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Accounting reports as means of communication: A research note on the

linguistic approach to accounting

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 Nigerian Journal of Accounting and Finance, Volume 5, Number 1, June 2013

ACCOUNTING REPORTS AS MEANS OF COMMUNICATION: A RESEARCH NOTE

ON THE LINGUISTIC APPROACH TO ACCOUNTING

By

AMINU, Hassan, Ph.D

University Alkhobar, Kingdom of Saudi Arabia
Emails: ahassan@pmu.edu.sa; ammhass@gmail.com

Abstract
Linguistic approach to accounting theory is characterized by dearth of literature; especially
accounting-related write-ups. Greater percentage of references in the area is borrowed from
linguistics. This paper attempts to rekindle accounting-related research in this area. The paper
uses normative deduction methodology by relying on the assumptions underlying four linguistic
theories (namely, language theory, syntactic theory, semantic theory and pragmatic theory) and
one accounting theory (namely information theory) to deduce a proposed theoretical
underpinning to the main role of accounting (i.e. reporting accounting information to the
relevant users). Thus, the paper proposes that accounting reports consist of words and figures
structured to form of sentences, paragraphs, statements and accounts for the purpose 0f
conveying neutral accounting information to the users who are expected to utilize the
information in making effective decisions in practical situations. The author concedes that the
proposition is subject to further debate by researchers in the area of Accounting Theory.

Key words: Language Theory, Normative Deduction, Accounting Information, Users.

INTRODUCTION Accounting as a means of communication is

Accounting is concerned with
communication of financial and non-
financial information to the relevant users.
For users of accounting information to
understand and utilize the information
effectively, such information has to be
channeled to them through an effective
means of communication. A means of
communication is said to be effective if the
intended receiver interprets and understands
the message communicated. The intended
receivers of accounting messages such as
management, employees, investors,
Government agencies, general public, use
the encoded information contained in the
accounting reports for various purposes,
namely investment decisions, performance
evaluation, tax assessment etc.
regarded as a language (see Graham, 2013;
Bloomfield, 2008). Within the parlance of
accounting practice it is commonly referred
to as language of business (Hendriksen and
Van Breda, 2001; Bloomfield, 2008).
Although, Accounting is often considered as
a process of communication, but more
precisely it is a means of communication
(Mattessich, 1964; Salvary, 2005). The
justifiable basis of this assertion is that
communication is implemented through
various means; for example, by means of
words (written or oral); by means of sound
(sound of a music, ringing of a bell or
blowing of whistle) or by means of
movement. Consequently, a language,
whether it is in written or spoken form, is
one of the most prominent means of
communication in this world. This leads to

