French vs UK GAAP

EUROPEANCOMPARISON:UK&FRANCEThe main differences between UK and French accounting practice

by Chris Jones and Marie-Dominique Samar-FauchonEUROPEANCOM

PARISON:UK

&FR

AN

CE

Euro comparison – UK/France 19/10/2001 3:33 PM

This publication contains general information only and Deloitte & Touche (UK) and Deloitte &Touche (France) are not, by means of this publication, rendering accounting, business, financial,investment, legal, tax or other professional advice or services. This publication is not a substitute forsuch professional advice or services, nor should it be used as a basis for any decision or action thatmay affect your business or your clients’ businesses. Before making any decision or taking anyaction, you should consult a qualified professional advisor. Please contact any Deloitte ToucheTohmatsu firm for further information.

Neither Deloitte & Touche (UK) nor Deloitte & Touche (France) shall be responsible for any losssustained by any person or entity who relies on this publication.

Deloitte & Touche in the United Kingdom and Deloitte & Touche in the Channel Islands are eachauthorised to carry on investment business by the Institute of Chartered Accountants in Englandand Wales.

Deloitte & Touche in the Isle of Man is authorised by the Institute of Chartered Accountants inEngland and Wales to carry on investment business in or from the Isle of Man and the UnitedKingdom.

The authors express their gratitude to all their colleagues participating in this project, both in Franceand the UK, particularly to Andy Simmonds and Olivier Azières for their technical advice.

© Deloitte & Touche 2001. All rights reserved.

Design, typesetting and electronic film output by the Deloitte & Touche Studio, London.

Inside Front Cover 19/10/2001 3:32 PM Page 1

Contents

Page

ABBREVIATIONS 5

INTRODUCTION 7SCOPE OF THIS BOOK 7

STANDARD-SETTING IN THE UK 8

STANDARD-SETTING IN FRANCE 11

TRANSITION TO IAS 13

BUSINESS ENTITIES 14

COMPARISON OF FINANCIAL STATEMENTS FORMAT 17

PRIMARY DIFFERENCES IN ACCOUNTING POLICIES 251. CONSOLIDATION 25

� GENERAL REQUIREMENTS 25

� CONSOLIDATION ADJUSTMENTS 27

� SUBSIDIARY UNDERTAKINGS 30

� CONTROLLED ENTITIES 30

� EXCLUSION FROM CONSOLIDATION 31

� QUASI SUBSIDIARIES AND SPECIAL PURPOSE ENTITIES 32

2. ASSOCIATES AND JOINT VENTURES 33

� ASSOCIATED UNDERTAKINGS AND SIGNIFICANTINFLUENCE 33

� JOINT VENTURES 34

CONTENTS 1

UK/France comparison 19/10/2001 3:31 PM Page 1

ACCOUNTING FOR BUSINESS COMBINATIONS 37

� ACQUISITION (PURCHASE) ACCOUNTING 37

� COST OF ACQUISITION 38

� RECOGNITION AND MEASUREMENT OF ASSETS AND LIABILITIES ACQUIRED 40

� MERGER ACCOUNTING 44

� MÉTHODE DÉROGATOIRE 44

4. GOODWILL 47

� TREATMENT 47

� NEGATIVE GOODWILL 50

� IMPAIRMENT REVIEWS 50

5. OTHER INTANGIBLE ASSETS 52

� AMORTISATION AND IMPAIRMENT REVIEWS 52

� RESEARCH AND DEVELOPMENT COSTS 53

� COMPUTER SOFTWARE 53

� START-UP COSTS 54

� SHORT LEASEHOLD PREMIUMS 55

6. TANGIBLE FIXED ASSETS 56

� COST 56

� REVALUATION 56

� CAPITALISATION OF BORROWING COSTS 60

� DEPRECIATION 60

� CAPITAL GOVERNMENT GRANTS 63

� IMPAIRMENT REVIEWS 63

� INVESTMENT PROPERTIES 64

7. FINANCIAL INVESTMENTS 65

8. STOCKS AND LONG-TERM CONTRACTS 68

� STOCK VALUATION 68

� LONG-TERM CONTRACTS 70

9. DEBT AND CAPITAL INSTRUMENTS 71

� CAPITAL INSTRUMENTS 71

� DISCOUNTS AND PREMIUMS ON ISSUE OF DEBT 72

2 CONTENTS


Page

� DEBT ISSUE COSTS 73

10. EMPLOYEE BENEFITS 74

� PENSION COSTS 74

� DEFINED CONTRIBUTION SCHEMES 74

� DEFINED BENEFIT SCHEMES 75

� POST RETIREMENT BENEFITS OTHER THAN PENSIONS 77

� ACCOUNTING FOR SHARE OPTIONS 78

� PROFIT SHARING 78

� HOLIDAY PAY 79

11. ACCOUNTING FOR INCOME TAXES 80

� DEFERRED TAXATION 80

� TAX RELATED PROVISIONS 82

12. OTHER PROVISIONS AND CONTINGENCIES 83

� GENERAL REQUIREMENTS 83

� RESTRUCTURING COSTS 85

� CONTINGENT LIABILITIES AND ASSETS 86

13. SHARE CAPITAL AND RESERVES 87

� PURCHASE OF OWN SHARES 88

� FINANCE CHARGE IN RESPECT OF NON-EQUITY SHARES 89

� SHARE ISSUE COSTS 90

� SHARE PREMIUM ACCOUNT 91

� REVALUATION RESERVE 91

� LEGAL RESERVES AND OTHER RESERVES 91

14. EXCEPTIONAL AND EXTRAORDINARY ITEMS 94

15. CHANGES IN ACCOUNTING POLICIES AND PRIOR PERIOD ADJUSTMENTS 95

16. ACQUISITIONS, CONTINUING AND DISCONTINUED OPERATIONS 97

17. DIVIDENDS 99

18. EARNINGS PER SHARE 100

CONTENTS 3


FOREIGN CURRENCY 102

� REPORTING CURRENCY 102

� TRANSLATION OF FOREIGN CURRENCY TRANSACTIONS 102

� CONSOLIDATION OF FOREIGN ENTITIES 103

20. LEASES 105

� CLASSIFICATION 105

� SALE AND LEASEBACK 105

21. EURO ACCOUNTING IMPLICATIONS 106

APPENDICES

APPENDIX A – FORMATS OF FINANCIAL STATEMENTS IN THE UK AND IN FRANCE 108

APPENDIX B – THE EURO 126

APPENDIX C – GLOSSARY 128

– ENGLISH – FRENCH 128

– FRENCH – ENGLISH 136

APPENDIX D – LIAISON RESOURCES 144

OFFICES IN THE UNITED KINGDOM, CHANNEL ISLANDS AND THE ISLE OF MAN 146

OFFICES IN FRANCE 149

INTERNATIONAL OFFICES 150

4 CONTENTS


Abbreviations

UNITED KINGDOM

ASB Accounting Standards Board

ASC Accounting Standards Committee

1985 CA Sch 4 Schedule 4 of the 1985 Companies Act

FRED Financial Reporting Exposure Draft issued by ASB

FRS Financial Reporting Standard issued by the ASB

ICAEW Institute of Chartered Accountants in England and Wales

SOP Statement of Principles for Financial Reporting

SORP Statement of Recommended Practice

SSAP Statement of Standard Accounting Practice issued by the UKaccountancy bodies

STRGL Statement of total recognised gains and losses

UITF Urgent Issues Task Force

FRANCE

CGI Code Général des Impôts (French taxation law)

CNC Conseil National de la Comptabilité (the National AccountingBoard – institution responsible for issuing and interpretingaccounting standards)

CNCC Compagnie Nationale des Commissaires aux Comptes (theNational Institute of Statutory Auditors)

ABBREVIATIONS 5


COB Commission des Opérations de Bourse (the stock exchangeregulator equivalent to the Financial Services Authority in theUK)

CRC Comité de la Réglementation Comptable (the institutionapproving and enforcing CNC standards)

OEC Ordre des Experts Comptables (the French institute of certifiedpublic accountants)

PCG Plan Comptable Général (the General Chart of Accounts orNational Accounting Code – document grouping accountingrules and charts applicable to industrial and commercialcompanies)

Règ n°99-02 CRC Regulation relating to consolidated accounts ofcommercial companies and public enterprises.

INTERNATIONAL

IAS International Accounting Standard(s)

IASB International Accounting Standards Board

IASC International Accounting Standards Committee

6 ABBREVIATIONS


Introduction

The aim of the European Union in issuing two directives (the Fourth directiveand the Seventh directive) relating specifically to the form and contents offinancial statements was to harmonise accounting practice throughout theEuropean Union. Likewise, but on a global scale, the aim of the InternationalAccounting Standards Committee (IASC) and the newly established Board(IASB), where both the UK and France have actively participating members, isto promote generally accepted accounting principles around the world. As aconsequence, one could assume that financial statements prepared in bothcountries are similar in all practical respects. But there is still in fact a long wayto go and significant differences remain particularly in the detailed methods ofcomputing profit.

