several questions arise as to the effectiveness of such 'guidelines' in providing adequate and clear information and protecting investors, above all minority shareholders. To this end, standards are not static and unchanging, but they have been modified over the years, in an effort to adapt them to new requirements and to enhance "timeliness, accuracy, and reliability of financial information and greater transparency in financial processes" (Cox, 2008, p. 30). The concept of transparency is recurrent in the investigation of financial reports. In this connection, it should be pointed out that a growing body of scholarly work has been devoted to the analysis of the way in which companies provide information in their annual accounts, comparing the notion of IAS "true and fair view" to GAAPs "in conformity with generally accepted accounting principles" (McEnroe, Martens, 1998, p. 24). In examining how those two legal standards are perceived, Kirk points out that a difference in their meaning might "contribute to an expectation gap" (Kirk, 2001, p. 2) within the accounting discourse. The concept of the expectation gap, defined as the "difference between what users of financial statements, the general public perceive an audit to be and what the audit profession claim is expected of them in conducting an audit" (Ojo, 2006, p. 3), has also been the subject of further analysis, particularly the possibility to eliminate it (Sikka et al., 1998).

Apart from economists, financial reporting has been investigated by semiotics scholars, linguists and translators. In semiotic terms, the focus has been on the techniques adopted to effectively conceptualize and disclose information. For instance, according to Lancaster, the meaning of the linguistic message depends on the way the reader interprets it, on the basis of a certain perspective. As a result, much emphasis is placed on the receiver's interpretative ability, while giving the writer--particularly in the case of corporate reporting--"an opportunity [...] to structure the information reported in such a manner as to facilitate their desired manner of interpretation" (Lancaster, 2005, p. 168). Furthermore, much research has been conducted on issues resulting from a lack of terminological equivalence in those financial statements adopting variations of the English language--American, British, and International English (Edelmann, 2010; Mourier, 2004). This is a serious question to consider, as "there are several forms of the English language, particularly for accounting terms. UK terms and U.S. terms are extremely different" (Alexander et al., 2007, p. 19). There are also a number of matters arising from inter-linguistic differences. In this connection, if intralinguistic issues might be problematic to deal with, the production of an annual account to be perfectly understood in a foreign language is even more demanding. In addition to questions of a linguistic nature, strictly speaking, resulting from the attempt to render an accounting concept in another language, translation could be problematic also when terminological differences reflect differences in national legislation. In this respect, "there are inherent difficulties in language translation that mean that the equivalent interpretation and application of (foreign) concepts will always remain problematic" (Evans et al., 2010, p. 3). For this reason, there is a need for highly-qualified translators, although this is not enough. As argued by Mourier, "language expertise is a prerequisite, but not sufficient. Extra-linguistic specialist background knowledge is a must, particularly in language for accounting purposes" (Mourier, 2004, p. 160). Therefore, it is crucial "to master the linguistic code" and "to use textual, contextual and pragmatic knowledge to construct and interpret contextually appropriate texts" (Bhatia, 2004, p. 141).

The present study aims at investigating the discourse of accountancy and corporate reporting, with a special focus on issues arising from differences in terms of legislation and terminology between the U.S. and European accounting standards. Taking as a starting point the case of FIAT, a multinational operating in the global market, the attempt is to widen the scope of the analysis, so as to give an overview of those convergences and divergences that writers and translators need to be aware of while preparing their annual accounts for an international audience. In this sense, an examination of the Annual Report (AR) presented by the FIAT Group in 2009 (FIAT Group, 2009) will also serve our purpose. After providing a review of the relevant literature, the research focus will then turn to the most significant aspects of European and U.S. accounting legislation, and to a number of terminological issues emerging when choosing an English equivalent and/or a variation of English when financial data are presented to international investors.

1. Community accounting legislation

In order to become familiar with accounting legislation adopted within the European Union, an essential starting point for the discussion is the Fourth Council Directive No. 78/660/EEC of 25 July 1978 on the annual accounts of certain types of companies, simply known as the Fourth Directive, which lays down a set of measures applying to public and private companies limited by shares or guarantees and explains the elements which a financial statement should comprise.

