ABSTRACT: We report in this paper, the results of an investigation of the effect of national culture on the interpretation of “in context” verbal probability expressions. We develop hypotheses with regard to the effect that the interaction of the accounting value of conservatism and the context in which probability expressions are used will have on accountants' interpretations of those expressions. We elicit information from U.S. and German professional accountants to test three hypotheses. We find significant differences between U.S. and German accountants in the interpretation of several verbal probability expressions. In most cases, the German accountants are more conservative; for example, Germans exhibit a conservative bias in their interpretation of the word “probable” when used across a variety of accounting contexts. The study's results suggest that culture influences the interpretation of verbal probability expressions used in accounting standards in a systematic and predictable manner. This phenomenon raises the question of whether a common set of accounting standards can be applied consistently across cultures.