As in the UK, financial statements in France must present a true and fair view ofthe assets, liabilities and financial position of a company including profits orlosses for the period.

A particular feature of French statutory accounts is that in a number of areas(for instance finance lease contracts), they are prepared according to tax drivenprescriptions and legal forms of operations (rather than substance). In theconsolidated accounts, the tax driven entries are removed and further optionsare available so that the accounts reflect more the substance of operations ratherthan their form.

SCOPE OF THIS BOOK

Although the broad principles covered by UK and French statements are oftenin agreement, many differences still exist in the application of these principlesin practice.

INTRODUCTION 7


This booklet is intended to assist companies which trade in both the UK andFrance in obtaining a high level overview of the differences between UK andFrench GAAP.

The differences between UK and French GAAP discussed in this booklet arethose likely to arise for companies trading in non-specialised industries. It is notpossible to identify all differences that could exist as a result of particularcircumstances. Consequently, where differences at a detailed level areimportant, for example in complex areas such as leasing and pensionaccounting, the reader is advised to take appropriate professional advice.

The analysis does not attempt to cover differing accounting practice inspecialised industries such as banking, insurance, oil and gas, utilities orgovernmental entities.

Differences in disclosure requirements in both countries are not the primaryfocus of this booklet. Discussion of disclosure requirements included below islimited to assisting the reader in understanding the primary differences inaccounting policies only. Significant differences do, however, exist in requiredfinancial statement disclosure. Furthermore, companies which are listed on astock exchange in the UK or in France must comply with disclosure rulespublished by these institutions (the UK Financial Services Authority and theCommission des Opérations de Bourse (COB) respectively). Such rules may causeadditional financial reporting differences not discussed in this publication.

This publication reflects accounting practices followed and standards that wereissued prior to 31 August 2001.

STANDARD-SETTING IN THE UK

Standard-setting outside Company law began in 1970, with the establishment ofthe Accounting Standards Steering Committee by the Institute of CharteredAccountants in England and Wales (ICAEW). In 1976, this committee wasreconstituted as a joint committee of the six accountancy bodies which comprisethe Consultative Committee of Accountancy Bodies, and was known as theAccounting Standards Committee (ASC).

By 31 July 1990, the ASC had still in issue 22 Statements of StandardAccounting Practice (SSAPs), two Statements of Recommended Practices(SORPs), and numerous exposure drafts of proposed SSAPs.

SSAPs generally deal with broad principles on areas of accounting that areapplicable to almost all UK companies. There remain significant issues forwhich no statements have been produced and issues, although covered by

8 INTRODUCTION


SSAPs, where a variety of treatments are acceptable. The existence of suchvariety results from two features of SSAPs:

� SSAPs may recognise more than one basis of accounting (e.g. goodwill);and

� SSAPs may specify acceptable practice; however the emphasis on broadprinciple permits a number of different interpretations which leads toalternative treatments.

The ASC was very slow to respond to changes in the financial reportingenvironment, because it needed to secure the agreement of six accountinginstitutes and because it lacked necessary resources. Many observers also feltthat the ASC was too willing to compromise. These factors, coupled withincreasing complexity of accounting issues and a growing demand for moresophisticated financial reporting, led to implementation of a new standard-setting and regulatory framework.

The new framework is as follows:

INTRODUCTION 9

Financial Reporting Council

� guides the ASB

� nominates committee members

� provides funding

Financial Reporting Review Panel

� investigates when it appearsthat requirements of theCompanies Act, principally therequirement that financialstatements show a true and fairview, have been breached

Accounting Standards Board (ASB)

� develops, issues and withdrawsaccounting standards.

Urgent Issues Task Force (UITF)

� assists the ASB in areas wherean accounting standard orCompanies Act provisionexists, but whereunsatisfactory or conflictinginterpretations have developedor seem likely to develop


In August 1990, the Accounting Standards Board (ASB) replaced the ASC, withstatutory authority to issue accounting standards without the need to seekapproval from the six accountancy bodies that make up the ConsultativeCommittee of Accountancy Bodies. The ASB has adopted and still retains13 SSAPs issued by the ASC and, prior to 31 August 2001, issued 19 FinancialReporting Standards (FRS). Work on a conceptual framework has resulted in theissue of the Statement of Principles for Financial Reporting (SOP) in December1999. Recent standards are:

Standards Topic

FRS 17 (issued 30 November 2000) Retirement Benefits (superseding SSAP 24)

FRS 18 (issued 7 December 2000) Accounting Policies (superseding SSAP 2)

FRS 19 (issued 7 December 2000) Deferred Tax (superseding SSAP 15)

The new standards on pension costs and deferred tax represent a significantchange from the current requirements and have extended implementationperiods. These changes are referred to in the relevant parts of the comparison:Section 10 “Employee Benefits” and Section 11 “Accounting for IncomeTaxes”.

The Urgent Issues Task Force (UITF) was established by the ASB in 1991. Itassists the ASB in areas where an accounting standard or Companies Actprovision exists, but where unsatisfactory or conflicting interpretations havedeveloped or seem likely to develop. The results of the UITF’s deliberations ona subject are promulgated by means of published Abstracts.

Statement of Recommended Practice (SORP)The ASC developed and issued two SORPs together with an ExplanatoryForeword to SORPs. In addition the ASC ‘franked’ SORPs developed bybodies representative of the industry/sector to which the SORP would apply.The ASB has announced that it will not issue its own SORPs. However,SORPs will be developed by bodies recognised by the ASB to provide guidanceon the application of accounting standards to specific industries. The ASBwill not ‘frank’ such SORPs. Instead, where it is satisfied about certainparticulars it will require to be appended to the SORP a ‘negative assurancestatement’.

10 INTRODUCTION


The Companies ActThe Companies Act 1985 regulates the constitution and conduct of practically allBritish corporations. Its provisions cover:

� company formation;

� company administration and procedure;

� allotment of shares and debentures;

� increases, maintenance and reduction of share capital;

� annual financial statements;

� audit of financial statements; and

� distribution of profits and assets.

The requirements for all companies, both private and public, to prepare annualfinancial statements giving a true and fair view, to appoint auditors (the verysmallest companies are exempt from audit) and to file such financial statementswith the Registrar of Companies, come from the Companies Act. Holdingcompanies of a certain size must file consolidated financial statements inaddition to the individual company financial statements.

The Companies Act 1989 amended the Companies Act 1985 introducing into ita definition of “accounting standards” along with a requirement for companiesover a certain size to disclose in financial statements whether or not they havebeen prepared in accordance with applicable accounting standards, and if not,particulars and reasons for any departure. Auditors are required by regulationand professional standards to have regard to all applicable accounting standardsin reaching a ‘true and fair’ opinion.

STANDARD-SETTING IN FRANCE

In France, accounting standards are part of basic business law and consequentlyevery business entity is required to comply with them when publishing itsaccounts. There are a number of different sources of law, which arehierarchically structured as follows:

� European Directives.

� Code de Commerce (including general accounting obligations for allcommercial entities and general rules for consolidated accounts).

� Regulatory texts such as decrees and regulations (regulations are nowissued by the CRC – see below).

INTRODUCTION 11


� Jurisprudence.

� Guidance, interpretations and recommendations (issued by CNCC andOEC for all companies, and by the COB for listed companies).

Note that the French Code de Commerce (first issued in 1807) was obsolete andincomplete because it had not been updated regularly with new laws issued. Itwas completely and recently revised and recodified (in September 2000) andnow includes fundamental texts such as the French law of 24 July 1966applicable to commercial entities.

Implementation of EU Directives in France

Statutory ConsolidatedAccounts accounts

European directives Fourth Seventh directive directive

French Code de Commerce

� Articles L123-12 to L123-24 �

� Articles L233-16 to L233-28 �

Application decrees

� Application Decree of 29 November 1983 �

� Articles D248 to D248-14 of the Decree of 23 March 1967 �

French Plan Comptable Général (revised in �

April 1999) (CRC Regulation n°99-03)

New methodology relating to consolidated �

accounts issued in April 1999 (CRC Regulation n°99-02)

Recent changesIn April 1998, an official accounting body was created, the Comité de laRéglementation Comptable (CRC) which is responsible for approving newaccounting standards. This body was created to address the following issues:

� French accounting standards were often general and could be interpreted inseveral ways. The CRC’s standards are designed to be more specific andtherefore make the financial statements more transparent.

12 INTRODUCTION


� French accounting standards had previously been set by several sources.The creation of the CRC was designed to provide more consistency to thestandard-setting process.

Accounting standards are proposed by the Conseil National de la Comptabilité(CNC), and reviewed by the CRC before issuance. In addition, the Comitéd’Urgence du CNC (urgent issues committee), comprised of a limited number ofCNC members, issues interpretation of and guidance on existing standards.

The first standards have covered consolidation rules, accounting changes,construction contracts and accounting for liabilities and provisions.