For the purpose of this study, it should be noted that this Directive is of particular importance as reference is made to the need on the part of ARs to give "a true and fair view of the company's assets, liabilities, financial positions and profit or loss" (Article 2, para. 4). The effort made by the European Commission to promote transparency in corporate reporting is also confirmed by the frequency of this concept within the Directive: "the annual report shall include at least a fair review of the development and performance of the company business and its position ..." (Article 46, para. 1), "the review shall be a balanced and comprehensive analysis of the development and performance of the company's business and of its position" (Article 46, para. 2).

Therefore, with a view to increasing the quality and the readability of financial statements, law-makers at the European level have adopted a series of universally recognized principles, which has helped limited companies to present their financial information in a uniform way. Regulation No. 1606 of 19 July 2002 on the application of international standards sets forth some very important rules in this respect. First of all, it empowers the International Accounting Standards Board (IASB) to issue and amend such standards where necessary (Article 2), with all publicly traded companies that are required to comply with them starting on 1 January 2005 (Article 4). Of note is the fact that Article 3 of the Regulation points out that such standards have to meet criteria, such as understandability and reliability, to allow for "economic decisions and assessing the stewardship of management" (Article 2, para. 3), meaning that an attempt is made to provide the reader with annual accounts of greater clarity.

In the context of this study, it seems worth pointing out also that the emphasis on the need for harmonization and transparency is laid out not only in legal terms, but also from a linguistic viewpoint. In this connection, Article 3 of the foregoing Regulation specifies that adopted standards should be published "in each of the official languages of the Community" (Para. 4). The seriousness of this issue is reflected in Directive No. 2004/109/EC of 15 December 2004 on the harmonization of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, which amends Directive No. 2001/34/EC. In fact, an entire article of the Directive is devoted to this aspect setting forth, in primis, that "regulated information shall be disclosed in a language accepted by the competent authority in the home Member State" (Article 20, para. 1). Further on, it is also stated in the same Directive that in the event of trading in one or more host Member States, such information should be provided "either in a language accepted by the competent authorities of those host Member States or in a language customary in the sphere of international finance" (Article 20, para. 2b). This is the only reference to the use of a certain language within accounting legislation and, significantly, it is not required that the language be English.

2. U.S. accounting legislation

In the United States, the need for transparency regarding corporate reporting dates back at least to 1933, when the Securities Act was enacted, with the aim of providing information regarded as "necessary or appropriate in the public interest or for the protection of investors" (Section 2, p. 4), through the registration of securities. Such information should be "true and accurate" and it should "not contain an untrue statement of fact or omit to state a material fact" (Section 26, p. 43) (U.S. Securities and Exchange ..., 2012a).

Just as in Europe, a financial statement should be prepared in accordance with some principles, known as Generally Accepted Accounting Principles (GAAPs) (European Commission, 2010b). Such standards are determined by the Governmental Accounting Standard Board (GASB) in the case of governmental organizations, and by the Financial Accounting Standard Board (FASB) in the case of for-profit business organizations. With reference to the FASB, it is pointed out that disclosures have to be provided in plain English, with this concept taken as a founding principle of U.S. accounting law. In terms of transparency, the 1934 Security Exchange Act is also of notable importance, as the Security and the Exchange Commission (SEC) was first set up, with the aim to "protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation" (U.S. Securities and Exchange ..., 2012b).

The Security Exchange Act is also significant with regards to corporate reporting. Section 13 of the Act ("Periodical and other Reports") specifies that "each issuer reporting under section 13(a) or 15(d) shall disclose [...] changes in the financial condition or operations of the issuer", in plain English, as it "is necessary or useful for the protection of investors and in the public interest" (Section 13, p. 132, emphasis added). Again, plain English is mentioned, so as to show that this is a key issue in accounting discourse. Apart from the foregoing, a mention should also be made of the Sarbanes-Oxley Act of 2002 (U.S. Securities and Exchange ..., 2002), regarded by former U.S. President George Bush as "the most far reaching reform of American business practices since the time of Franklin Delano Roosevelt" (U.S. Securities and Exchange..., 2010). Named after two senators (Paul Sarbanes and Michael Oxley), the Act was enacted in response to a number of financial frauds that took place at the time. For the purpose of this study, it is important to highlight that in order to make shareholders aware of a company's economic performance, a set of measures have been adopted to safeguard their investments, especially in terms of financial disclosure, which should be "accurate and presented in a manner that does not contain incorrect statements or admit to state material information" (Section 401). In addition, the Sarbanes-Oxley Act also contains further provisions laid down to regulate corporate governance and financial practice more generally.

