Connotative meaning and the challenges of international financial reporting/auditing standards convergence: the case of Taiwan's Statement of Auditing Standards Number 33

Translating international standards into local languages is a big obstacle to the global convergence of financial reporting and auditing practices. This study uses Taiwan's promulgation of Statements on Auditing Standards No. 33 to examine an important component of this challenge: the need for local standard setters to anticipate how domestic constituents would interpret local words used to translate original English terms. Data collected from samples of Taiwanese auditors, public prosecutors, and investors revealed that as compared to the auditors, financial statement users ascribe different connotative meanings to a Chinese term that was originally proposed, and one that was chosen as its replacement after objections from the accounting profession. Further, the words' connotative meanings significantly mediated the link between the local term and financial statement users' judgments about auditor legal liability. Significantly, the connotative meaning that financial statement users ascribed to the replacement term was associated with a higher level of ascribed auditor liability, such that in successfully pushing for a wording change, members of Taiwan's accounting profession may have increased, rather than reduced, their exposure to liability from audited financial statements. These findings have a number of implications for standard setters, the standard setting process, and accounting firms.