Article 233-24 of the French Code de Commerce stipulates that the companieslisted on the French stock exchange may prepare financial statements usingInternational Accounting Standards (IAS). However, the CRC has not yetendorsed the requirements for adopting this option, meaning that Frenchcompanies still have to produce their primary financial statements under FrenchGAAP. The proposal by the EU Commission to require the use of IAS by allEuropean listed companies (see below) will clearly speed up the process towardsIAS implementation.

TRANSITION TO IAS

In June 2000, the European Commission proposed a regulation that wouldrequire all EU companies listed on a regulated market, including banks andinsurance companies, to prepare consolidated accounts in accordance with IASby 2005, at the latest. In addition, member states could decide that IAS could orshould also be used in statutory accounts and by unlisted companies.

Before the end of 2001, the European Commission will finalise a proposal aimedat modernising the Accounting Directives and reducing discrepancies betweenthem and IAS.

As a result of these fundamental developments we expect that in the next fewyears convergence of the accounting requirements in France and the UK will beaccelerated.

INTRODUCTION 13


Business Entities

There are several different types ofbusiness entity in the UnitedKingdom, the most common formsother than sole trader being:

Public limited company, plc

This is a limited company in whichshares may be offered to the public.The minimum number ofshareholders required is two and theminimum share capital is £50,000.The allotted share capital must be25% paid up as to nominal value and100% paid up as to any sharepremium. The company name mustend with the words “Public LimitedCompany” or an abbreviationthereof.

A public limited company must haveat least two directors.

An annual shareholders’ meetingmust be held to approve the financialstatements, to reappoint auditorsand deal with any other matters.

14 BUSINESS ENTIITIES

UNITED KINGDOM

There are many different types ofbusiness entity. The most commonforms of entity are:

Société anonyme, SA

This is a limited company with aminimum of seven shareholders.The minimum share capital of aprivate SA is FF 250,000 ( 37,000 asfrom 1 January 2002). If thecompany is listed, the minimumshare capital required isFF 1,500,000 ( 225,000 as from1 January 2002).

A SA may choose between twodifferent systems of management:

� a single executive board, conseild’administration, headed by achairman, who usually also actsas chief executive of the SA. Arecently enacted French law willresult in separation of the rolesof chairman and chief executivein the near future: and

FRANCE

Private limited company, Ltd

This is a limited company, the sharesof which may not be offered to thepublic. There is no minimum levelof share capital. Private companiesneed only have one member.

A private company may have onlyone director if desired.

� a two-tier system comprising anexecutive committee, directoire,and an independent supervisoryboard, conseil de surveillance,which oversees the activities ofthe executive committee.

An annual shareholders’ meetingmust be held to approve the financialstatements and the amount ofdividends to be distributed and todeal with other routine matters.

Société par actions simplifliées, SAS

This business entity was introducedto facilitate the setting up andmanagement of companies. Thisform of entity is primarily used bylarge groups and in businesscombinations. It is a limited liabilitycompany which may be created withonly one shareholder. Theminimum required share capital isFF 1 500 000 ( 225,000 as from1 January 2002) of which only halfneeds to be called up immediately.Only one board member needs to beappointed. The organisation of thecompany and relationship ofshareholders are defined in itsstatutes.

Société à responsabilité limitée,SARL

This is a company constituted byshareholders who theoretically havelimited liability for the debts of thecompany. The minimum sharecapital required is FF 50,000 ( 7,500as from 1 January 2002) and a SARLcannot engage in activities such asbanking, insurance, other financial

BUSINESS ENTIITIES 15

Partnerships

Partnerships are generally used byprofessional practices such asarchitects, solicitors, accountants,surveyors etc.

Partners are required to haveunlimited joint and several liabilityfor the debts of the partnership.There is no minimum capitalrequirement.

From 2001, it will be possible toform a limited liability partnership(LLP).

services, or air transportation. As foran SA, an annual shareholders’meeting must be held. A similar typeof entity, entreprise unipersonnelle àresponsabilité limitée, EURL, mayhave only one shareholder.

Société en commandite par actions,SCA

This is a corporation with two typesof shareholders:

� Commandités, with joint andunlimited liability for the debts

� Commanditaires, with limitedliability for the debts

The minimum capital is as for theSA. This type of corporation requiresat least one commandité and threecommanditaires. This kind of entityis used in practice to limit access ofthird parties to the control of thecompany, as shares held by thecommandités may be disposed of onlywith the agreement of all othercommandités and generally of all thecommanditaires too.

Société en nom collectif, SNC

This is a partnership. Partners in anSNC have unlimited liability for thedebts of the partnership. There is nominimum capital requirement.

Société civile, SC

SC is a partnership which isprimarily used for specific types ofbusinesses such as architects,lawyers, doctors, surveyors, farmersetc.

16 BUSINESS ENTIITIES


Comparison of FinancialStatements Format


Schedule 4 of the Companies Actspecifies permitted financialstatement formats for the balancesheet and profit and loss account.Formats for other primarystatements are contained in therelevant accounting standards. FRS 1(revised 1996) discusses the cashflow statement and FRS 3 discussesthe statement of total recognisedgains and losses.

The accounts are required to bepresented with comparative figures.

The overriding requirement offinancial statements is that theyshould show a “true and fair view.”

UNITED KINGDOM

Article L123-12 of the Code deCommerce defines the contents of thefinancial statements which includethe balance sheet (bilan), the profitand loss account (compte de résultat),and the notes (annexe). They arerequired to be presented withcomparative figures.

The Plan Comptable Généralprovides companies with obligatorydefinitions and accountingprinciples. This statement defines achart of numbered accounts, whichgives the format of the general ledgerand the accounts. The requirementsof the PCG generally apply to theconsolidated accounts as well as theindividual company’s (statutory)accounts unless there are specificregulations applying to consolidatedaccounts.

As in the UK, financial statements inFrance must present a true and fairview (image fidèle).

FRANCE


All financial statements are requiredby the Companies Act to beaccompanied by a directors’ reportwhich must include certain specifieddisclosures.(1985 CA s234 and Sch 7)

Many large companies alsoaccompany their accounts with ageneral review of performance in theyear.

Some additional disclosures may berequired for listed companies by theFinancial Services Authority.

Balance sheet

The Companies Act 1985 permitstwo formats:

� a “vertical” format with currentliabilities deducted from currentassets to show net current assetsor liabilities. This is the mostcommonly used format. SeeAppendix A.I for example; and

� a “two-sided” balance sheetshowing total assets to the left ortop of the page and total capital,reserves and liabilities to theright or bottom of the page.

Assets and liabilities are presented inreverse order of liquidity.

As for UK GAAP.

As for UK GAAP.

The COB requires some additionaldisclosures by listed companies.

Bilan

Consolidated accounts

A “two-sided" balance-sheet is therequired format. Liabilities are notsplit between current and long-termamounts as they are under the UKformat. The format of theconsolidated balance sheet as shownin Appendix A.I illustrates theminimum information that has to begiven.

Statutory accounts

A “two-sided” balance sheet is also arequired format. Liabilities are notsplit between current and long-term.The format of the statutory balancesheet presented in Appendix A.I istaken from the tax form which iscommonly used by most companies.

As in the UK, assets and liabilitiesare presented in reverse order ofliquidity.

18 COMPARISON OF FINANCIAL STATEMENTS FORMAT


FRS 4 requires additionalinformation to be disclosed. The faceof the balance sheet should showshareholders’ funds and minorityinterests in subsidiaries analysedbetween equity and non-equityinterests. Similarly, liabilities mustbe analysed between convertible andnon-convertible obligations.

Profit and loss account

Four formats are permitted by theCompanies Act 1985:

� two “vertical” formats, onecategorising expenditure ("bydestination") as cost of sales,distribution costs andadministrative expenses andshowing gross profit; and theother showing more detail, forexample change in stocks, ownwork capitalised, raw materials,other external charges, staffcosts (“by nature”). The formeris the most commonly used (seeAppendix A.II); and

� two “horizontal” formatsshowing expenses on one sideand income on the other; theseformats are rarely used bycommercial entities.

FRS 3 requires additionalinformation to be disclosed on theface of the profit and loss account.Specifically, turnover and operatingprofit must be analysed betweencontinuing operations, acquisitionsand discontinued operations.

French GAAP does not have asimilar requirement.

Compte de résultat


CRC Regulation n°99-02 allowscompanies to present theirconsolidated profit and loss accountwith items of income/expenditureclassified by their nature orfunction/destination within theenterprise (see Appendix A.II). Thepreferred format is vertical.

Statutory accounts

The only format permitted analysesexpenditure by nature. The compte derésultat can either be presentedvertically or horizontally. The verticalformat used in the tax return is alsothe one that is most often used in thestatutory financial statements (seeAppendix A.II).

In France, there is no requirement todisclose separately on the face of theprofit and loss account continuingoperations, acquisitions anddiscontinued operations.



Reconciliation of movements inshareholders’ funds

The Companies Act 1985 requiresmovements in share capital to beshown in the notes to the accounts.Movements on reserves for thecurrent period may be shown eitheras a separate statement or in a noteto the accounts. FRS 3 requires anote reconciling total opening andclosing shareholders’ funds for theperiod. This reconciliation may becombined with the note or statementshowing movements on reserves.

