Importance of accuracy and consistency in financial translations
Overview of IFRS: Its purpose, key principles
Tools and Resources for Translators
Brief glossary of essential IFRS terms most commonly found in financial reports
Best Practice for Translating Financial Reports
Challenges for translators in navigating IFRS terminology and concepts
Importance of accuracy and consistency in financial translations
Accuracy and consistency are the most important guiding principles when translating financial reports. Translations in this field demand a high level of expertise, both in financial background and linguistic skills, due to the technical nature of the content and its implications for stakeholders. The highly specialized terminology in financial texts needs to be translated consistently and appropriately depending on each specific context. Consistency in terminology is key as financial documents often involve a repeated use of certain terms.
Misrepresentation within those documents could lead to errors in reporting, to misaligned audits or incorrect business decisions. It could also give a wrong impression of the financial reality and impact the trust of investors or even trigger regulatory scrutiny or legal repercussions. Moreover, it might cause reputational damage and make an organization appear less trustworthy or professional.
With regards to the IFRS, inconsistency or inaccuracy could undermine the very reason behind the framework which is to provide transparency and comparability across borders. Accuracy and consistency therefore preserve the integrity of financial information, ensure comparability, maintain legal compliance and foster trust and understandability for all stakeholders.
Overview of IFRS: Its purpose, key principles
The International Financial Reporting Standards (IFRS) are globally recognized accounting standards used by companies worldwide. The IFRS were developed by the International Accounting Standards Board (IASB) and aim to provide uniform, transparent, and comparable financial reports for internationally operating businesses. The first IFRS standard was applied in June 2003.
Why were the IFRS created?
In a globalized economy, the IFRS play a crucial role by facilitating the international comparison of financial statements, enhancing transparency for investors, and promoting trust in financial reporting. National accounting regulations vary significantly between countries, making it difficult for international investors to interpret reports consistently and draw informed investment conclusions. For instance, the calculation of a company’s profit may differ across jurisdictions. IFRS were therefore introduced to ensure comparability and support capital markets. They are now mandatory for companies in over 140 countries and have been voluntarily adopted by many others. The growing adoption of IFRS bolsters the global economy by enhancing investor confidence through transparent, standardized, and comparable financial reporting. This credibility attracts foreign investment, fostering economic growth.
Important IFRS principles
Completeness: Financial statements must include all relevant information necessary to understand an entity’s financial position, performance and cash flow.
Relevance and reliability: Only relevant information that could influence stakeholder decisions should be reported. The information must be timely, free from material errors and bias.
Clarity: Financial statements must be clear and easily understandable to users who have a reasonable knowledge of business economic activities.
Fair representation: Financial statements must accurately represent the financial position, performance and cash flows of an entity.
Comparability: The IFRS place a strong emphasis on comparability enabling stakeholders to assess and analyze across different entities.
Who is required to apply IFRS?
Publicly listed companies:
In many countries, publicly traded companies are required to create their financial statements according to IFRS. This applies to numerous large corporations worldwide.
Public interest entities:
In some jurisdictions, not only publicly listed companies are required to apply IFRS, but also public interest entities, such as banks, insurance companies, and other financial institutions.
Companies operating in international capital markets:
Companies accessing international capital markets are often obligated to use IFRS to ensure comparability of financial statements across different markets.
Companies in countries with full IFRS adoption:
In certain countries, all companies, regardless of their size or listing status, are required to adopt IFRS. This is known as Full IFRS Adoption.
Key IFRS standards
IAS 1 – Presentation of Financial Statements:
Overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content
IFRS 9 – Financial Instruments:
Classification and measurement of financial instruments, which is critical for the accurate reporting of financial assets, loans, and derivatives
IFRS 13 – Fair Value Measurement:
Definition of fair value and framework for measuring fair value and for disclosures about fair value measurements.
IFRS 15 – Revenue from Contracts with Customers:
Principles that an entity applies when reporting information about the nature, amount, timing and uncertainty of revenue and cash flows from a contract with a customer.
IFRS 16 – Leases:
Accounting rules in the context of leases, which can significantly impact companies' balance sheet structures.
IAS 36 – Impairment of Assets:
Procedures to ensure assets are not carried at more than their recoverable amount
Advantages and challenges
Advantages:
International comparability:
IFRS allows companies to be easily compared with international competitors as all entities use the same reporting standards.