3. Towards a convergence between International Financial Reporting Standards and third country Generally Accepted Accounting Principles

As discussed above, while in some countries International Financial Reporting Standards (IFRS) are adopted, there are a number of countries--particularly the U.S.--in which annual reports need to be prepared in compliance with GAAPs. Such differences might be problematic, particularly for multinationals --FIAT's case--operating within several jurisdictions, especially when it comes to determining an equivalent in the other system. Some simple examples in this connection are provided so as to reveal the difference between the two sets of standards (Table 1):
Table 1. Comparison of IFRS and U.S. GAAP
(source: Deloitte, 2008)

IAS/IFRS   Topic          IFRS               U.S. GAAP

IAS 1      Financial      Specific line      Certain standards
           statement      items required     require specific
           presentation                      presentation of certain
                                             items. Public entities
                                             are subject to SEC
                                             rules and regulations,
                                             which require specific
                                             line items

IAS 8      Corrections    Retrospective      Retrospective
           of errors      restatement is     restatement is
                          required, unless   required; no
                          impracticable      impracticability
                                             exemption available

IAS 38     Development    Capitalise         Expense as incurred
           costs          if specified       (except for certain
                          criteria are met   website development
                                             costs and certain
                                             costs associated with
                                             developing internal
                                             use software)

Apart from differences in national legal frameworks, another significant obstacle to the global accountancy system is represented by the sense of national tradition characterizing decision-making, which translates into an unwillingness to accept and conform to accounting practices of different countries. In this sense such "unwillingness may exist on the part of accountants and companies or on the part of states who may not wish to lose their sovereignty" (Nobes, Parker, 2000, p. 148). Despite this, and in an attempt to harmonize such diversified accounting systems, the European Commission cooperated with the relevant U.S. authorities in a combined effort that culminated in the issuing of the Norwalk Agreement (named after the place of the meeting, at Norwalk, Connecticut), a Memorandum of Understanding signed by the Financial Accounting Standards Board (FASB) for the U.S. and the International Accounting Standards Board (IASB) for the EU on 18 September 2002. Significantly, this acknowledged their commitment to "the development of high-quality, compatible accounting standards that could be used for both domestic and cross-border financial reporting" (Financial Accounting Standards Board, 2002, p. 1). Another step towards such a reconciliation is represented by the publication of the Report to the European Securities Committee and to the European Parliament on Convergence Between International Financial Reporting Standards (IFRS) and third country National Generally Accepted Accounting Principles (GAAP) (European Commission, 2010b). The document provides an overview of the situation in those countries that are regarded as equivalent in their use of accounting standards. With reference to the U.S. case, the authorities are adopting a more convergence-oriented approach, with SEC representatives stating that "it is not foreclosing the possibility in the future that U.S. issuers may be permitted to choose between the use of IFRS or U.S. GAAP" (European Commission, 2010b, p. 5). At the time of writing in March 2011, this convergence (European Commission, 2010a) is still under way.

Far from being limited to the specialized press, the issue of a universally recognized set of standards attracted wide media coverage, as witnessed by an article in the New York Times (Norris, 2009), according to which:

The adoption of international accounting standards by the United States would move the world toward one set of standards, which should make it easier for investors to compare companies operating in differing regions, and make it easier for firms to raise capital in whatever market seems most attractive.