Statement of total recognised gainsand losses (STRGL)

FRS 3 requires companies to includea statement of total recognised gainsand losses. This is a primarystatement with the followingcomponents:

� profit or loss before thededuction of dividends;

� adjustments to asset valuations;and

� differences in the netinvestment in foreignenterprises due to changes inforeign currency exchange rates.

The disclosures required forcomparative purposes in cases ofacquisitions or discontinuedactivities are discussed in Section 16.

Tableau de variation des capitauxpropres


A separate statement is required tobe included in the notes showingopening and closing balances ofshareholders’ equity and movementsduring the period.[Règ n°99-02]

Statutory accounts

The Plan Comptable Général requiresinclusion of a separate statement inthe notes to the accounts showingopening and closing balances ofshareholders’ equity and movementsduring the period, if significant. Nospecific format is prescribed.

There is at present no requirementfor such a primary statement underFrench GAAP.



Contributions from or distributionsto shareholders are excluded fromthe statement. These include:

� the proceeds of a share issue;

� redemption or purchase of ownshares;

� dividends or distributions; and

� capital contributions.

Cash flow statement

FRS 1 (revised 1996) requires thepresentation of a cash flow statementfor all entities except:

� companies and otherunincorporated bodies whichmeet the “small company”limits as defined by the CA1985;

� subsidiary undertakings where90% or more of the voting rightsare controlled within the group,provided that the consolidatedfinancial statements in whichthe subsidiary undertakings areincluded are publicly available;

� pension funds;

� building societies; and

� mutual life assurancecompanies.

Cash for purposes of the cash flowstatement is defined as cash in handand deposits repayable on demandwith any qualifying financialinstitution, less overdrafts fromany qualifying financial institutionrepayable on demand.

Tableau des flux de trésorerie


The French requirements in respectof the statement of cash flows wereinfluenced by the internationalstandard, IAS 7 (revised).Presentation of a cash flowstatement is required for allcompanies preparing consolidatedfinancial statements.

According to CRC Regulation n°99-02, enterprises should present a cashflow statement that shows areconciliation of the changes in thebalance of cash and cash equivalentsfor the period, reporting separatelyon major classes of gross cashreceipts and gross cash paymentsarising from:

� operating activities;

� investing activities; and

� financing activities.

CRC Regulation n°99-02 requiresthat for the purposes of the cash flowstatement, short-term highly liquidinvestments readily convertible into



Cash includes cash in hand anddeposits denominated in foreigncurrencies.

Cash flows are classified under thefollowing headings:

� operating activities;

� dividends from joint venturesand associates;

� returns on investments andservicing of finance;

� taxation;

� capital expenditure andfinancing and investment;

� acquisitions and disposals;

� equity dividends paid;

� management of liquidresources; and

� financing.

The indirect method is required,although the information given bythe direct method may be added. Areconciliation of operating profit tonet cash flow from operatingactivities is shown as a note to thestatement.[FRS 1]

See Appendix A.III for example.

a known amount of liquid assets andhaving a value that is unlikely tochange significantly are to beconsidered as cash equivalents.

The aggregate cash flows arisingfrom acquisitions and from disposalsof subsidiaries are disclosed as aseparate item under financingactivities, and include the amount ofcash and cash equivalents in thesubsidiary acquired or disposed of.

An entreprise may report cash flowsusing either:

� the direct method; or

� the indirect method.

The latter is the most commonlyused in practice. Two examples offormats are given for the indirectmethod, both showing areconciliation of profit to net cashflows on the face of the cash flowstatement:

� a format based on net profit orloss for the period; and

� a format based on operatingprofit for the period.

[Règ n°99-02]



A statement reconciling themovement of cash in the period withthe movement in net debt isrequired. Such a statement shouldnot form part of the cash flowstatement, but it may be givenadjoining the cash flow statement;alternatively, it may be shown as anote to the financial statements.

Cash flows of foreign subsidiaries orbranches are translated using theaverage rate for the period or theclosing rate, whichever is used forthe profit and loss account. Foreigncash flows of the entity are normallytranslated at the current exchangerate at the time of the cash flow.

The effect of exchange rate changeson cash held in foreign currencies isincluded in reconciliation of netdebt.

Material non-cash transactions aredisclosed in the notes where suchdisclosure is necessary to understandthe underlying transactions.

See Appendix A.III for example of acash flow statement (tableau des fluxde trésorerie) prepared using theindirect method.

Foreign currency cash flows aretranslated using current exchangerates at the time of the cash flows (orthe average exchange rate for theperiod).

The effect of fluctuations in currencyrates on cash and cash equivalents isshown at the end of the statement.

There is no specific requirement todisclose material non-cashtransactions.



Statutory accounts

For large companies, a cash flowstatement is required to be preparedand presented to the Board ofdirectors and employeerepresentatives, although it is notrequired to be published with theaccounts.

Additionally, these companies arerequired to prepare forecast cashflows for the next financial year.

The PCG provides examples of cashflow statements that analyse the netchange in working capital for theperiod split into operating items,non operating items and cash.

[PCG art 532-9]



1. CONSOLIDATION

Primary Differences inAccounting Policies

PRIMARY DIFFERENCES IN ACCOUNTING POLICIES 25

GENERAL REQUIREMENTS

Consolidated accounts aremandatory for all parent companiesunless one of the following threeexemptions applies:

� the UK parent claiming theexemption does not have anysecurities listed on an EU stockexchange, and the investingcompany is a wholly owned ormajority owned subsidiary of aparent incorporated in an EUmember state, which preparesaudited consolidated financialstatements in Englishcomplying with law based on theEU Seventh Directive, and theminority shareholders holdingmore than half the remainingshares or 5% of the total shareshave not requested groupaccounts;

[FRS 2, 1985 CA Sec. 228]

UNITED KINGDOM

The publication of consolidatedaccounts is mandatory unless one ofthe following two exemptionsapplies:

� EU parent condition similar tothat in the UK, except that thethreshold of minority interestsable to require preparation ofconsolidated accounts is 10% ofthe total shareholdings;

FRANCE


� the company and the groupheaded by it qualifies as a smallor medium sized and the groupis not ineligible.

In order to qualify as small ormedium, two out of three of theconditions below must apply:

Criteria Small MediumGroup Sized Group

Aggregate £2,800,000 £1,120,000 turnover net net

or £3,360,000 or £13,440,000gross gross

Balance £1,400,000 £5,600,000 sheet net nettotal or £1,680,000 or £6,720,000

gross gross

Averageemployees 50 250

Note: For these purposes “net” meansafter elimination of intra group itemsand “gross” before elimination. Thequalification may be satisfied by eitherdefinition.

A group is ineligible if any of itsmembers is:

– a public limited company;

– a banking institution;

– an insurance company; or

– an authorised person underthe Financial Services Act1986;

� where all of the subsidiariesindividually are excluded fromconsolidation (see subsidiaryundertakings below).

� the French parent company isthe head of a group qualifying asa small group, i.e. when two ofthe following criteria haveapplied during the last twoconsecutive periods:

– total assets less thanFF100 million ( 15m asfrom 1 January 2002);

– turnover less thanFF200 million ( 30m asfrom 1 January 2002);

– average number ofemployees less than 500.

Note: the thresholds are beforeelimination of intra-group items.

[Code de Commerce, Art. L233-17;Decree of 23 March 1967, Art. D248-13 and D248-14]

26 PRIMARY DIFFERENCES IN ACCOUNTING POLICIES

Where consolidated accounts are notprepared, the investments insubsidiaries and associatedundertakings are usually valued atcost less any accumulatedimpairment losses recognised inaccordance with FRS 11.

Consolidated financial statementsmust be drawn up using consistentaccounting policies and principles.

Accounting for businesscombinations is considered inSection 3. Consolidationadjustments normally include:

� amortisation of goodwill ornegative goodwill;

� elimination of intra-groupbalances, transactions andresulting unrealised profit;

� elimination of intra-groupdividends; and

� elimination of minority interestsin the net assets and the netincome of consolidatedsubsidiaries for the reportingperiod. Appropriate shares oflosses continue to be allocated tominority interests in asubsidiary even if they result ina net deficit attributable to theminority interest unless theparent has any additionalfinancial obligations in respectof the minority share of thesubsidiary’s liabilities.

When consolidated accounts are notprepared, the investments are valuedat cost less provisions for permanentdiminution in value.

Similar to UK GAAP, consolidatedfinancial statements must be drawnup using consistent accountingpolicies and principles.

Normally, consolidation adjustmentsinclude:

� amortisation of goodwill ornegative goodwill;

� elimination of intra-groupbalances, transactions andresulting unrealised profit;

� elimination of intra-groupdividends; and

� elimination of minority interestsin the net assets and the netincome of consolidatedsubsidiaries for the reportingperiod. When the share ofminority interests in net assetsof the subsidiary is reduced tozero, further losses areattributed to the group only,unless minority shareholdershave formal financial obligationsto support the subsidiary.


