International Accounting, 6/e
Frederick D.S. Choi
Gary K. Meek
Chapter 3:
Comparative Accounting: Europe
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Learning Objectives
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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.
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IFRS in the European Union
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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.
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IFRS (contin)
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IFRS are based on fair presentation principles
IFRS may be overridden in rare circumstances to achieve fair
presentation
Accounting measurements
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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
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France
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Overview
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“The Plan” – national uniform chart of accounts
(national accounting code)
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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
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Commercial legislation (Code de Commerce)
Tax laws
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France (contin)
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Accounting regulation and enforcement
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CNC – National Accounting Board
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CRC – Accounting Regulation Committee
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Supervises securities markets
OEC – Institute of Public Accountants
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Converts CNC rulings and recommendations into binding regulations
AMF – Financial Markets Authority
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Keeps plan current
Makes rulings and recommendations on accounting issues
Represents the accounting profession
Members prepare financial statements, and provide tax, information systems, and
management advisory services
CNCC – National Institute of Statutory Auditors
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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
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France (contin)
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Unusual features of French financial reporting
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Must report results of environmental activities
Reports aimed at preventing bankruptcies
Social report
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Germany
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Overview
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Creditor protection
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Influence of tax law
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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
Determination principle: taxable income is determined by
what is booked in a company’s financial records
Reliance on statutes and court decisions
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Germany (contin)
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Accounting regulation and enforcement
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German Commercial Code (HGB)
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German Accounting Standards Board
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Enforces compliance with German financial reporting requirements
and IFRS by listed companies
Chamber of Accountants
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Develops recommendations for consolidated financial statements
Financial Reporting Enforcement Panel
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Applies to all business entities
Oversees WPs (“enterprise examiners”)
Unusual features of German financial reporting
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Auditor’s private report to board of directors and supervisory
board on company’s future prospects
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Czech Republic
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Overview
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Accounting changed directions several times in 20th century, reflecting the
country’s political history
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Accounting regulation and enforcement
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Ministry of Finance
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Oversees Commercial Code (modeled on German commercial law)
Oversees Accountancy Act (based on EU directives)
Chamber of Auditors
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Until end of World War II – German influences
After World War II – Soviet influences
After 1989 – EU influences (market orientation)
Oversees auditors
Unusual features of Czech financial reporting
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Form over substance still applies in some cases
Still implementing accounting practices consistent with EU directives and
IFRS
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The Netherlands
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Overview
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Accounting paradoxes
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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
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U.K. and U.S. as much as continental European countries
Accounting profession
Business economics (microeconomics)
IASB
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The Netherlands (contin)
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Accounting regulation and enforcement
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Company law – Act on Annual Financial Statements
Dutch Accounting Standards Board
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Enterprise Chamber
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Enforces compliance with accounting requirements
NIvRA
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Develops guidelines on generally acceptable accounting standards
Oversees auditing profession
Unusual features of Dutch financial reporting
 Financial statements may be in Dutch, French, German, or English
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Other than consolidated financial statements of Dutch listed companies,
financial statements may be based on Dutch guidelines, IFRS, or a
combination
Flexible accounting measurements
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Current values are permitted for tangible assets
Opportunities for income smoothing
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United Kingdom
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Overview
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Legacy of British accounting
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First country to develop an accountancy profession
Fair presentation (true and fair view)
Exported British accounting around the world
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United Kingdom (contin)
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Accounting regulation and enforcement
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Companies Act
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Broad financial reporting framework
Financial Reporting Council oversees:
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Accounting Standards Board
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Auditing Practices Board
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Enforces compliance with FRSs
Professional Oversight Board
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Issues auditing standards
Financial Reporting Review Panel
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Issues Financial Reporting Standards (FRSs)
UITF clarifies FRSs
Oversees auditing profession
Audit Inspection Unit
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Monitors the audit of listed companies
Accountancy Investigation and Discipline Board
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Investigates and disciplines accountants for professional misconduct
Unusual features of British accounting
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True and fair override
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Other Chapter Exhibits
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Other Chapter Exhibits (contin)
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Other Chapter Exhibits (contin)
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