Chapter 3
Comparative Accounting: Europe
Discussion Questions
1. Regulating and enforcing financial reporting is a government function in France. The
National Accounting Board (CNC) and the Accounting Regulation committee (CRC)
set accounting standards under the jurisdiction of the Ministry of Economy and
Finance. The Financial Markets Authority (AMF) ensures compliance with French
accounting rules (for listed companies). It is also a government agency.
Public and private sector bodies are involved in the regulation and enforcement of
financial reporting in Germany. The German Accounting Standards Board is a private
sector body that develops German reporting standards for consolidated financial
statements. However, German law (the HGB) governs financial statements at the
individual company level. Enforcement also involves private and public sector bodies.
The Financial Reporting Enforcement Panel is a private sector body that investigates
compliance and relies on companies to voluntarily correct any problems that it finds.
Matters that cannot be resolved are referred to the Federal Financial Supervisory
Authority, a government agency, for final resolution.
The regulation and enforcement of financial reporting is in the public sector in the
Czech Republic. The Ministry of Finance is responsible for setting accounting
principles and it also oversees the Czech Securities Commission which is responsible
for enforcing compliance with Czech requirements. Some observers question the
effectiveness of the Czech system.
A private sector group is responsible for regulating financial reporting in the
Netherlands. The Dutch Accounting Standards Board issues guidelines on acceptable
accounting principles. Enforcement is handled by the Enterprise Chamber, a special
accounting court. It rules on whether companies have used acceptable accounting
practices, but only after an interested party has brought a complaint. The Financial
Reporting Supervision Division of the Netherlands Authority for Financial Markets is
responsible for enforcing reporting requirements for listed companies.
Regulation of financial reporting is in the private sector in the United Kingdom. The
Accounting Standards Board determines Financial Reporting Standards. The authority
of the ASB is set out in the law. Two groups are responsible for enforcing financial
reporting standards, one in the private sector and the other in the public sector. The
Financial Reporting Review Panel (private sector) and the Department of Trade and
, Industry (public sector) can investigate complaints about departures from accounting
standards. If necessary, they can go to court to force companies to revise its financial
statements.
2. Given the requirement that all EU listed companies must use International Financial
Reporting Standards in their consolidated financial statements, all five countries
follow fair presentation principles for this group of companies’ financial statements.
The difference among the countries comes with listed companies’ individual financial
statements and with non-listed companies. The overall picture is quite confusing.
At the individual company level, France and Germany require local accounting
standards. Both can be characterized as legal compliance, conservative, and tax-driven.
Individual company financial statements in the Netherlands and United Kingdom may
use either local requirements or IFRS. However, in either case the result is fair
presentation financial statements. The Czech Republic requires IFRS in listed
companies’ individual company financial statements, so the result is that they are fair
presentation. In all five countries, non-listed companies may use either IFRS or local
accounting standards for their consolidated financial statements. As characterized
above, the resulting financial statements will be quite different for German and French
companies. Czech accounting standards are mostly fair presentation, but there is still
some tax influence. Thus, the resulting financial statements can also be different
depending on the choice that companies make. Finally, non-listed companies’
individual financial statements must be prepared under local accounting standards in
the Czech Republic, France, and Germany. Local accounting standards or IFRS may
be used by this group of companies in the Netherlands and United Kingdom.
3. The recently established auditor oversight bodies discussed in this chapter are:
a. France – Haut Conseil du Commissariat aux Comptes (High Council of
External Auditors)
b. Netherlands – Netherlands Authority for Financial Markets
c. United Kingdom – Professional Oversight Board
The oversight body in France is in a government agency, while the one in the U.K. is a
private sector body. The Dutch body is an autonomous administrative authority under
the Ministry of Finance. They are a response to recent accounting scandals and
represent efforts to the tighten control over auditors.
4. Tax legislation is a significant influence on local accounting requirements in France
and Germany. It is unimportant in the Netherlands and United Kingdom. Tax
, legislation has limited influence in the Czech Republic. Given that Czech accounting is
still evolving, tax law can be expected to fill in areas where accounting standards are
missing.
5. Consolidated financial statements are the statements of a group of companies under
common management or control. Individual company financial statements are the
statements of the separate legal entities (parent and subsidiaries) that make up the group.
EU countries prohibit IFRS for individual company financial statements when these
statements are the basis for taxation and dividend distributions. They are “legal
compliance” countries (see Chapter 2) and individual company financial statements
must comply with the law. Other countries permit or require IFRS for individual
company financial statements because they are “fair presentation” countries (Chapter 2).
Individual company financial statements are not the basis for taxation or dividends.
Local accounting standards follow fair presentation principles.
6. There is no conclusive evidence linking high levels of legal accounting and reporting
requirements in a country and corresponding high quality levels of financial reporting.
It appears that high legal requirements (for example, in France and Germany) lead to a
certain amount of professional or bureaucratic inertia and form over substance thinking
in financial reporting. Indeed, countries with significant state regulation of accounting
and accountants are generally not among the innovative accounting leadership countries.
If anything, comparatively high levels of legal requirements appear to depress the
overall quality of reporting.