Access to capital markets:
IFRS-compliant reporting facilitates access to global capital markets, as investors have trust in the consistency of the reports.
Transparent financial reporting:
The clear principles of IFRS enhance transparency, fostering trust among investors and other stakeholders.
Challenges:
Complexity and interpretative challenges:
In some countries, IFRS are complex and require careful interpretation, especially for complex transactions or specific business models.
High transition costs:
Transitioning from national accounting standards to IFRS can be expensive, requiring system adjustments, staff training, and possibly, external consultancy.
Limited flexibility for specific industries:
While the IFRS aim to accommodate various industries, they may lack sufficient flexibility for certain sectors, such as insurance or agriculture, which have specific requirements.
The IFRS have transformed global financial reporting by promoting comparability, transparency, and trust. However, they come with challenges, particularly in their complexity and adaptability. Understanding and applying these standards effectively is essential for businesses seeking to operate in a global market.
Tools and Resources for Translators
In general, it is advisable to rely primarily on online resources when it comes to IFRS. While printed reference materials can be useful for building foundational knowledge on the subject, the standards are constantly evolving, making it more practical to consult up-to-date websites for the latest information. It may, however, be sensible to invest in a bilingual IFRS dictionary, either in print or digital format, to have a reliable and comprehensive source of terminology at hand.
One of the first places to go to for a general overview and reliable, up-to-date information is the IFRS Foundation website under www.ifrs.org. With free registration, translators gain access to resources like the IFRS Standards Navigator, updates and alerts, training materials as well as some of the translations. While a paid subscription is required to access bound volumes and their translations in a single location, some of the translated documents can be opened without subscribing which already gives translators an insight into the tone and some of the used terminology.
Here, you will also find an official English IFRS glossary with definitions (https://www.ifrs.org/content/dam/ifrs/publications/pdf-standards/english/2022/issued/part-a/glossary.pdf?bypass=on).
Another helpful English IFRS glossary can be found under https://onlinelibrary.wiley.com/doi/pdf/10.1002/9781119208099.gloss.
The EU’s IATE (Interactive Terminology for Europe, https://iate.europa.eu/) provides standardized translations of IFRS terms in multiple languages.
The official EU EUR-Lex website (https://eur-lex.europa.eu/) offers access to official translations. Here, whole phrases can be entered into the search bar and the documents are often available in a wide range of languages.
Another good way to see terminology being correctly applied in context, is to look for illustrative financial statements under IFRS accounting standards in the respective language. These are often provided in different languages by international accounting firms like Deloitte, PwC, Ernst & Young or KPMG.
Similarly, reviewing reports from companies that comply with IFRS can help translators understand practical applications and language usage.
The Deloitte IAS plus site (https://www.iasplus.com/en/resources) provides a variety of resources like an overview of IFRS history, information about all the standards, adoption statuses around the world or global and regional organizations, and covers the activities of the IASB. It is also available in German and includes portals tailored to the United Kingdom and Canada (in English and French), each with a focus on local GAAP and jurisdiction-specific corporate reporting requirements. Their “IFRS in your pocket” series contains a comprehensive summary of the current standards and interpretations as well as a list of abbreviations. On their e-learning site (https://www.iasplus.com/de/publications/e-learning), you can find freely accessible e-learning modules for IAS and IFRS. Ernst & Young (EY) also publishes a lot of resources on their website along with annual guides that contain translated IFRS terms for specific languages.
While using online forums can also be helpful, they need to be used with caution. Translation platforms such as ProZ.com offer a wide range of forum discussions and peer-to-peer terminology resources for many different languages. However, these are not officially verified glossaries, so all information should be carefully reviewed.