CONSOLIDATION ADJUSTMENTS


UK accounting is not tax driven andthe principles applied in preparationof consolidated accounts are thesame as for individual entity’saccounts.

In addition to the aboveconsolidation adjustments, FrenchGAAP for consolidated financialstatements requires restatement ofthe majority of the tax driven entriesmade in an entity’s statutoryaccounts. These restatementsinclude:

� elimination of the accelerateddepreciation charge where thestraight-line method betterreflects the economicdepreciation of the asset(provision pour amortissementdérogatoire; see Section 11);

� elimination of other tax drivenprovisions (provisionsréglementées; see Section 11);

� reclassification of capitalgovernment grants (subventionsd'investissement; see Section 6);and

� recognition of deferred tax(recognition of deferred tax isnot required in the individualcompany accounts butmandatory in the consolidatedaccounts; see Section 11 forfurther discussion).

In addition to the above mandatoryconsolidation adjustments, therecently issued methodologyencourages use of specificaccounting policies for certain itemsin the consolidated financialstatements. Adoption of thesepolicies often results in additionaladjustments being made inconsolidated financial statements.



Accounting for post-retirementbenefits in the UK is discussed inSection 10 of this book.

Finance leases are required to becapitalised by the lessees (seeSection 20).

Debt issue costs are included in thecarrying amount of debt andrecognised in the profit and lossaccount over the term of the debt(see Section 9).

See Section 19.

In the UK, the percentage ofcompletion method is the onlypermitted method of accounting forlong-term contracts (see Section 8).

Once adopted, these policies cannotbe changed. If an enterprise choosesnot to adopt these policies,equivalent information must bepresented in the notes.[Règ n°99-02]

These policies are:

� recognition of provisions forpost-retirement benefits. This isalso the preferred method in thestatutory accounts (seeSection 10);

� capitalisation of finance leasesby the lessees (not permitted instatutory accounts) (seeSection 20);

� recognition of debt issue costs inthe profit and loss account overthe term of the loan (when thesecosts have been charged to theprofit and loss immediately inthe statutory accounts) (seeSection 9);

� recognition of unrealisedexchange gains and losses asincome and expenses(recognition of unrealisedexchange gains is not permittedin the statutory accounts) (seeSection 19); and

� the use of the percentage ofcompletion method inaccounting for long-termcontracts (also the preferredmethod in the statutoryaccounts) (see Section 8).



SUBSIDIARY UNDERTAKINGS

The legal definition of a subsidiaryundertaking requiring consolidationincludes undertakings (corporations,partnerships and unincorporatedassociations) in which the parent(directly and with its subsidiaries’holdings):

� holds a majority of its votingrights; or

� is a member and has the right toappoint or remove directorsholding a majority of the votes ata meeting of the board ofdirectors; or

� is a member and controls alone,pursuant to an agreement withother shareholders or members,a majority of its voting rights; or

� has the right to exercise adominant influence by virtue ofits constitution or a controlcontract; or

� has a participating interest(generally a holding of 20% ormore, including convertiblesecurities and options) andactually exercises a dominantinfluence or manages theundertaking on a unified basiswith its own operations.

[CA 1985 Sec. 258]

CONTROLLED ENTITIES

An enterprise is required toconsolidate all entities that itcontrols. Control may be exercisedthrough legal structure or based onde facto circumstances. Control isdefined as the power to govern thefinancial and operating policies of anenterprise so as to obtain benefitfrom its activities.

Control exists where an investor:

� holds, directly or indirectly, amajority of the voting rights;

� has appointed for twoconsecutive financial periods themajority of the board ofdirectors. (It is presumed to bethe case where the investorholds more than 40% of thevoting rights of the investee, andno other entity holds a stake of acomparable or larger size); or

� has the right to exercise adominant influence by virtue ofthe investee’s articles ofassociation or a control contract.

[Règ n°99-02]



A subsidiary undertaking is notconsolidated where:

� severe long term restrictionsexist that prevent the parentfrom exercising control over itsassets and management; or

� it is held exclusively with a viewto resale and has not beenpreviously included inconsolidation.

[FRS 2 and CA 1985 Sec. 229]

Immaterial subsidiaries need not beconsolidated – two or more may beexcluded only if they are not materialtaken together.

Exclusion from consolidation is notallowed on the grounds of dissimilaractivities, although companieslegislation retains a formalrequirement not to consolidatesubsidiaries with dissimilaractivities, FRS 2 adds that ‘it isexceptional for these circumstancesto arise’ with the result that, inpractice, this exception is never used.[CA 1985 Sec. 229(4), FRS 2]

Where a subsidiary undertaking isexcluded from consolidation, thereason for exclusion and, subject tocertain exceptions, the aggregateamount of the capital and reservesand profit or loss for the year of theexcluded subsidiary are required tobe disclosed.[CA 1985 Sch. 5]

Exclusion from consolidation (thisalso applies to joint-ventures andassociates) is required where severelong-term restrictions preventcontrol of the subsidiary or transferof cash to the parent company. It isalso permitted for an investmentheld exclusively with a view to resale.

As in the UK.[Règ n°99-02, Code de Commerce,Art. L233-19]

All controlled entities should be fullyconsolidated, even in the case ofdissimilar activities as, for instance,in a case of a banking or aninsurance subsidiary of an industrialcompany.[Règ n°99-02]

If a subsidiary is excluded fromconsolidation, the reason and criteriaused must be disclosed.[Règ n°99-02, Code de Commerce,Art. L233-19]


EXCLUSION FROM CONSOLIDATION


A directly or indirectly controlledcompany, trust, partnership or othervehicle that does not fall under thelegal definition of a subsidiaryundertaking is required to beconsolidated if it gives rise tobenefits as if it were a subsidiary.These are referred to as quasi-subsidiaries.[FRS 5]

A special purpose entity (SPE, entitéad hoc) should be consolidated whenthe substance of the relationshipbetween an enterprise and the SPEindicates that the SPE is controlledby the reporting enterprise, and if atleast one share is held by thecontrolling enterprise.

When a company does not holdshares of a controlled SPE, theamount of assets, liabilities andresults of the SPE should bedisclosed in the notes, although thelevel of detail to be disclosed is notspecified.[Règ n°99-02]


QUASI SUBSIDIARIES AND SPECIAL PURPOSE ENTITIES


Significant influence is defined asthe power to participate in thefinancial and operating policydecisions of an enterprise whichhowever does not give rise to controlover those policies. Significantinfluence is presumed to exist incases where a company holdsdirectly or indirectly 20% or more ofthe voting power of an enterprise.

In consolidated financial statements,enterprises over which a companyexercises a significant influence areaccounted for using the equitymethod.

If an associate has negative netassets, the value of the investmentincluded using the equity methodcannot be less than zero unless theinvestor has financial obligations tothe investee. In such circumstancesinvestor’s share of the net liabilitiesof the associate is accounted for as aprovision for liabilities and charges.[Règ n°99-02]

UNITED KINGDOM FRANCE


2. ASSOCIATES AND JOINT VENTURES

ASSOCIATED UNDERTAKINGS AND SIGNIFICANT INFLUENCE

An associate is an investment overwhich the investor exercisessignificant influence, which ispresumed when an investor ownsbetween 20 per cent and 50 per centof the voting rights of the investee.This, however, is a rebuttablepresumption: if the investor does notactively exercise its significantinfluence in its investee’s affairs, theinvestment may not qualify as anassociate.

An interest that is held exclusivelywith a view to subsequent resale isnot accounted for as investment inan associate.

The equity method is the requiredmethod of accounting for associatedcompanies in the consolidatedfinancial statements.

An investor continues to account foran investment in an associate whenthe associate has nil or negative netassets unless there is sufficientevidence that an event hasirrevocably changed the relationshipbetween the investor and theassociate. Once an investment ceasesto be accounted for as an associateunder the equity method, it may notbe accounted for as an associateagain in the future.[FRS 9]


In the investing company’sindividual financial statements,investments in associates are valuedat either cost, less amounts writtenoff, or at valuation. Where aninvestor does not prepareconsolidated accounts (e.g. because ithas no subsidiaries), it providesequity based information either in aseparate set of financial statements,or as additional information to itsown financial statements.

In the consolidated profit and lossaccount (from operating profitdownwards) and the statement oftotal recognised gains and losses, theshare of associates’ items isseparately disclosed.[FRS 9]

JOINT VENTURES

FRS 9 describes two forms ofarrangement which involve jointcontrol but which result infundamentally different accountingtreatments:

� joint venture – a jointlycontrolled entity (entity meaninga venture with a trade orbusiness of its own, which mayor may not be a legal entity); and

� joint arrangement that is not anentity (JANE) – a jointlycontrolled asset, operation, orlegal entity which amounts to anextension of the investor’s owntrade.

As in the UK, in the investingcompany’s individual financialstatements, investments inassociates are generally valued at costless amounts written off. If theinvestor does not have anysubsidiaries but has associatedundertakings, it is required toprepare a separate set of accountscomplying with the requirements forconsolidated accounts.

In the consolidated profit and lossaccount only the share of the netresult of associates is disclosed.

