International Accounting : Europe
The blog article highlight’s the following points:
- Understand how financial reporting is regulated and enforced in five European countries: France, Germany, the Czech Republic, the Netherlands, and the U.K.
- Describe the key similarities and differences between the accounting systems of these five countries.
- Identify the use of International Financial Reporting Standards at the levels of the individual company and the consolidated financial statements in these five countries.
- Describe the audit-oversight mechanisms in these five countries.
IFRS in the European Union
- Starting in 2005, all EU-listed companies must follow IFRS in their consolidated financial statements.
- Generally, IFRS consolidated statements are permitted for non-listed companies.
- Requirements for individual company financial statements vary – IFRS may be required, allowed, or prohibited.
1. IFRS are based on fair presentation principles
2. IFRS may be overridden in rare circumstances to achieve fair presentation
3. Accounting measurements
- Business combinations – purchase accounting
- Goodwill – annual impairments test
- Investments in associates – equity method
- Translation of financial statements of foreign operations – functional currency concept
- Assets valued at historical cost or fair value
- Research costs – expensed; development costs – capitalized
- LIFO not allowed
- Finance leases – capitalized; operating leases – expensed
- Provisions – recognized when probable and estimable
- Deferred taxes – recognized in full, using the liability method, for temporary differences between the carrying amount and tax base
FRANCE
Overview
1. “The Plan” – national uniform chart of accounts (national accounting code)
- Objectives and principles of financial reporting
- Definitions of elements
- Recognition and valuation rules
- Standardized chart of accounts
- Model financial statements
2. Other influences on French accounting rules
- Commercial legislation (Code de Commerce)
- Tax laws
Accounting regulation and enforcement
1. CNC – National Accounting Board
- Keeps plan current
- Makes rulings and recommendations on accounting issues
2. CRC – Accounting Regulation Committee
- Converts CNC rulings and recommendations into binding regulations
3. ANC – National Accounting Authority
- Will replace CNC and CRC as the national standard setter
4. AMF – Financial Markets Authority
5. OEC – Institute of Public Accountants
- Represents the accounting profession
- Members prepare financial statements, and provide tax, information systems, and management advisory services
- Supervises securities markets
6. CNCC – National Institute of Statutory Auditors
- Members audit and give an opinion on financial statements
- Must report criminal acts to the High Council of External Auditors
- Substantial overlap in OEC and CNCC membership
- Statutory auditors not allowed to provide accounting services to the same client
- AMF oversees audits of listed companies, but relies on a committee of the CNCC to conduct audit-quality reviews
Unusual features of French financial reporting
- Must report results of environmental activities
- Reports aimed at preventing bankruptcies
- Social report
GERMANY
Overview
1. Creditor protection
- Conservative balance sheet valuations
- Reserves as protection against unforeseen risks and insolvency
- Accounting is designed to compute a prudent income amount that leaves creditors unharmed after distributions are made to owner
2. Influence of tax law
- Determination principle: taxable income is determined by what is booked in a company’s financial records
3. Reliance on statutes and court decisions
Accounting regulation and enforcement
1. German Commercial Code (HGB)
- Applies to all business entities
2. German Accounting Standards Board
- Develops recommendations for consolidated financial statements
3. Financial Reporting Enforcement Panel
- Enforces compliance with German financial reporting requirements and IFRS by listed companies
4. Chamber of Accountants
- Oversees WPs (“enterprise examiners”)
Unusual features of German financial reporting
1. Auditor’s private report to board of directors and supervisory board on company’s future prospects.
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