This article is worthy of note as it proves that the need for a globalized accounting system is a wide-ranging issue that is not only a matter of concern for a few specialists, but involves our day-to-day activities as investors. In addition, there are a number of issues that are both legal and linguistic. Notwithstanding the relevance of terminological problems associated with the adoption and translation of standards in financial reports, few scholars have devoted their effort to the analysis of linguistic issues in corporate reporting. By referring to the practical case of FIAT, which conducts its business and financial operations in both Europe and the U.S., plus a number of other countries around the world, an investigation of this kind will be presented in the following section. As indicated at the end of each page of the Annual Report surveyed, the text has been translated into English for the convenience of international readers. Translations of this kind are known as convenience translations, that is, "statements translated from a filing language into another language that retain all the original accounting principles and the original currency" (Pagell, Halperin, 1998, p. 20). This is an important point to consider over the course of this study.

4. Law and language in corporate reporting

4.1. A brief overview

In June 2009, following the agreement between Chrysler and FIAT, the Italian carmaker had the opportunity to access and expand its interests in the U.S. market and establish a reputation in a difficult economic context. As a result, and with a view to 'going global', a great deal of documentation comprising financial information had to be translated into English, in order to allow nonItalian speaking readers to become familiar with the company's financial conditions with a view to attracting future foreign investments. A considerable amount of work had to be devoted to the translation and re-writing of Annual Reports, which require, as highlighted above, the high level of qualification in both linguistic and financial terms. Indeed, there are a number of aspects that need to be considered while translating annual accounts into English.

In addition to general issues arising from either the equivalence or the incommensurability of concepts in different languages, there are additional problems that translators, along with accountants, have to deal with. In some circumstances, the meaning of the word 'translation' itself becomes ambiguous, or it acquires a different meaning. At this point, it is useful to highlight that in corporate reporting the translation process might involve several activities. In their beautifully written Comparative International Accounting, Nobes and Parker dedicate an entire chapter (Chapter 15) to the topic, also providing a useful definition of the term in this specialized field: "When used by accountants it has a special technical meaning, namely the process whereby financial data expressed in terms of one currency is restated in terms of another" (Nobes, Parker, 2000, p. 338). The authors here referred to what is termed foreign currency translation or translation of transactions, which actually comprises a broad area of financial reporting and represents a serious issue to deal with. Nobes and Parker also provide an example which helps understand how this special kind of translation works (Nobes, Parker, 2000, p. 338):

A British company, which draws up its account in pounds sterling, has among its assets a $100 treasury note. In order for its asset to be included in the company's balance sheet, it must be expressed in terms of pounds [...]. If the current exchange rate is 1 [pounds sterling] = $1.55 it would be reasonable to calculate the pound value of the $100 note as 64.52 [pounds sterling] ($100 x 1 [pounds sterling]/$ 1.55), so that the asset 'dollar note' can be included in the balance sheet at the value of 64.52 [pounds sterling]. Using the accountant's terminology, the asset has been 'translated' from dollars to pounds.

Foreign currency translation is problematic as exchange rates constantly change. In most cases, however, this issue is dealt with by translating "at the exchange rate ruling at the date that the transaction is recognized and recorded" (Nobes, Parker, 2000, p. 331). This method is upheld also by the European Commission (European Commission, 2008, p. 153), according to which:

An entity may present its financial statements in any currency (or currencies). If the presentation currency differs from the entity's functional currency, it translates its results and financial position into the presentation currency. For example, when a group contains individual entities with different functional currencies, the results and financial position of each entity are expressed in a common currency so that consolidated financial statements may be presented.

This is exactly the case of FIAT. For instance, the 2009 AR states that "Transactions in foreign currencies are recorded at the foreign exchange rate prevailing at the date of the transaction [...] all assets and liabilities of foreign consolidated companies with a functional currency other than the euro are translated using the exchange rates in effect at the balance sheet date" (FIAT Group, 2009, p. 134).

In this respect, it is also important to highlight that a distinction is usually made between 'translation' and 'conversion'. As pointed out by Nobes and Parker (FIAT Group, 2009, p. 134):

With conversion, the asset is actually changed from one currency to another, as when dollars are exchanged for pounds in a bureau of change. With 'translation' the asset remains unchanged; the dollar treasury note itself remains the same; only the basis of valuation is changed.