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 Nigerian Journal of Accounting and Finance, Volume 5, Number 1, June 2013
the conclusion that language is a vital subset
of communication, hence communication is
said to be broader than language.
For accounting to be explained within the
realm of language theory, the term language
has to be distinguished from
communication. Miller (1996) posits that the
purpose of communication is to “affect with
intent”. Conversely, language is a neutral
means of conveying message (Salvary,
2005). Therefore, the neutrality of
information in the context of preparing and
presenting accounting reports, in the form of
written words and figures, to various
divergent users is consistent with the
stakeholder theory of financial reporting.
Stakeholder theory proposes that the
reporting entity should prepare and present
accounting information objectively, without
bias, while taking cognizance of the interests
of all conceivable stakeholders (freeman,
1984; Fassi, 2009). The Implication of
neutrality is portrayed by the terms
„objectivity‟, absence of „bias‟ and
cognizance of interests of all „conceivable
stakeholders‟. Although, management
accounting reports are exclusively prepared
for managements‟ consumption, their
wordings should not be encoded with the
intent to affect for the assumption of
neutrality to operate.
Accordingly, the aim of this paper is to
logically infer from the relevant assumptions
of language theory, syntactic theory,
semantic theory, pragmatic theory and
information theory, how words are to be
neutrally structured to convey messages in
the form of resourceful accounting
information, to the users.
The paper is divided into five sections.
Section one deals with back ground of the
study. Section two is concerned with review
of relevant literature. Section three discusses
93
the methodology employed for the paper.
Section four deals with theoretical
discussions, and, finally, section five focuses
on summary and conclusion.
LITERATURE REVIEW
Vocabulary of Accounting
Language could be described as a system of
communication that is made up of several
words. Majority of the words are in most
cases unique to that particular language
(Vandamme, 1976). Therefore, accounting
as a language of business has its own
vocabulary. Hendriksen and Van Breda
(2001) posit that assets, liabilities, expenses,
accounts, debit, credit, ledger, journal, trial
balance, debenture, debtors, creditors and
many more, could be traced back to the
period of renaissance. These words and
many others are particularly unique to
accounting. Consequently, accounting as a
language of business consists of set of words
used to transmit accounting information,
structuring such words to form phrases,
sentences, paragraphs, statements and
accounts. Apparently, this points to the
appropriateness of approaching accounting
in the context of language theory.
Language Approach to Accounting
Theory
Undoubtedly, the purpose of using
accounting as a language is to convey
information to the relevant users. In this
regard, therefore, language approach to
accounting could be traced to information
theory – which is one of the three roots of
accounting theory (Glautia and Underdown,
1997). Information theory advocates that
information should be regarded as one of the
most important organizational resources.
Therefore, it follows that accounting
information ought to be produced and
communicated through an efficient and
neutral means to facilitate effective decision
making by the users of the information.
 Nigerian Journal of Accounting and Finance, Volume 5, Number 1, June 2013
Effective usage of accounting information
represents reliance on the information to
make decisions that will yield benefits to the
users (Kabir, 2006).
Cherry (1961) defines language as a
formation of meaningful words, which is an
outcome of continual play of governing
conditions and rules. Language theory
involves the systematization of language as
a means of communication under the
operations of defined rules and conditions to
facilitate successful communication and
interpretation of neutral messages (Oliver,
1974; Vandamme, 1976; Salvary, 2005).
Salvary (2005) argues that there are three
sub-theories of language theory, namely
phonological theory, syntactic theory and
semantic theory. He further claims that only
syntactic and semantic theories are relevant
to accounting. However, Hendriksen and
Van Breda (2006) as well as Lefley (2007)
add a third sub-theory – Pragmatic Theory –
to the two identified by Salvary (2005).
Syntactic Theory
Syntax is the grammatical structure with
which words are used to form sentences,
paragraphs and textual documents. Ullmann
(1957) describes syntax as the science of
words relations. According to Postal (1973)
the rules of syntax define the set of
sentences of a language. They specify what
sentences are and what are not.
From the aforementioned discussions, one
may infer that syntactic theory represents the
science of structuring words relations to
form sentences and paragraphs in a textual
document under the working of applicable
rules. Therefore, syntactic theory in the
context of accounting involves the
structuring of set of accounting words
(example, balance sheet, assets, liabilities,
bad debt, provision for depreciation,
amortization, conservatism, good will and so
on) and figures/numbers under the
systematic operation of prescribed formats
94
and grammatical rules to convey accounting
information to the users.
Katz (1966) specifies four components of
syntactic descriptions. These are: One, set of
words describing the situation (for example,
cash, inventory, accounts payable, accounts
receivable; debenture, share capital,
retained earnings); two, order of the words
(for example, presenting assets in the
