The Interpretation of "in Context" Verbal Probability Expressions Used in International Financial Reporting Standards - Evidence from Poland

Abstract

The objective of this paper is to specify in which way Polish accounting professionals manage to interpret "in context" verbal probability expressions (VPEs) from IFRS. Taking into account the Polish accounting professionals attachment to the prudence principle and the Polish mindset, we research here whether they have a conservative approach when interpreting those expressions. For the purpose of our study we distributed a questionnaire and asked a sample of accountants and auditors from Poland to interpret the term "probable" used in IFRS to establish the threshold for recognition of various accounting elements. Our findings provide evidence that the differences in interpretation of "in context" VPEs by Polish accounting professionals exist. We also find that the level of conservatism shared by Polish accountants and auditors affects their individual accounting judgment.

Communicating uncertainty using words and numbers

“…For example, the numeric interpretation of a probability term differs when it appears in opposing informational contexts. These polarity effects have been observed for an increase/decrease in accounting [56], success/failure in intelligence analysis [53], and being hesitant/willing to act in a legal setting [44] (Figure 1). Contexts can even reduce the numeric discriminability of probability terms [49,53].…”

“…The interindividual variability in numeric interpretations of verbal probabilities [51] continues to be observed in English-speaking samples, and is evident among experts/professionals [25][26][27]30,34,35,52,53] as well as lay people (e.g., [17,19,20,24,32,36,[44][45][46][47]54,55]). Such variability is also documented among non-native English-speakers, where probability terms may or may not be translated [7,28,35,49,56,57]. These non-native language users have reduced numeric discriminability of terms that lie above and below the mid-point of the probability scale [7,49,57].…”