Although it is not the main aim of this study to analyze the questions of translation from Italian into English and vice versa, but rather to examine the variations of English adopted while producing financial statements, it seems worth pointing out an important aspect concerning the Italian version of the following EU text of the term 'translation' as defined by Nobes and Parker. Excerpts in Table 2 are taken from the documentation available on the website of the European Commission. This documentation deals with IAS/IFRS Standards and Interpretations:
Table 2. Conversion and translation

English version                     Italian version

The cash flows of a foreign         I flussi finanziari di una
subsidiary shall be translated      controllata estera devono
at the exchange rates (p. 31)       essere convertiti al tasso
                                    di cambio tra la valuta
                                    funzionale e la valuta estera
                                    dei giorni in cui avvengono
                                    i flussi finanziari (p. 33)

Any foreign exchange translation    Eventuali differenze di
differences (p. 60)                 cambio (p. 70)

Translation to the presentation     Conversione in moneta di
currency (p. 153)                   presentazione (p. 162)

How to translate financial          Per tradurre il bilancio in
statements into a presentation      una moneta di presentazione
currency (p. 148)                   (p. 157)

The monetary item represents a      Lelemento monetario
commitment to convert one           rappresenta un impegno a
currency into another (p. 154)      convertire una valuta in
                                    un'altra (p. 163)

Such conversions are not in         Tali conversioni non sono
accordance with International       conformi agli International
Financial Reporting                 Financial Reporting Standard
Standards (p. 155)                  (p. 165)

For example, an entity may          Un'entita puo convertire in
convert into another currency       un'altra valuta soltanto alcune
only selected items from its        voci del bilancio (p. 165)
financial statements

(source: European Commission, 2008)

The examples given in Table 2 demonstrate that, while in the English version the difference between the two concepts is quite clear, a certain degree of ambiguity regarding the distinction between 'translation' and 'conversion' emerges from the Italian text. In some cases, they are used interchangeably, regardless of the all-important difference pointed out by Nobes and Parker, while in other cases the Italian reader is uncertain whether the nature of the process is a currency conversion or translation. This stresses once again the need for those writing financial statements to gain both linguistic and financial knowledge, but it also points out another significant issue. While translating--but this criteria might also be applied to the writing process, more generally--it is of primary importance to consider and know the audience the document is meant for, in order to improve the levels of readability, as highlighted further on in this paper.

4.2. On the varieties of English and 'plain English'

Apart from legal and translation issues, another question had to be faced by the writers of the FIAT 2009 Annual Report while drawing up the company's statement of financial position, or, to use British English, balance sheet. The recourse to one variety of English rather than another in corporate reporting, and financial terminology more generally, is becoming a widely investigated matter (Sutton, 2004; Mourier, 2004), and AR writers should be aware of the differences between American and British/European English. This is particularly the case for a multinational, such as the Italian car manufacturer, whose aim is to expand globally. Notwithstanding the fact that FIAT is now planning a significant presence in the U.S., it should be said that annual accounts might be of interest also for readers other than Americans, so it is of primary importance to make sure that the text is accessible to an international readership. In most cases, such as the foregoing distinction between a statement of financial position and a balance sheet, terminological differences may seem to be almost insignificant. In other cases, however, they might be quite problematic. The issue of accounting terminology and the use of a variety of English is a serious matter. As O'Malley points out, linguistic misunderstanding "is not limited to those speaking different languages. There are opportunities for people who speak the same language to not understand [...] and this is quite true in the English-speaking world" (O'Malley, 2010, p. 110). He also provides a valuable example of the difference between Englishes, which, although referring to the legal area, is quite significant all the same (O'Malley, 2010, p. 110):

British contractual terms such as "the parties agree to hire lorries and other excavation equipment from hauliers (solely those currently trading) to complete the project" would need to be rendered in the U.S. as "the parties agree to rent trucks and other digging equipment from trucking companies (solely those currently doing business to complete the project)".

