International Accounting:Comparative Accounting

International Accounting, 7/e
Frederick D.S. Choi
Gary K. Meek
Chapter 3:
Comparative Accounting:
Europe
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Learning Objectives
 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.

IFRS (contin)
 IFRS are based on fair presentation principles
 IFRS may be overridden in rare circumstances to achieve fair
presentation
 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
 “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
 Other influences on French accounting rules
 Commercial legislation (Code de Commerce)
 Tax laws

France (contin)
 Accounting regulation and enforcement
 CNC – National Accounting Board
 Keeps plan current
 Makes rulings and recommendations on accounting issues
 CRC – Accounting Regulation Committee
 Converts CNC rulings and recommendations into binding regulations
 ANC – National Accounting Authority
 Will replace CNC and CRC as the national standard setter
 AMF – Financial Markets Authority
 Supervises securities markets
 OEC – Institute of Public Accountants
 Represents the accounting profession
 Members prepare financial statements, and provide tax, information systems, and management
advisory services
 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

France (contin)
 Unusual features of French financial reporting
 Must report results of environmental activities
 Reports aimed at preventing bankruptcies
 Social report

Germany
 Overview
 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
owners
 Influence of tax law
 Determination principle: taxable income is determined by
what is booked in a company’s financial records
 Reliance on statutes and court decisions

Germany (contin)
 German Commercial Code (HGB)
 Applies to all business entities
 German Accounting Standards Board
 Develops recommendations for consolidated financial statements
 Financial Reporting Enforcement Panel
 Enforces compliance with German financial reporting requirements
and IFRS by listed companies
 Chamber of Accountants
 Oversees WPs (“enterprise examiners”)
 Unusual features of German financial reporting
 Auditor’s private report to board of directors and supervisory
board on company’s future prospects

Czech Republic
 Overview
 Accounting changed directions several times in 20th century, reflecting the
country’s political history
 Until end of World War II – German influences
 After World War II – Soviet influences
 After 1989 – EU influences (market orientation)
 Ministry of Finance
 Oversees Commercial Code (modeled on German commercial law)
 Oversees Accountancy Act (based on EU directives)
 Chamber of Auditors
 Oversees auditors
 Unusual features of Czech financial reporting
 Form over substance still applies in some cases
 Still implementing accounting practices consistent with EU directives and
IFRS

The Netherlands
 Overview
 Accounting paradoxes
 Permissive requirements, but high professional practice
standards
 Code law country whose accounting is oriented toward fair
presentation
 Fair presentation orientation developed without a strong stock
market
 Other influences on Dutch accounting
 U.K. and U.S. as much as continental European countries
 Accounting profession
 Business economics (microeconomics approach)
 IASB

The Netherlands (contin)
 Company law – Act on Annual Financial Statements
 Dutch Accounting Standards Board
 Develops guidelines on generally acceptable accounting standards
 Netherlands Authority for the Financial Markets
 Supervises operations of securities markets
 Oversees financial reporting and auditing of listed companies
 Enterprise Chamber
 Enforces compliance with accounting requirements
 NIvRA
 Oversees auditing profession
 Unusual features of Dutch financial reporting
 Financial statements may be in Dutch, French, German, or English
 Other than consolidated financial statements of Dutch listed companies, financial
statements may be based on Dutch guidelines, IFRS, or a combination
 Flexible accounting measurements
 Current values are permitted for tangible assets
 Opportunities for income smoothing

United Kingdom
 Overview
 Legacy of British accounting
 First country to develop an accountancy profession
 Fair presentation (true and fair view)
 Exported British accounting around the world

United Kingdom (contin)
 Companies Act
 Broad financial reporting framework
 Financial Reporting Council oversees:
 Accounting Standards Board
 Issues Financial Reporting Standards (FRSs)
 UITF clarifies FRSs
 Auditing Practices Board
 Issues auditing standards
 Financial Reporting Review Panel
 Enforces compliance with FRSs
 Professional Oversight Board
 Oversees auditing profession
 Audit Inspection Unit
 Monitors the audit of listed companies
 Accountancy Investigation and Discipline Board
 Investigates and disciplines accountants for professional misconduct
 Unusual features of British accounting
 True and fair override

Other Chapter Exhibits

Other Chapter Exhibits (contin)

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International Accounting:Comparative Accounting

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