Joint control in respect of an entityexists where the following conditionsare met:

� the entity has a limited numberof partners which together areable to exercise a majority of thevotes;

� there is a contractual agreementbetween the partners; and

� the entity’s operating andfinancial policy decisions cannotbe taken without the commonagreement of the partners.



A joint venture is an entity in whichthe reporting entity holds an intereston a long-term basis and is jointlycontrolled (no one entity can alonecontrol but all together can do so) bythe reporting entity and one or moreother venturers under a contractualarrangement.

In an investor’s consolidatedaccounts, joint ventures areaccounted for on the gross equitymethod, which is similar to theequity method (or net equitymethod) but requires additionalinformation to be shown on the faceof the financial statements:

� the investor’s share of turnoverin the joint venture on the faceof the profit and loss account,separately from group turnover;and

� the share of gross assets andliabilities of the joint venture onthe face of the balance sheet.

In the investing company’sindividual financial statements, therequirements are similar to those inrespect of the associates (see above).[FRS 9]

Proportional consolidation isrequired for all undertakings jointlycontrolled with another company.[Règ n°99-02]

In the investing company’sindividual financial statements, therequirements are similar to those inrespect of the associates (see above).



The requirement for a JANE is thateach participant should account forits own assets, liabilities and cashflows, measured according to theterms of the agreement governingthe arrangement. Each participantaccounts for its share of those itemsthat are not wholly attributable to anyone participant. This treatment hasan effect which is similar to, but notnecessarily identical to, proportionalconsolidation.[FRS 9]

French GAAP does not have specificguidance in respect of sucharrangements.



Acquisition accounting is thegenerally required method inbusiness combinations. The use ofmerger accounting for businesscombinations in the UK is restrictedto ‘true mergers’, defined below.

In the individual accounts of theacquired entity, assets and liabilitiesnormally continue to be recorded atthe carrying values before theacquisition.

A common method of businesscombination in France is to mergeone entity into another or tocontribute assets of one entity toanother company. The considerationfor the fair value of the assets andliabilities transferred is settled byissuing shares in the absorbingcompany. At the date of the businesscombination, the respective values ofthe two companies involved aredetermined to calculate the ratio tobe used for the share exchange. Thisratio, and the value of assetscontributed, is certified by anindependent accountant appointedby the Tribunal de Commerce.

In the statutory accounts of theacquiror, the contributed assets arerecorded either at the net book valuethey had in the accounts of theacquiree, or at fair value, dependingon the terms of the mergeragreement. This decision will oftenbe influenced by tax considerations.

Acquisitions are accounted for inconsolidated accounts using thepurchase method. For businesscombinations which are legalmergers or contribution of assets,the purchase method must generallybe used, but if certain conditions aremet (see below) there is an optionallowing the use of a ‘pooling’method.


3. ACCOUNTING FOR BUSINESS COMBINATIONS


ACQUISITION (PURCHASE) ACCOUNTING


Under the acquisition accountingrules, UK GAAP requires theidentifiable assets and liabilities of theacquired entity to be included in theconsolidated financial statements ofthe acquirer at their fair values at thedate of acquisition. The differencebetween these and the cost ofacquisition is recognised as goodwillor negative goodwill (see Section 4).

The results of the acquired entity areincluded in the profit and lossaccount of the acquiring group fromthe date of acquisition.

Minority interests are recorded atfair value.[FRS 7]

COST OF ACQUISITION

The cost of an acquisition ismeasured at the fair value of thepurchase consideration and includesexpenses incurred directly in makingthe acquisition. Issue costs of sharesor other securities used to financethe acquisition are accounted for as areduction in the proceeds of a capitalinstrument and do not form part ofthe cost of acquisition (see Sections 9and 13 for accounting for issuecosts).[FRS 7]

As in the UK, under the purchasemethod of accounting the acquirerrecognises in the consolidatedbalance sheet the fair value ofidentifiable assets and liabilities ofthe acquiree and any goodwillarising (equal to the differencebetween the cost of acquisition andthe acquiror’s interest in the fairvalue of identified assets andliabilities acquired).

As in the UK, the results of theacquired entity are included in theconsolidated profit and loss accountfrom the date of acquisition.

Generally, minority interests arerequired to be recorded at fair value.However, enterprises which had apolicy of recording minority interestsat pre-acquisition book value maycontinue to do so.[Règ n°99-02]

The cost of an acquisition ismeasured by the reference toamount of cash and cash equivalentspaid and the fair value of shares andany other assets transferred aspurchase consideration, plus anyexpenses directly attributable to theacquisition net of taxation.



UK GAAP does not allow inclusionin the cost of acquisition ofredundancy expenses as a result ofthe acquiring entity’s actions.

When settlement of cashconsideration is deferred, the fairvalue of consideration is obtained bydiscounting to present value.

FRS 7 requires the cost ofacquisition to include a reasonableestimate of the fair value of anyamount of contingent considerationexpected to be payable in the future.These estimates should be reviewedand adjusted, if necessary, at eachbalance sheet date subsequent toacquisition, with consequentialcorresponding adjustments togoodwill.[FRS 7]

Where deferred or contingentconsideration is to be satisfied by theissue of shares, there is no obligationto transfer economic benefits, andtherefore, amounts recognised arereported in the balance sheet as partof shareholders’ funds as a separatecaption representing shares to beissued.[FRS 7]

Expenses considered to be part of thecost of acquisition may include costsof redundancy payments (net oftaxation) resulting from arestructuring programme to reduceredundant capacity of the acquiringentity caused by the acquisition.

There is a similar requirement inrespect of deferred consideration.

There is a similar requirement inrespect of contingent cashconsideration.[Règ n°99-02]

There is no specific guidance inFrance.



The cost of an acquired enterprise isallocated to its assets and liabilitiesbased on their fair values that reflectthe conditions at the date ofacquisition. FRS 7 ‘Fair values inacquisition accounting’ providesrules and guidance on assigning fairvalues to specific types of assets andliabilities.

Specifically:

� monetary assets and liabilitiesshould take into account thetiming of amounts expected tobe received or paid. Where amarket value exists this wouldbe used. Where there is nomarket value, the amount willbe determined by looking at an

As in the UK, fair values assigned toidentifiable assets and liabilities ofan acquired enterprise should reflectconditions at the date of acquisition.Identifiable assets and liabilities arevalued by the reference to theirexpected use by the acquirer. For thepurpose of establishing their valuesthe assets are classified into twocategories:

� assets to be used for operatingpurposes; and

� assets not to be used foroperating purposes.

Assets to be used for operatingpurposes are to be valued at theirvalue in use, which in most casescorresponds to the replacementvalue. An asset which is not to beused for operating purposes isvalued at its market value, or in theabsence of a market, at its likely netrealisable value.

CRC Regulation n°99-02 providesrules and guidance on assigning fairvalues to specific types of assets andliabilities.

Specifically:

� similar to UK GAAP, Règ n°99-02 requires that on acquisitionfair values of amounts receivableor payable should take accountof the timing of receipt orpayment by a discountingmethod based on marketinterest rate;


RECOGNITION AND MEASUREMENT OF ASSETS ANDLIABILITIES ACQUIRED


equivalent item or bydiscounting. The unwinding ofany discount is treated asinterest;

� on consolidation the deferred taxbalance of the acquired companyis determined on the basis of thenew group, i.e. revised wherethe new group structure changesthe amount of tax liabilities orassets expected to crystallise inthe future. An additionalprovision for deferred taxation ismade for the difference betweenthe fair value assigned to assetsand their book values only to theextent that there was acommitment to sell the assetsbefore the acquisition;[FRS 7, FRS 19]

� tax benefits of losses carriedforward by an acquiredenterprise not recognised at theacquisition date are recognisedin the profit and loss accountwhen they give rise to a benefit;[FRS 7]

� an intangible asset which can besold separately from theunderlying business acquired isvalued separately. If, however,an asset can be disposed of onlyas part of the revenue-earningactivity to which it contributes, itis regarded as indistinguishablefrom the goodwill relating tothat activity and is accounted foras goodwill;[FRS 10]

� French GAAP does not havespecific guidance on this matter;the deferred tax balance isdetermined in accordance withthe general rules discussed inSection 11;

� similar to UK GAAP;

� an intangible asset is recognisedseparately if it is capable ofbeing separately valued on acontinuous basis according toobjective and relevant criteria.The fair value of an intangibleasset is its market value, wherean active market exists forsimilar assets. In the absence ofan active market, the value inuse is determined by referenceto industry practice;



� an asset held under a financelease is always capitalised andshown separately from theobligation for minimum leasepayments (see Section 20); and

� where a business is acquiredwhich sponsors a definedbenefit pension plan, fair valuesare attributed to an asset inrespect of an actuarial surplusexpected to be realised in cashterms, or by a reduction infuture contributions, and aliability in respect of a deficit.Changes in benefits accruing tothe members of acquiredschemes, whether negotiated asa condition of the acquisition ornot, are accounted for as a post-acquisition item.

