Accounting As the Language of Business?

Publication: Research - peer-reviewPaper

The global financial crisis that started in 2007 demonstred not only a collapse of the financial system but also a failure in financial communication. The analytical substance taken for granted in accounting information turned out to be questionable. Published numbers from financial statements in annual reports of banks did not communicate or signal potential problems ahead. Both the academic disciplines of accounting and economics have been criticised together with banking and finance industries since the crisis.
Accounting is said to be the language of business but its meaning or message, especially in cash flow statements of banks, went unnoticed or was not understood or could not be interpreted. The language of business through accounting numbers seemed to cease to exist in the crisis. Trust disappeared and financial communication could not be based on accounting numbers for interpreting operational performance.
The lack of common language to communicate between business partners when it was needed the most, in the midst of the financial crisis, has not been addressed enough in accounting research. This study takes two approaches towards that problem. First, by looking at the accounting numbers, pre- and post-crisis, in banks, focusing on cash flow and using basic textbook approach.
Second, interpreting basic aspects of financial communication that can be draw from the signalling of the numbers in the statements. This can be seen as an analysis of the utterance (accounting numbers) on the one hand and the language system (accounting rules) on the other, where we posit that language comprises both the utterance and the system. Resulting in lack of clear message that could be established, neither from the numbers nor from the rules. This conclusion has potential to provide examples explaining the collapsed communication that needs to be addressed further.
Contradicting streams are found in the financial communication after the crisis. One, based on the accounting numbers, where new bank regulation is implemented for increased liquidity and stable funding, which assume reported financial numbers to be reliable and trusted. The other, in the standard accounting rules for reporting cash flow of banks that were implemented decades ago are still in place unchanged after the crisis. According to basic theory in finance and accounting these numbers are presented to measure liquidity and show sources and uses of funding, but the resulting reports from banks are not used in practice. This contradiction demands more research.
This study uses analysis of the financial statements in the main Swedish banks. The negative operative flow of money presented for almost ten years did not signal any financial problems even though traditional textbook would tell so. Financing or funding of banks has been put in regulatory focus, without mentioning these cash flow statements. Still they were made the standard accounting rule framework exactly for that purpose many decades ago. Cash flow numbers have also been seen as indicators of liquidity, in firms – but for banks these same numbers have not been used. In the new rulebook for banks, Basel III, there is no mention of cash flow statements.
The study shows an example of how financial communication with accounting numbers from banks is far from a mutual understanding. It illustrates the need to reconstruct the accounting regime in order to have a common business language that can effectively communicate the operational performance of banks and other financial institutions.

Publication information

Original languageEnglish
Publication date2015
Number of pages16
StatePublished - 2015
Event - Stockholm, Sweden


ConferenceIPA Conference 2015
LocationStockholm Business School
Internet address

Bibliographical note

CBS Library does not have access to the material


  • Financial accounting, Financial communication, Financial crisis , Banks, Cash flow numbers

ID: 44352048