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Interpretation of probability expressions by financial directors and auditors of UK companies

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  • Jon Simon

Abstract

Probability expressions, such as 'remote', 'possible', 'probable' and 'virtually certain', have been used extensively in accounting. However, little is known about how these expressions are interpreted. It is important to understand how these expressions are interpreted by preparers of financial statements as significant inconsistencies will reduce the comparability between companies' financial statements. This paper reports the results of a survey of financial directors of large UK listed companies and UK auditors concerning the interpretation and the communication efficiency of thirty frequently used probability expressions. This paper fills two gaps in the literature. First, it surveys attitudes to probability expressions in the UK of two important groups of individuals involved in the financial reporting system and, second, it explicitly measures the 'communication efficiency' of these expressions. The results show that while many probability expressions were seen to have similar meaning and have a high degree of communication efficiency, several had low communication efficiency. Policy implications involve a reassessment of the use of probability expressions with low communication efficiency, and the adoption of well-understood probability expressions with high communication efficiency.

Suggested Citation

  • Jon Simon, 2002. "Interpretation of probability expressions by financial directors and auditors of UK companies," European Accounting Review, Taylor & Francis Journals, vol. 11(3), pages 601-629.
    • Handle: RePEc:taf:euract:v:11:y:2002:i:3:p:601-629
    DOI: 10.1080/09638180220125599
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    Citations

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    Cited by:

    1. Hellmann, Andreas & Patel, Chris, 2021. "Translation of International Financial Reporting Standards and implications for judgments and decision-making," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    2. Katarzyna Kolesnik & Sylwia Silska-Gembka & Jerzy Gierusz, 2019. "The Interpretation of the Verbal Probability Expressions Used in The IFRS – The Differences Observed Between Polish and British Accounting Professionals," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 18(1), pages 25-49, March.
    3. Jerzy Gierusz & Katarzyna Kolesnik & Sylwia Silska Gembka, 2019. "The Interpretation of "in Context" Verbal Probability Expressions Used in International Financial Reporting Standards - Evidence from Poland," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2019(1), pages 25-45.
    4. Siti Mariana Taliyang & Safrul Izani Mohd Salleh & Rosmaria Jaffar Harun, 2013. "Accounting Convergence: Issues On Translation & Interpretation: Evidence In Malaysia," Far East Journal of Psychology and Business, Far East Research Centre, vol. 10(1), pages 1-8, March.
    5. Ricardo Lopes Cardoso & Rodrigo de Oliveira Leite & André Carlos Busanelli de Aquino, 2023. "Probable at First Glance, but Unlikely After Closer Look: The Role of Cognitive Reflection Ability on the Assessment of Probabilistic Expressions," The International Journal of Accounting (TIJA), World Scientific Publishing Co. Pte. Ltd., vol. 58(02), pages 1-31, June.
    6. Zhang, Yuqian & De Zoysa, Anura & Cortese, Corinne, 2023. "Foreign language effect in accounting uncertainty expressions: Interpretation and probabilistic estimation," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 50(C).
    7. Kettunen, Jaana, 2017. "Interlingual translation of the International Financial Reporting Standards as institutional work," Accounting, Organizations and Society, Elsevier, vol. 56(C), pages 38-54.

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