A closer examination of the FIAT AR will help to cast light on the main issues in presenting data and statistics in a globalized market for an international readership. In this sense, it might be the case that readers "will be trying not only to master a subject new to them, but also doing so in a language that is not their first" (Alexander et al., 2007, p. 19). As discussed earlier, some terms are not a cause for concern as they do not give rise to ambiguity, and the meaning of the linguistic message is clear. In this case, AR writers engaged in corporate reporting for FIAT use them interchangeably, as highlighted by Table 3 below.

Accordingly, "a summary of a management's performance as reflected in the profitability (or lack of it) of a firm over a certain period" (WebFinance, 2012) is referred to as income statement or profit and loss account, without any risk of misunderstanding. Most of those terms have in fact a global reach so that the readers of the report worldwide are aware of them. In the same vein, "an individual, group, or organization that holds one or more shares in a company, and in whose name the share certificate is issued" (WebFinance, 2012) might be called either stockholder and shareholder with no need of further clarification. In general, there is a prevalence of American terms in the Annual Report, which might partly be explained by the links between the Italian manufacturer and Chrysler. As a result, readers of the report will find the U.S. doubtful account and not UK bad debt to refer to an account that records the sums whose collection looks uncertain, while "the ratio of a company's loan capital (debt) to the value of its ordinary shares (equity)" (Oxford University Press, 2010) will be indicated as leverage instead of gearing.

It should be noted, however, that in a number of cases the European terminology is used. At this point, and when discussing the alternation of U.S. and UK financial terms in his book, Sutton explains that "we'll continue to use American terminology because you are more likely to find it in English-language financial reports of American companies. However [...] we employ British English terms because of their legal significance" (Sutton, 2004, p. 19). This is of considerable importance as it highlights a significant difference between American English, more business-oriented, and British English, regarded more as a 'statutory' language, at least at the theoretical level. FIAT 2009 AR provides several examples of such phenomena. Therefore, notwithstanding the company's link with the American market writers used, for instance, UK preference shares and not U.S. preferred stocks to indicate the class of stock that yields fixed and regular interest income, or they resorted to UK ordinary shares to define a share entitling its holder to dividends which vary in amount, disdaining its American equivalent common stock. The same happens with share premium used in place of U.S. paid-in surplus to define "the amount by which the amount received by a company for a stock issue exceeds its face value" (Oxford University Press, 2012), or bonus issue, which is used instead of the U.S. stock dividend.

As noted above, such a combination of varieties of English does not usually compromise the meaning of a text. However, this is not always the case. The problems arising from translation issues are sometimes quite difficult to solve, especially when using English as a lingua franca. As pointed out by Nobes and Parker, there are a number of English words that "have subtly different meanings when they cross the Atlantic" (Nobes, Parker, 2000, p. 148). For instance, in the report currently surveyed the U.S. term financial year is used consistently, but it might be hard to say whether the translator intended to refer to the tax year or to the accounting year. In case of the latter, the UK fiscal year should have been used (from 1 April to 31 March). Therefore, some terms, although ostensibly similar, might have different meanings. The same can be said about the term property appearing in the AR, which in the UK "means land and perhaps, building. In the United States property can have a wider meaning" (Nobes, Parker, 2000, p. 148). In our case study, stocks and inventories are also used interchangeably, but "the UK term 'stocks' is equivalent to U.S. inventory and the U.S. term stocks refers to securities" (Mourier, 2004, p. 150), and, although provisions and reserves are deemed to be synonyms, they might be a source of misunderstanding, as the "two words are used interchangeably: always to mean 'provision' in UK English" (Nobes, Parker, 2000, p. 34). On the basis of such considerations, it can be said that the drawing up of Annual Reports and, more generally, financial statements poses a series of linguistic difficulties which the writer has to consider, especially when readers are likely to be from different language backgrounds and English is used as a communication tool for a widely diversified audience, as in the case of FIAT. Apart from adopting the exact terminology, there are additional ways that, although not less problematic, allow AR writers to improve the quality of information provided in corporate reporting, most of which are promoted by a movement which is increasingly regarded as pivotal also in the drafting of financial disclosures, that is, the plain English movement.

