International%20Accounting,%207/e

1
International Accounting, 7/e

• Frederick D.S. Choi
• Gary K. Meek

Chapter 3 Comparative
Accounting Europe
2
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.

3
(No Transcript)
4
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.

5
(No Transcript)
6
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

7
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

8
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

9
France (contin)

• Unusual features of French financial reporting
• Must report results of environmental activities
• Reports aimed at preventing bankruptcies
• Social report

10
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 companys
  financial records
• Reliance on statutes and court decisions

11
Germany (contin)

• Accounting regulation and enforcement
• 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
• Auditors private report to board of directors
  and supervisory board on companys future
  prospects

12
Czech Republic

• Overview
• Accounting changed directions several times in
  20th century, reflecting the countrys political
  history
• Until end of World War II German influences
• After World War II Soviet influences
• After 1989 EU influences (market orientation)
• Accounting regulation and enforcement
• 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

13
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

14
The Netherlands (contin)

• Accounting regulation and enforcement
• 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

15
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

16
United Kingdom (contin)

• Accounting regulation and enforcement
• 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

17
(No Transcript)
18
Other Chapter Exhibits
19
Other Chapter Exhibits (contin)
20
Other Chapter Exhibits (contin)