- 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.
- 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
- 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
- Keeps plan current
- Makes rulings and recommendations on accounting issues
- Converts CNC rulings and recommendations into binding regulations
- Will replace CNC and CRC as the national standard setter
- Represents the accounting profession
- Members prepare financial statements, and provide tax, information systems, and management advisory services
- Supervises securities markets
- 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
- Must report results of environmental activities
- Reports aimed at preventing bankruptcies
- Social report
- 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
- Determination principle: taxable income is determined by what is booked in a company’s financial records
3. Reliance on statutes and court decisions
- Applies to all business entities
- Develops recommendations for consolidated financial statements
- Enforces compliance with German financial reporting requirements and IFRS by listed companies
- Oversees WPs (“enterprise examiners”)
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