We examine whether and how language barriers influence a country’s decision to adopt International Financial Reporting Standards (IFRS). Our findings reveal that as the distance between a country’s official language and English (i.e., linguistic distance) increases, the likelihood and speed of a country adopting IFRS decrease. Our evidence is consistent with the notion that language barriers impose significant information costs on preparers and users of financial reporting, making IFRS costlier to adopt for countries with severe language barriers. In further analysis, we find that such information costs materialize when these countries eventually adopt IFRS. Specifically, firms in countries with the most severe language barriers experience a worsened post-adoption information environment, as evidenced by increased analyst forecast errors and widened bid-ask spreads. Overall our study suggests that language barriers impede achievement of international accounting harmonization by increasing the costs associated with adopting, understanding, and applying IFRS.

The IASB asserts that global stakeholder participation in the standard‐setting process is critical for developing and maintaining high‐quality accounting standards. However, the myriad languages used in countries that apply IFRS may impede this participation. We find that the IASB is less likely to receive comment letters from stakeholders in countries with languages that are linguistically distant from English. We also find that comment letters from more linguistically distant stakeholders are less likely to be quoted in IASB staff‐prepared comment letter summaries, suggesting that they have less influence in the redeliberation process. Path analyses show that this result arises from language frictions being associated with reduced writing quality and originality. We also find that language frictions prevent participation in other standard‐setting communication channels. Collectively, language frictions appear to impede the IASB's efforts to equitably obtain and consider valuable global feedback.