Brief glossary of essential IFRS terms most commonly found in financial reports
Mandatory components in financial statements under IFRS
| Component | Definition |
|
statement of financial position at the end of the period
|
Provides an overview of an entity's assets, liabilities, and equity at a specific date, typically the end of the reporting period; fundamental to understanding an entity’s ability to meet short- and long-term obligations. |
|
statement of profit or loss and other comprehensive income for the period
|
Details an entity's financial performance over the reporting period, including revenues, expenses, profits, losses, and items of other comprehensive income (e.g., unrealized gains/losses on financial instruments); indicator of an entity’s profitability providing key insights for stakeholders. |
|
statement of changes in equity for the period
|
Outlines changes in the components of equity during the reporting period; shows how transactions impact the equity of the business, ensuring transparency in equity movements. |
|
statement of cash flows for the period
|
Shows the inflows and outflows of cash and cash equivalents during the reporting period; critical for assessing an entity’s cash management as well as its ability to generate cash for operations, investments and debt repayments. |
|
notes, comprising a summary of significant accounting policies and other explanatory notes
|
Provide details about accounting policies, judgments, assumptions, and additional information; ensures full transparency and compliance with IFRS by explaining how figures were derived. |
|
comparative information prescribed by the standard
|
Historical financial information provided for at least one prior reporting period alongside current figures, as required by IFRS, to enable users to compare performance over time; helps stakeholders analyze trends, assess consistency and evaluate the company’s financial development. |
Basic IFRS accounting terminology
| Term | Definition |
| asset | A resource controlled by an entity as a result of past events, from which future economic benefits are expected to flow to the entity; reflects the ability to generate future profit. |
| liability | A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits; crucial for assessing financial stability. |
| equity | The residual interest in the assets of the entity after deducting all its liabilities; critical for evaluating financial health and shareholder returns. |
| income | Increases in economic benefits during an accounting period in the form of inflows, enhancements of assets, or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants; key indicator of an entity’s performance. |
| expenses | Decreases in economic benefits during an accounting period in the form of outflows, depletions of assets, or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants; crucial for understanding cost structures and operational efficiency. |
| measurement | The process of determining monetary amounts at which the elements of financial statements are to be recognized and carried in the balance sheet and income statement; determines the value of financial statement measurements, influencing decision-making and comparability. |
| recognition / derecognition |
The process of identifying and recording revenue in the period in which it is earned, as outlined in IFRS 15 / The removal of previously recognized financial assets or liabilities from an entity’s statement of financial position.
Ensure that financial statements accurately reflect current resources and obligations.
|
| fair value | The amount for which an asset could be exchanged, or a liability settled in an orderly transaction between market participants at the measurement date; used extensively in asset and liability valuation under IFRS |
| impairment |
A reduction in the recoverable amount of an asset below its carrying amount; ensures assets are not overstated in the financial statement
|
| deferred tax |
Taxes that are recognized for temporary differences between the carrying amount of an asset or liability and its tax base; ensures proper accounting of tax timing differences.
|
| other comprehensive income (OCI) |
Income and expenses not included in net profit or loss, such as unrealized gains or losses on certain investments; provides a complete picture of an entity’s performance
|
| cash generating unit (CGU) | The smallest identifiable group of assets generating cash inflows that are largely independent of other assets. |
| provisions |
Liabilities of uncertain timing or amount, such as for legal disputes or warranties
|
| operating segment | A component of an entity that earns revenues and incurs expenses, and for which separate financial information is available; helps stakeholders understand the performance of different business units |
| goodwill | An intangible asset that represents the excess value paid above the fair market value for an acquired company; subject to annual impairment testing |
Best Practice for Translating Financial Reports
Translating financial reports according to IFRS requires precision, expertise, and adherence to established terminology to ensure accuracy, consistency, and compliance. Below are the best practices for translating financial reports.
Developing expertise and keeping up with changes
Translators must familiarize themselves with the IFRS as well as the accounting frameworks of both the source and target languages. Translators’ associations for example often offer courses and resources tailored specifically to financial translations into the respective language.
As IFRS and accounting standards evolve it is important to stay informed about updates and new requirements. Glossaries should also be regularly revised as standards or practices change.
Maintaining consistency
It is advisable to use a terminology management system or a glossary to ensure consistent translations across documents and over time. Additionally, translators should make sure to refer to official glossaries and documentation (e.g., the IASB's IFRS glossary). For stylistic consistency, they must make sure to adhere to the formatting, tone and style of the source document.
Considering the target audience and legal contexts
The style of a translation depends on whether the document is intended for investors, regulators, or internal stakeholders. It is also important to understand the legal and financial regulations in the target market, as financial reporting requirements can vary. Literal translations of legal terms should be avoided as some terms have a unique legal meaning. In those cases, it is better to choose a functional equivalent.