7.This quote paraphrases a statement in the preamble to the charter establishing the German
Accounting Standards Committee. We agree. Private sector initiatives (self-regulation)
have been more successful than governmental initiatives in developing financial
reporting regulations for national and international capital markets.
Two noteworthy examples are the Accounting Standards Board in the U.K. (discussed
in Chapter 3) and the Financial Accounting Standards Board in the U.S. (discussed in
Chapter 4). Both have been flexible and adaptable in developing reporting standards in
response to new circumstances. They are arguably the premier national standard
setting bodies in the world. It is also noteworthy that Germany and Japan (Chapter 4)
have recently moved to establish private sector organizations.
Chapter 8 discusses international harmonization and convergence. There, the work of
the International Accounting Standards Board and the European Union are discussed.
The EU was not effective in establishing standards for capital markets and has now
endorsed the efforts of the IASB.
, 8. Existing French companies’ legislation in the form of the Plan Comptable Général and
Code de Commerce have the greatest influence on day-to-day French accounting
practices. The two other authoritative sources of financial accounting standards and
practices have comparatively modest or sporadic influence.
9. The statement is true. The German Accounting Standards Board is a private-sector
body like the FASB (U.S.), ASB (U.K.), and IASB. The process for establishing
standards is also similar. Working groups examine issues and make recommendations
to the Board. These groups represent a broad constituency. GASB deliberations follow
a due process and meetings are open.
10. Accounting requirements in the Czech Republic are based on EU Directives. Examples
noted in the chapter are the following:
a. True and fair view embodied in the Accountancy Act.
b. Required audit.
c. Statement of cash flows not a required financial statement (though it is required
in the notes).
d. Disclosures of employee information and revenues by segment.
e. Consolidated financial statements required.
f. Abbreviated reporting requirements for small companies.
g. Notes include accounting policies.
h. Listed companies use IFRS in consolidated financial statements.
The accounting measurements discussed are also consistent with EU Directives, for
example, the requirement for the equity method.
11. The Dutch Enterprise Chamber of the Court of Justice of Amsterdam helps ensure that
filed or published Dutch financial statements conform to all applicable laws.
Shareholders, employees, trade unions, or public prosecutors may bring proceedings to
the Chamber by alleging that officially filed or published financial statements do not
conform to applicable requirements.
The Enterprise Chamber carries out its mission by determining whether the allegations
of deficient financial reporting are true and how material such deficiencies are.
Depending upon the case, the Chamber may require that financial statements be
modified or it may seek penalties through the Court of Justice.
Comparative Accounting: Europe
Discussion Questions
1. Regulating and enforcing financial reporting is a government function in France. The
National Accounting Board (CNC) and the Accounting Regulation committee (CRC)
set accounting standards under the jurisdiction of the Ministry of Economy and
Finance. The Financial Markets Authority (AMF) ensures compliance with French
accounting rules (for listed companies). It is also a government agency.
Public and private sector bodies are involved in the regulation and enforcement of
financial reporting in Germany. The German Accounting Standards Board is a private
sector body that develops German reporting standards for consolidated financial
statements. However, German law (the HGB) governs financial statements at the
individual company level. Enforcement also involves private and public sector bodies.
The Financial Reporting Enforcement Panel is a private sector body that investigates
compliance and relies on companies to voluntarily correct any problems that it finds.
Matters that cannot be resolved are referred to the Federal Financial Supervisory
Authority, a government agency, for final resolution.
The regulation and enforcement of financial reporting is in the public sector in the
Czech Republic. The Ministry of Finance is responsible for setting accounting
principles and it also oversees the Czech Securities Commission which is responsible
for enforcing compliance with Czech requirements. Some observers question the
effectiveness of the Czech system.
A private sector group is responsible for regulating financial reporting in the
Netherlands. The Dutch Accounting Standards Board issues guidelines on acceptable
accounting principles. Enforcement is handled by the Enterprise Chamber, a special
accounting court. It rules on whether companies have used acceptable accounting
practices, but only after an interested party has brought a complaint. The Financial
Reporting Supervision Division of the Netherlands Authority for Financial Markets is
responsible for enforcing reporting requirements for listed companies.
Regulation of financial reporting is in the private sector in the United Kingdom. The
Accounting Standards Board determines Financial Reporting Standards. The authority
of the ASB is set out in the law. Two groups are responsible for enforcing financial
reporting standards, one in the private sector and the other in the public sector. The
Financial Reporting Review Panel (private sector) and the Department of Trade and
, Industry (public sector) can investigate complaints about departures from accounting
standards. If necessary, they can go to court to force companies to revise its financial
statements.
2. Given the requirement that all EU listed companies must use International Financial
Reporting Standards in their consolidated financial statements, all five countries
follow fair presentation principles for this group of companies’ financial statements.
The difference among the countries comes with listed companies’ individual financial
statements and with non-listed companies. The overall picture is quite confusing.
At the individual company level, France and Germany require local accounting
standards. Both can be characterized as legal compliance, conservative, and tax-driven.