balance sheet by order of liquidity); three,
specific group of words (for example,
intangible assets such as goodwill, patent
right, copy right); four, the syntactic
categories to which each of the words
belongs (for example, income category may
consists of sales revenue interest income,
rental income and commission received).
Specifically, the implication of syntactic
theory for accounting could be seen in the
following scenario. Firstly, financial
statements are prepared and presented in a
structured form. For financial accounting
such structures are prescribed by the
combination of legal pronouncements (for
example CAMA 1990 and NASB act in
Nigeria) and grammatically stipulated words
relations. Secondly, Salvary, (2005)
contends that the application of syntactic
theory to accounting could be seen in the
structure of the financial statements which
ensures certain message transmission
expected to be decoded by the users, or their
advisors. Note that expectation of the users
to decode the message transmitted is
necessitated by the neutrality of such
message.
Semantic Theory
The semantics aspect of a language relates
to the meaning behind the structured words.
According to Katz (1966), meaning is drawn
from the structured words based on the
ability to interpret many statements. He
further argues that “syntactic theory stops at
 Nigerian Journal of Accounting and Finance, Volume 5, Number 1, June 2013
the level of words”. This implies that
semantic theory begins to operate where the
syntactic theory stops. Therefore, semantic
theory relates to the art of drawing meanings
from the syntactic structure of the words
(Salvary, 2005). Along the same line,
Hendriksen and Van Breda (2001) posit that
semantic theory of accounting represents the
study of meanings of messages transmitted
via various accounting reports.
The composition of syntactically structured
words is essentially a function of the
meanings of its parts. Katz (1966) refers to
compositionality as the traditional rule of
semantics. In the same vain, Lyons (1977)
contends that in order to derive the logical
meaning of a whole composition from the
meanings of its parts both dictionary and
projection rules are required. While
dictionary rule provides the meaning of each
word, projection rule prescribes how
individual words could be combined in a
reading that will provide the meaning of a
complete composition.
From the foregoing discussion, the
following implications of semantic modeling
could be related to accounting. First, the
semantic aspect of financial accounting is
present in the relationships among
individual items (for example turn over,
gross profit and net profit relationships). The
meanings of these relationships are to be
drawn by the users or their professional
advisors. Second, the meaning of the
massages transmitted via accounting reports
represents the interpretation assigned thereto
by the users or their advisors. Third, proper
understanding of the meaning of accounting
information requires proper appreciation of
the semantic rules.
Pragmatic Theory
Hendriksen and Van Breda (2001) describe
pragmatic theory as a postulate or set of
postulstes having to do with the question:
95
what effect does the composition of words
have on the readers or listeners of a
language? Note that the implication of
pragmatic theory for accounting theory will
be clearer with adequate discussion of the
concept, pragmatism. Pragmatism deals
with solving problems in a practical and
sensible way. Similarly, Lefley (2006)
argues that the idea of philosophical
pragmatism is about obtaining the desired
result in a practical application. Moreover,
Lefley (2006) extends this position to the
utilitarian argument: that „what matters is
what has utility to the individual users‟.
Therefore, pragmatism stresses on the
derivation of value/utility in a practical
usage. It is in this same line of argument that
Hendriksen and Van Breda (2001) posit that
pragmatic theory of accounting emphasizes
on the usefulness of accounting information
to the relevant users.
Consequently, from the discussion of
pragmatic theory, so far, it can be inferred
that pragmatic approach goes beyond the
meaning of a language. It extends to
practical implementations of meanings
derived from interpretations of a message
through decision making. Pragmatic theory
has the following implications for
accounting: one, practical application of the
interpreted meanings of accounting
information for the purpose of actual
decision by the users; two, the usefulness of
the information as a resource for making
actual decision. That is to say the accounting
information upon which the decision is
based should produce the desired outcome.
Information Theory
Relaying information is the basic function of
Accounting (Babich, 1975), and information
theory is borrowed from the field of
electrical engineering where it was
originally developed (Babich, 1975). In the
context of electrical engineering the theory
 Nigerian Journal of Accounting and Finance, Volume 5, Number 1, June 2013
is employed to measure the extent and
usefulness of information contained in a
message. Therefore, any information system
is expected to receive input in the form of
unprocessed data, processes the data and
presents the outcome as information. A
successful application of this procedure
produces useful and meaningful information
considered as a resource to the users of the
information.
METHODOLOGY
This section of the paper focuses on
methodological approach to the study. In
this regard, the paper uses normative
approach as a special case of deductive logic
(Ijiri, 1975; Watts and Zimmerman, 1986) to
derive what the author called „General
Normative Hypothesis of Accounting
Language’ from the convergence of the
relevant assumptions of language theory,