Functional equivalents, notes and explanations
Financial concepts that are specific to a certain country and cannot be translated literally should be conveyed by using culturally and linguistically equivalent terms while preserving their technical intent. Consider how local practices may influence the interpretation of the translation. In order to bridge the gap between IFRS concepts and local understanding, it might be necessary to add supplementary notes or reference official documents.
Quality assurance
Proofreading and reviewing the translation before delivery is crucial. Translators should check the target for language, consistency, formatting, and technical errors and pay special attention to the different formatting of numbers, dates and currencies (e.g., decimal separators, currency symbols). The numerical and date formats must align with the conventions of the target language.
Key standards and concepts
It is important to know the standards and concepts that are most frequently applied, like IFRS 9 (Financial Instruments), IFRS 15 (Revenue from Contracts with Customers), or IFRS 16 (Leases). Some standards or aspects of the framework have particular relevance or are tailored to specific sectors and it is crucial to be aware of them while translating (e. g., IFRS 15 for technology and media companies or IAS 36 for manufacturing industries). Translators should also make sure key financial terms like EBITDA or net income are translated correctly and consistently, and add explanations where necessary.
Ethical and Confidentiality Practices
Finally, financial reports often contain sensitive data and require adherence to strict confidentiality protocols. The translation must be objective without altering the tone or implications of the source content.
Challenges for translators in navigating IFRS terminology and concepts
Translating financial texts involves a range of challenges from specialist terminology to cultural and legal nuances, context dependency and keeping up with dynamic developments to stylistic demands like clarity and understandability.
IFRS rules are often abstract and principles-based, allowing for interpretative flexibility that requires contextual understanding. Moreover, frequent updates to IFRS standards require translators to stay informed. Given the legal and economic implications of financial texts, translators bear the responsibility to ensure accuracy, as errors can result in compliance issues or legal consequences.
Examples
Linguistic nuances under IFRS
| disclosure | presentation |
| Additional information provided in the notes to the financial statement to explain certain items and provide stakeholders with additional context for informed decision-making. Disclosures ensure transparency and provide context needed to interpret the numbers in a financial statement. |
The manner in which financial information is displayed in financial statements, including layout, format, and grouping. Proper presentation ensures clarity, comparability and accessibility of financial information for diverse stakeholders. |
| recognition | measurement |
| The process of including an item in the financial statements when it meets the criteria for recognition as an asset, liability, equity, income, or expense. |
The process of determining the monetary amounts at which items are recognized and carried. It involves assigning a value to an asset, liability, equity, income, or expense at the time of recognition and subsequently. |
Translation of IFRS-specific terms without direct equivalent in the target language
Case 1: “Fair value”
“Fair value” is a key element of the IFRS, defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A literal or inaccurate translation would not sound idiomatic and reflect the intended meaning, but cause confusion. The official IFRS-compliant translation into German for example is “beizulegender Zeitwert”, which accurately reflects the principle of valuation based on market conditions, although it has a different literal meaning.
Translation example:
EN: The fair value measurement framework described in this IFRS applies to both initial and subsequent measurement if fair value is required or permitted by other IFRSs.
DE: Das in diesem IFRS beschriebene Rahmenkonzept der Bewertung zum beizulegenden Zeitwert ist auf die Bewertung beim erstmaligen Ansatz und die Folgebewertung anzuwenden, falls der beizulegende Zeitwert nach anderen IFRS vorgeschrieben oder gestattet ist.
Case 2: “Impairment”
Under IFRS, “impairment” refers to the reduction in value of an asset when its recoverable amount falls below its carrying amount. This technical term demands precise translation, as it represents a core IFRS concept. It must be very precisely distinguished from similar concepts like “depreciation” or “amortization”. Again, choosing a literal translation for an ambiguous term like “impairment” could cause significant errors in the translation. While, in German financial texts “impairment” is often left in English, the preferred official translation is “Wertminderung”, which shows the importance of consulting official translated documents or illustrative financial statements in the respective language.
Translation example:
EN: Goodwill is not amortized, but is tested for impairment.
DE: Der Geschäfts- und Firmenwert wird nicht planmäßig abgeschrieben, sondern durch einen Wertminderungstest überprüft.