Liabilities and provisions may onlybe recognised for obligations of theacquired company existing at thedate of acquisition. In particular thefollowing items are treated as post-acquisition expenditure:

� changes resulting from theacquirer’s intentions or futureactions; and

� a tangible fixed asset held undera finance lease is eithercapitalised or not, depending onthe policy of the acquiringcompany (see Section 20). If it isnot capitalised, the differencebetween the fair value of such anasset at the date of acquisitionand the present value of theremaining lease payments andany repurchase option is shownas an intangible asset or as aliability; and

� post employment benefits andother similar benefits must beaccounted for in the restatedbalance sheet of the acquiredcompany at the date ofacquisition, even if the acquiringcompany does not usuallyaccount for such obligations inits consolidated accounts (seeSection 10).

Similarly to UK GAAP, as a generalrule, liabilities and provisions shouldreflect conditions at the date ofacquisition. Provisions for futureoperating losses, with the exceptionof losses on onerous contracts, arenot allowed. However, arestructuring provision may berecognised if the following twoconditions are met:



� provisions or accruals for futureoperating losses or forreorganisation and integrationcosts (including closingduplicate facilities) expected tobe incurred as a result of theacquisition, whether they arerelated to the acquired entity orthe acquirer.

However, provision is required to bemade for onerous contracts orcommitments of the acquired entityexisting at the date of acquisition.

The fair value assigned to assets andliabilities acquired may be amendedwith a corresponding adjustment togoodwill until the end of the firstyear after the date of acquisition. Anysubsequent adjustments arerecognised in the profit and lossaccount.[FRS 7]

� the restructuring programmeidentifies and estimates costsinvolved in sufficient detail; and

� the programme and itsconsequences are publiclyannounced by the end of thefirst financial year following theyear of acquisition.

As discussed under Cost ofAcquisition above, redundancyexpenses of the parent entityresulting from the acquisition maybe included in the cost ofacquisition.

In any case, restructuring provisionsaccounted for on acquisition whichare subsequently not required mustbe released to the profit and lossaccount, and offset by an equal andopposite amount of exceptionalgoodwill amortisation.

See also Section 12 for furtherdiscussion of restructuringprovisions.

Similarly to UK GAAP, the fair valueassigned to assets and liabilitiesacquired together with thecorresponding amount of goodwilland accumulated amortisation ofgoodwill may be amended until theend of the financial period beginningafter the year of acquisition unlessthe change in value is caused by anunrelated event that occurred afterthe acquisition. Subsequent changesin value are reported in the profitand loss account.[Règ n°99-02]



MERGER ACCOUNTING

FRS 6, effective for combinationsfirst accounted for in yearsbeginning on or after 23 December1994, introduced more restrictivequalitative criteria than the oldstandard, SSAP 23, and requiresmerger accounting to be used in therare situations of a ‘true merger’.(The old SSAP 23 rules still apply tobusiness combinations in earlierperiods.)

The qualitative criteria which areintended to restrict mergeraccounting to true merger situationsare:

� no party is portrayed as eitheracquirer or acquired;

� all parties participate inestablishing the managementstructure for the combinedentity;

� the relative sizes of thecombining entities are not sodisparate that one dominates byvirtue of size;

� no more than an immaterialproportion of the considerationreceived is represented by non-equity consideration (includingany consideration received forequity acquired in the two yearsprior to the combination); and

� no shareholder of the combinedentity retains an interest in onlypart of the combined entity.

[FRS 6]

MÉTHODE DÉROGATOIRE

In the consolidated financialstatements, the méthode dérogatoirewas introduced by Règ n°99-02(§215) and can only be used if thefollowing four conditions are met:

� the parent has obtained at least90% of the share capital of theother entity in a singletransaction;

� consideration for the sharesacquired represents sharesissued by the parent company orone of its subsidiaries. The issueof new shares may beimmediate or deferred, in whichcase there must be a firmcommitment to issue shareswithin a period not exceedingfive years;

� the proportion of the totalconsideration represented bynon-equity elements cannotexceed 10% of the value ofshares issued; and

� the substance of the transactionis not changed within a period oftwo years from the end of theperiod in which control isachieved.

CRC Regulation n°2000-07 partlyrevised and added more detailedguidance to paragraph 215 of Règn°99-02. Detailed guidance onthe application of criteriafor the use of méthode dérogatoire isboth lengthy and complex, andtherefore is not reproduced here.



To use merger accounting, thequantitative criteria set out in theCompanies Act also have to be met:

� as a result of the offer, theofferor has secured at least 90%of all equity shares; and

� the fair value of anyconsideration other than equityshares does not exceed 10% ofthe nominal (par) value of theequity shares issued.

Where both sets of criteria are met,FRS 6 requires merger accounting tobe used.[FRS 6]

Currently, UK GAAP does not havespecific guidance in respect ofaccounting for contributions ofbusinesses in exchange for equity insubsidiaries, associates and jointventures. However, the UITF hasissued a draft Abstract on this during2001.

There is a specific exemption fromthe above criteria for groupreconstructions (transactionsbetween entities under commoncontrol). These businesscombinations can be accounted forby using merger accountingprovided that:

� the use of merger accounting isnot prohibited by law (seebelow);

� the ultimate shareholdersremain the same, and relativerights of each are unchanged;and

Consequently, caution should beexercised when considering whethera business combination is elegible touse this ‘pooling’ method.

The scope of the méthode dérogatoirewas extended to contributions ofbusinesses to jointly controlledentities which are more than 90%held by the venturers after thetransaction.[Règ CRC n°2000-07, Règ n°99-02§2801]

No specific guidance exists in thisarea.



� minority interests in the netassets of the group are notaffected.

Under the merger method ofaccounting:

� existing assets and liabilities ofthe combining enterprises areaggregated;

� no fair value adjustments aremade and no goodwill isrecognised; and

� the difference between theamount recorded as sharecapital issued plus anyadditional consideration in theform of cash or other assets andthe amount recorded for theshare capital acquired isadjusted against reserves.

As in the UK, under the méthodedérogatoire the cost of acquisition isreplaced by the historical value of thenet assets of the merged business,with the difference adjusted againstreserves. The values of assets andliabilities are restated under theuniform accounting policies of thegroup. These values may beamended until the end of thefinancial year following the year ofacquisition. Gains and losses ondisposal of assets not to be used foroperating purposes which arerealised within two years from thedate of acquiring control arerecorded directly in reserves, to theextent that the potential gain existedat the date of acquisition.

Proforma accounts must beproduced which include the result ofmerged company as if thetransaction had occurred at the startof the financial year in which themerger occurred.[Règ CRC n°2000-07]



4. GOODWILL

Goodwill in consolidated accountsarising on acquisition of a company(écart d’acquisition positif) is requiredto be recognised as an asset andpresented as a specific sub-headingwithin fixed assets. In exceptionalcircumstances, goodwill is allowed tobe written off to reservesimmediately where such treatment isnecessary to give a true and fair view.However, it is generally anticipatedthat this exception will not be used inpractice.[Code de Commerce Art. L123-14;Règ n°99-02 (§ 212)]

Goodwill must be amortised on areasonable basis which reflects theestimates and assumptions madeand documented at the time ofacquisition. No time limit isspecified.[Règ n°99-02]



TREATMENT

Under both UK and French GAAP, goodwill arising on a business combinationaccounted for as an acquisition (using the purchase method) is calculated as thedifference between the cost of the entity acquired and the fair value of the netidentifiable assets acquired. However, the amount of goodwill calculated underUK and French GAAP may differ because of the differences in requirements forcalculating the cost of acquisition and its allocation to identifiable assets andliabilities acquired, discussed in Section 3. Internally generated goodwill is notcapitalised under either UK GAAP or French GAAP.

In FRS 10, the ASB outlawed thepreviously preferred treatment ofeliminating the full amount ofgoodwill against reserves at the timeof acquisition.

Goodwill must now be capitalised asan asset.[FRS 10]

The useful economic life of goodwillis presumed to be 20 years or less.That presumption may be rebutted,with either a longer life or anindefinite life being substituted if thedurability of the acquired businesscan be demonstrated and it justifiesestimating the useful economic lifeto exceed 20 years and the goodwill iscapable of continued measurement.If both conditions are met, thegoodwill will either be amortisedover a period greater than 20 years orremain unamortised.[FRS 10]


If not deemed to have an indefinitelife, goodwill is depreciated over itsuseful life using a straight linemethod unless another method isshown to be more appropriate.

FRS 10 is effective for accountingperiods ending on or after23 December 1998.

Transitional provisions give severaloptions:

� at one extreme, all goodwillwhich has been previouslyeliminated against reservesremains under the old regime,provided it is included as part ofan existing reserve;

� at the other extreme, all ‘old’goodwill may be capitalised, andbecome subject to the new rules,with any amortisation whichwould have been provided inearlier years being shown asprior year adjustment; and

� between these two extremes,there are two further optionswhich allow recent goodwill tobe capitalised but older goodwillto remain eliminated.