In this sense, the Securities and Exchange Commission published the Plain English Handbook in 1998. The Handbook is regularly updated with the aim to helping specialists and professionals edit their document so that users can decipher the meaning, also avoiding cases in which "a shortcut for the writer becomes a roadblock for the reader" (U.S. Securities and Exchange ..., 1998, p. 19). The document makes a series of recommendations intended to facilitate the exchange of information between the parties involved, therefore allowing for effective communication. The concept promoted by the Handbook is that writing in plain English is not a way to avoid presenting complex information by any means, but it means presenting it in the clearest way possible so that investors are fully aware of a company's financial status. According to the SEC, one of the key points in disclosing understandable information is to know the general audience profile which the company is addressing--also by means of market surveys--although this could prove difficult in an international context. In this respect, age, educational background and the type of investment might be useful characteristics to consider. Apart from general information, it is also essential to take account of the way in which information is placed and displayed. Hence, for instance, redundancy should be avoided and disclosed properly. Table 4 summarizes the main recommendations in the Plain English Handbook that might be of use in corporate reporting. Most of them are basic writing techniques that are of particular importance also in the discourse of accounting.

The foregoing examples provide us with a picture of how a text can be simplified, yet maintain the same effectiveness in communicative terms. Bearing in mind that it is not always possible to comply with such principles, they might represent a good starting point for production of documents with improved readability. This is important particularly in the discourse of accountancy, even though in a number of cases such documents are intentionally drafted with a certain amount of hedging--due to the nature of financial fluctuations or by resorting to highly technical terms, so as to conceal information or make it difficult to understand. However, if one considers the bona fides of AR writers, the Plain English Handbook provides a significant step towards a clearer presentation of financial statements and higher levels of understanding.


This paper has investigated the discourse of accounting from both the legal and linguistic perspective, with the aim of underlining certain key issues that multinationals have to deal with while engaged in their 'going-global' process. In considering accounting legislation in both Europe and the United States, a number of differences in terms of standards between GAAP and IAS/IFRS have emerged. In general terms, the reconciliation of the two accountancy systems has been successful to some degree, primarily due to the attempt on the part of lawmakers at the international level to harmonize accounting rules in light of an increasingly globalized market. There are, however, a number of questions that need to be solved, e.g., differences in the filing and disclosure of financial information at the domestic level, cultural and/or linguistic barriers and specific national characteristics that are hard to translate, as well as a lack of professional accountancy bodies able to operate in a wider context, which compromises the setting up of a universally recognized set of standards. In this sense, the efforts made by the EU and the U.S. authorities expect to make a significant contribution to the creation of a single reporting framework for companies operating at the global level. Turning to linguistic aspects, apart from considering well-known difficulties in the translation of financial statements --with the term 'translation' regarded in a broader sense--additional issues emerge from the variety of English to be used in corporate reporting for an international, and therefore diversified, audience. The FIAT AR suggests that there is a tendency to use a mixed form of English--perhaps with American English used in a more business-like context and British English regarded as a more statutory language--an approach that may, however, give rise to ambiguities. If the choice of a technical term in place of another is usually harmless, some serious questions in terms of terminology have been pointed out, which might have an impact on the reliability of financial disclosure. To this end, high levels of expertise in both financial and linguistic terms are required to produce high-quality financial reporting. Apart from difficulty in the selection of technical terms, another issue which is a cause for concern is the clarity and readability of financial disclosure, which is being increasingly researched nowadays. With the publication of the Plain English Handbook by the SEC in 1998, an attempt has been made to provide annual reports with clarity and effectiveness in terms of communication.