Individual company financial statements in the Netherlands and United Kingdom may
use either local requirements or IFRS. However, in either case the result is fair
presentation financial statements. The Czech Republic requires IFRS in listed
companies’ individual company financial statements, so the result is that they are fair
presentation. In all five countries, non-listed companies may use either IFRS or local
accounting standards for their consolidated financial statements. As characterized
above, the resulting financial statements will be quite different for German and French
companies. Czech accounting standards are mostly fair presentation, but there is still
some tax influence. Thus, the resulting financial statements can also be different
depending on the choice that companies make. Finally, non-listed companies’
individual financial statements must be prepared under local accounting standards in
the Czech Republic, France, and Germany. Local accounting standards or IFRS may
be used by this group of companies in the Netherlands and United Kingdom.
3. The recently established auditor oversight bodies discussed in this chapter are:
a. France – Haut Conseil du Commissariat aux Comptes (High Council of
External Auditors)
b. Netherlands – Netherlands Authority for Financial Markets
c. United Kingdom – Professional Oversight Board
The oversight body in France is in a government agency, while the one in the U.K. is a
private sector body. The Dutch body is an autonomous administrative authority under
the Ministry of Finance. They are a response to recent accounting scandals and
represent efforts to the tighten control over auditors.
4. Tax legislation is a significant influence on local accounting requirements in France
and Germany. It is unimportant in the Netherlands and United Kingdom. Tax
, legislation has limited influence in the Czech Republic. Given that Czech accounting is
still evolving, tax law can be expected to fill in areas where accounting standards are
missing.
5. Consolidated financial statements are the statements of a group of companies under
common management or control. Individual company financial statements are the
statements of the separate legal entities (parent and subsidiaries) that make up the group.
EU countries prohibit IFRS for individual company financial statements when these
statements are the basis for taxation and dividend distributions. They are “legal
compliance” countries (see Chapter 2) and individual company financial statements
must comply with the law. Other countries permit or require IFRS for individual
company financial statements because they are “fair presentation” countries (Chapter 2).
Individual company financial statements are not the basis for taxation or dividends.
Local accounting standards follow fair presentation principles.
6. There is no conclusive evidence linking high levels of legal accounting and reporting
requirements in a country and corresponding high quality levels of financial reporting.
It appears that high legal requirements (for example, in France and Germany) lead to a
certain amount of professional or bureaucratic inertia and form over substance thinking
in financial reporting. Indeed, countries with significant state regulation of accounting
and accountants are generally not among the innovative accounting leadership countries.
If anything, comparatively high levels of legal requirements appear to depress the
overall quality of reporting.
7.This quote paraphrases a statement in the preamble to the charter establishing the German
Accounting Standards Committee. We agree. Private sector initiatives (self-regulation)
have been more successful than governmental initiatives in developing financial
reporting regulations for national and international capital markets.
Two noteworthy examples are the Accounting Standards Board in the U.K. (discussed
in Chapter 3) and the Financial Accounting Standards Board in the U.S. (discussed in
Chapter 4). Both have been flexible and adaptable in developing reporting standards in
response to new circumstances. They are arguably the premier national standard
setting bodies in the world. It is also noteworthy that Germany and Japan (Chapter 4)
have recently moved to establish private sector organizations.
Chapter 8 discusses international harmonization and convergence. There, the work of
the International Accounting Standards Board and the European Union are discussed.
The EU was not effective in establishing standards for capital markets and has now
endorsed the efforts of the IASB.
, 8. Existing French companies’ legislation in the form of the Plan Comptable Général and
Code de Commerce have the greatest influence on day-to-day French accounting
practices. The two other authoritative sources of financial accounting standards and
practices have comparatively modest or sporadic influence.
9. The statement is true. The German Accounting Standards Board is a private-sector
body like the FASB (U.S.), ASB (U.K.), and IASB. The process for establishing
standards is also similar. Working groups examine issues and make recommendations
to the Board. These groups represent a broad constituency. GASB deliberations follow
a due process and meetings are open.
10. Accounting requirements in the Czech Republic are based on EU Directives. Examples
noted in the chapter are the following:
a. True and fair view embodied in the Accountancy Act.
b. Required audit.
c. Statement of cash flows not a required financial statement (though it is required
in the notes).
d. Disclosures of employee information and revenues by segment.
e. Consolidated financial statements required.
f. Abbreviated reporting requirements for small companies.
g. Notes include accounting policies.
h. Listed companies use IFRS in consolidated financial statements.
The accounting measurements discussed are also consistent with EU Directives, for
example, the requirement for the equity method.
11. The Dutch Enterprise Chamber of the Court of Justice of Amsterdam helps ensure that
filed or published Dutch financial statements conform to all applicable laws.
Shareholders, employees, trade unions, or public prosecutors may bring proceedings to
the Chamber by alleging that officially filed or published financial statements do not
conform to applicable requirements.
The Enterprise Chamber carries out its mission by determining whether the allegations
of deficient financial reporting are true and how material such deficiencies are.
Depending upon the case, the Chamber may require that financial statements be
modified or it may seek penalties through the Court of Justice.