syntactic theory, semantic theory, pragmatic
theory and information theory. In support of
the applicability of this methodology, Ijiri
(1975) observes that accounting as language
must be based on certain assumptions that
ought to be normatively developed.
Regarding the appropriateness the adopted
methodology, Jhingan (1997) contends that
deductive method is used to derive new
conclusions and propositions from
fundamental assumptions established by
other laws, principles or theories.
Essentially, normative approach involves the
use of assumptions to derive new theoretical
proposition. Therefore, the soundness of
normative theory is judged by critically
scrutinizing the reasonableness of its
assumptions (Hendriksen and Van Breda,
2001). In a similar context, Glautier and
Underdown (1997) argue that normative
accounting theory prescribes practice of
accounting. They further contend that a
deductive approach to the formulation of
accounting theory makes possible the
96
construction of normative theories in
accounting.
Moreover, the methodological approach to
the paper is non-empirical, because the
researcher relies exclusively on the relevant
assumptions of language theory, syntactic
theory, semantic theory, pragmatic theory
and information theory.
DISCUSSIONS
This section is about synthesis and analysis
of relevant basic assumptions behind
language theory, syntactic theory, semantic
theory, pragmatic theory and information
theory with a view to constructing a general
proposition regarding the structuring and
communication of information via
accounting reports. It also on the effective
usage of the information conveyed.
Information theory, as one of the basic roots
of accounting theory, operates under the
assumption that information is an
organizational resource. Hence, the
derivation of the assumption that accounting
information is a resource to the users of the
information. That is to say, it is produced in
such a way that it facilitates effective
decision making by all relevant
stakeholders.
The two relevant basic assumption of
language theory in the context of linguistics
study are that: (1) Language is a means of
communication and not a process of
communication and (2) language is a neutral
means of communication. Consequently the
second assumption of „General Normative
Hypothesis of Accounting Language’ is
derived from the two stated assumptions of
language theory. This assumption states that
Accounting is a neutral means of
communicating.
From the syntactic theory, the author derives
the assumption that accounting information
 Nigerian Journal of Accounting and Finance, Volume 5, Number 1, June 2013
is structured to form sentences paragraphs,
statements and accounts having regard to
the observance of grammatical rules and
formats prescribed by either an act, e.g.
CAMA 90, NASB act etc, or the management
(in the case of management accounting
reports).
However, on the basis of semantic theory,
which is about drawing meanings from the
interpretations of the message transmitted, it
is assumed that the users of accounting
information have the adequate ability to
interpret and assign meanings to the
information transmitted or they can rely on
the advice of experts.
Finally, Pragmatic theory informs the
derivation of the assumption that users will
rely on the meanings assigned to the
resourceful accounting information to make
practical decisions or solve practical
problems.
CONCLUSION
This paper attempts to construct a general
tentative proposition about the nature
accounting reports as means
communicating accounting information,
while relying on normative deduction from
the relevant assumptions of information
theory, language theory, syntactic theory,
semantic theory and pragmatic theory.
Conclusively, the paper derives a
proposition called „General Normative
Hypothesis of Accounting Language’
which advocates the view that accounting
reports consist of words and figures
structured to form of sentences, paragraphs,
statements and accounts for the purpose of
conveying neutral accounting information to
the users who are expected to utilize the
information in making effective decisions in
practical situations. The basic normative
assumptions of this hypothesis are:
1. Accounting information is a resource
to the users of the information, i.e. it
is produced in such a way that it
facilitates effective decision making
by all relevant stakeholders.
2. Accounting is a neutral means of
communication.
3. Accounting information is structured
to form sentences paragraphs,
statements and accounts having
regard to the observance of
grammatical rules and formats. The
formats are prescribed by either an
act, e.g. CAMA 90, NASB act etc, or
the management.
4. The users of accounting information
have the adequate ability to interpret
and assign meanings to the
information transmitted or they can
rely on the advice of experts.
5. Users will rely on the meanings
assigned to the resourceful
accounting information to make
practical decisions or solve practical
problems.
The author submit that the main contribution
of this paper include its depiction of
of accounting reports as means of
communication and not processes of
commutation; the exposition of the fact that
accounting is a neutral means of
communication and the use of normative
deduction to develop the main proposition of
the paper supported by five major
assumptions. Intuitively, the paper seeks to
rekindle academic debates concerning the
view that language theory of accounting is
one of the most promising theories of
accounting that can be used to underpin
research in financial reporting (see
Mattessich, 1964).
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 Nigerian Journal of Accounting and Finance, Volume 5, Number 1, June 2013

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