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Pietro Manzella

Dr., Senior Research Fellow

ADAPT, the Association for International and Comparative Studies in the field of Labour Law and Industrial Relations

Post-doctoral Research Fellow at the Marco Biagi Department of Economics

University of Modena and Reggio Emilia

Viale J. Berengario 51-41100 Modena, Italy

E-mail:; tel.: + 393 29 388 1878

Received 28 August 2012; accepted 16 November 2012

Information about the author

Pietro Manzella

Dr., Senior Research Fellow at ADAPT, the Marco Biagi Foundation, Post-doctoral Research Fellow at the Marco Biagi Department of Economics, University of Modena and Reggio Emilia. He has an interest in linguistic and translation issues, with special reference to comparative labour law and industrial relations. He has set up a new area of investigation called the 'linguistics of labour law and industrial relations'. He is English language editor of the Adapt Labour Studies Book Series, the Italian labour law journal "Diritto delle Relazioni Industriali", the E-Journal of International and Comparative Labour Studies. Other areas of research: business communication, a multidisciplinary area encompassing discourse analysis, applied linguistics, legal, economic and marketing discourse, terminology and translation studies and the analysis of corporate discourse in globalized markets, cross-cultural studies, labour law, industrial relations, corporate and marketing communication, law and language.
Table 3. UK and U.S. terminology in FIAT 2009 AR

            Accounting terminology in FIAT 2009 AR

U.S. accounting terms              UK/European accounting terms
Annual General Meeting (AGM)  General Meeting of Shareholders (GMS)
Income Statement                     Profit and loss account
Income                                        Profit
Stockholders                               Shareholders
Inventories                                   Stocks
Par Value                                 Nominal Value
Refunding                                  Refinancing

(source: FIAT Group, 2009)

Table 4. How to write in plain English

Recommendations    Sectences edited in
                   standard English

Avoid long         No person has been authorized to give any
  sentences          information or make any representation
                     than those contained or incorporated by
                     reference in this joint proxy statement/
                     other prospectus, and, if given or made,
                     such information or representation must
                     not be relied upon as having been authorized.
Find hidden        We will provide appropriate information to
  verbs              shareholders concerning...

Try personal       This Summary does not purport to be complete
  pronouns           and is qualified in its entirety by the more
                     detailed information contained in the Proxy
                     Statement and the Appendices hereto, all of
                     which should be carefully reviewed.
Reduce abstract    No consideration or surrender
  concepts           of Beco Stock will be required of
  (wherever          shareholders of Beco in return for
  possible)          the shares of Unis Common Stock
                     issued pursuant to the Distribution.
Omit               Machine Industries and Great
  superfluous        Tools, Inc. are each subject to
  words              the information requirements of
                     the Securities Exchange Act of
                     1934, as amended (U.S. Securities
                     and Exchange., 1934), and in
                     accordance therewith file reports,
                     proxy statements and other
                     information with the U.S. Securities
                     and Exchange Commission (the
Use positive       Persons other than the primary
  statements         beneficiary may not receive these dividends.
Keep the           Holders of the Class A and Class
  subject, verb,     B-1 certificates will be entitled to
  and object         receive on each Payment Date, to
  close together     the extent monies are available
                     therefor (but not more than the
                     Class A Certificate Balance or
                     Class B-1 Certificate Balance then
                     outstanding), a distribution.

Recommendations    Sentences edited in plain

Avoid long         You should rely only on the information
  sentences          contained in this document or that we have
                     referred you to. We have not authorized
                     anyone to provide you with information that
                     is different.

Find hidden        We will inform shareholders about.

Try personal       Because this is a summary, it does not
  pronouns           contain all the information that may be
                     important to you. You should read the entire
                     proxy statement and its appendices carefully
                     before you decide how to vote.
Reduce abstract    You will not have to turn in
  concepts           your shares of Beco stock or
  (wherever          pay any money to receive your
  possible)          shares of Unis common stock
                     from the spin-off.
Omit               We file annual, quarterly,
  superfluous        and special reports, proxy
  words              statements, and other
                     information with the U.S.
                     Securities and Exchange
                     Commission (SEC).

Use positive       Only the primary beneficiary
  statements         may receive these dividends.
Keep the           Class A and Class B-1
  subject, verb,     certificate holders will
  and object         receive a distribution on
  close together     each payment date if cash is
                     available on those dates for
                     their class.

(source: U.S. Securities and Exchange..., 1998)
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Date:Jul 1, 2012
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