[FRS 10]

Upon disposal of a previouslyacquired business (either all or inpart) where the attributable goodwillhas been eliminated against reserves,the resulting gain or loss isdetermined by including theattributable amount of goodwill.[FRS 2 and FRS 10]

In practice goodwill is normallyamortised over a period notexceeding 40 years. However manyenterprises use periods notexceeding 20 years as specified byIAS 22.

Similarly to UK GAAP, upondisposal or part disposal of apreviously consolidated company,the attributable amount of goodwillis included in the determination ofgain or loss on disposal. Wheregoodwill has been eliminated againstreserves (as previously allowed), the



The provisions of FRS 10 apply toboth the goodwill arising in anindividual entity when it acquires abusiness and the goodwill arising onconsolidation when the groupacquires a new company or anadditional equity stake in a partly-owned company.[FRS 10]

amount included in the calculationof gain or loss on disposal is thecarrying amount that it would havehad had the goodwill beenrecognised as an asset andamortised. The accountingdifference that results from theapplication of the pooling method isnot included in the net profit or losson disposal of a business.

Goodwill (fonds commercial) arisingin the individual financial statementsof an enterprise on acquisition of anon-incorporated business is alsorequired to be capitalised. Itcomprises intangible items(including leaseholds) which havenot been measured and recognisedindividually – these items contributeto the maintenance or developmentof the business operations of thecompany.[PCG art 442-20]

French law does not specify anyrequirement or recommendation forthe amortisation of goodwill inindividual companies’ accounts.

Purchased goodwill which benefitsfrom a legal protection need not beamortised, but may be carried at costless any provision for permanentdiminution in value.

As goodwill amortisation is not taxdeductible, French enterprises rarelyamortise goodwill in the statutoryaccounts. Non-amortisation ofgoodwill is seen as permitted by theCNCC and the COB.



NEGATIVE GOODWILL

Negative goodwill is initiallyrecognised as a negative asset, beingshown immediately below thegoodwill heading and followed by asubtotal giving the net amount ofpositive and negative goodwill.

Negative goodwill up to the fair valueof the non-monetary assets acquiredis recognised in the profit and lossaccount in the periods in which thenon-monetary assets are recovered,whether through depreciation orsale. The method of recognition inthe profit and loss account of theexcess of negative goodwill over thefair value of non-monetary assetsacquired is not prescribed as this isexpected to occur extremely rarely.[FRS 10]

IMPAIRMENT REVIEWS

If goodwill is deemed to have anindefinite life, or one of more than20 years, an impairment review isrequired at the end of each year.Otherwise an impairment review isonly required at the end of the firstfull year following the acquisition orif there is a change of circumstancesin future years indicating animpairment in value.

Any impairment loss is recognisedin the profit and loss account.

Where an external event caused therecognition of an impairment loss inprevious periods, and subsequent

In consolidated accounts, negativegoodwill (écart d’acquisition négatif) iscredited to a provision for liabilitiesand charges account. It can arise dueto the expectation of future losses inthe acquired company or in case of abargain purchase. Negative goodwillis released to the profit and loss overan appropriate period using theassumptions made at the date ofacquisition.

Although it is still allowed to creditnegative goodwill directly to reservesin exceptional circumstances, thistreatment is not expected to be usedin practice.[Règ n°99-02]

There is a general rule that requiresan impairment review to be carriedout at the end of each year. If thecarrying value of the asset exceeds itscurrent value estimated by referenceto its market value or value in use, anadditional depreciation charge isrequired to be recognised in theprofit and loss account in the periodof review. French GAAP does nothave detailed guidance on theprocedures to be performed forimpairment reviews.[Code de Commerce, Art. L123-18 al.2; PCG art 322-1]


external events clearly anddemonstrably reverse the effects ofthat event in a way that was notforeseen in the original impairmentcalculations, any resulting reversal ofthe impairment loss is recognised inthe profit and loss account.[FRS 10]

See Section 6 for a discussion of themechanics of an impairment review.

In consolidated accounts, animpairment loss in respect ofgoodwill is recognised as anexceptional amortisation chargewhich cannot be reversed.[Règ n°99-02]



On acquisition of a business, anintangible asset which can be soldseparately from the underlyingbusiness is assigned a fair value andshown separately.

If, however, an asset can be disposedof only as part of the revenue-earning activity to which itcontributes, it is regarded asindistinguishable from goodwillrelating to that activity and isaccounted for as goodwill.

An internally generated intangibleasset can be capitalised, but onlywhere it has a ready market value.

Similarly, if an intangible asset hasready market value it can be carriedat a revalued amount.[FRS 10]

As for goodwill.[FRS 11]

Under the purchase method ofaccounting, the fair value ofidentifiable intangible assets of thepurchased company such as brandsmay be recognised in consolidatedaccounts as separate assets fromgoodwill provided that they can beseparately valued based on futurecash flows, observable market valuesor other appropriate valuationmethods on the date of acquisitionand subsequently.

Internally generated brands orsimilar intangibles are rarelyrecognised as separate assets inpractice.

Intangible assets may not berevalued.[Code de Commerce, Art. L123-18al.4, PCG art 350-1]

Amortisation of intangible assetswhich are similar in nature togoodwill (e.g. brands, customer lists,etc.) is not mandatory. However, aprovision is required to be made forany permanent diminution in value(see above).

Patents are amortised over theshorter of the period of use and theduration of the patent.


5. OTHER INTANGIBLE ASSETS


AMORTISATION AND IMPAIRMENT REVIEWS


Development costs related to definedprojects may be deferred to futureperiods, provided that the outcomeof the projects can be assessed withreasonable certainty as to theirtechnical feasibility and commercialviability (i.e. future expenditure canbe recovered from future revenueand adequate resources exist).Otherwise, development costs(except those which are reimbursableunder contracts with third partiesand those incurred in locating andexploiting mineral deposits) and allresearch costs are written off asincurred.[SSAP 13]

COMPUTER SOFTWARE

The definition included in FRS 10 ofan intangible asset excludes certainassets that have sometimes beentreated as intangibles in the past. Forexample, computer softwaredeveloped or purchased for usewithin the business which isattached to tangible hardware isexcluded from the scope ofintangibles and treated instead aspart of the tangible asset.[FRS 10]

Research and development costs aregenerally expensed as incurred. Asan exception, the French accountingstandards allow companies tocapitalise costs of certain appliedresearch and development projects.The conditions required are thesame as in the UK. Capitaliseddevelopment costs should beamortised over the period expectedto benefit, subject generally to amaximum period of five years. If acompany chooses to capitalisedevelopment costs, it should applythis policy on a consistent basis.

Unamortised applied research anddevelopment costs are deductedfrom retained earnings to calculatedistributable earnings.[PCG art 361-2, 361-3]

Purchased computer software iscapitalised as an intangible asset atacquisition cost. Computer softwaredeveloped internally can becapitalised at production cost ifcertain conditions very similar tothose in respect of research anddevelopment expenditure are met.Both categories of software aredepreciated over the estimatedperiod of use. However, in thestatutory accounts computersoftware may be depreciated over 12months for tax purposes.[PCG art 331-3]


RESEARCH AND DEVELOPMENT COSTS


START-UP COSTS

The ‘preliminary’ expenses of acompany may not be capitalised.However, they may be written offagainst a company’s share premiumaccount. These expenses normallyinclude any legal fees and otherexpenses associated with the processof company registration. Theseexpenses do not include operatinglosses in the first years of operation.[CA 1985 Sch 4 Pt I and CA 1985 PtV Ch III]

Certain start-up costs are capitalisedas part of acquisition or self-construction of a tangible fixed assetif they relate to the period when theasset is available for use butincapable of operating at normallevels without such a start-up orcommissioning period.

However, operating losses due tolack of demand may not becapitalised. For example the lossesincurred by a hotel or a bookshop,which could operate at normal levelsalmost immediately, but for whichexperience teaches that demand willbuild up slowly and full utilisationwill be achieved only over the periodof several months, may not becapitalised.[FRS 15]

Start-up costs are normally expensedas incurred but sometimes may beclassified as intangible assets (fraisd’établissement) or deferred chargesdepending on their nature. Theheading frais d’établissement mayinclude external costs such as legalfees and other expenses inestablishing a legal entity. Such costsmust be amortised over a periodwhich cannot exceed five years. Theundepreciated amount is deductedfrom retained earnings to calculatedistributable earnings. These itemsare usually written off inconsolidated accounts.[PCG art 361-1, 361-3]



Other start-up costs that relate tonew activity such as opening of anew facility, introducing a newproduct or service, conductingbusiness in a new territory, etc. arerequired to be accounted on the basisconsistent with the accountingtreatment of similar costs incurredas part of ongoing activities. In caseswhere there are no such similarcosts, start-up costs can only berecognised as assets if they meet therecognition criteria in the relevantstandards such as those dealing withtangible fixed assets, intangibleassets or development costs.[UITF 24]

Other expenditure on start-upactivities, for instance costs to open anew facility or business (pre-openingcosts), or expenditure forcommencing or launching newproducts or processes (pre-operatingcosts) may be accounted for asdeferred charges if they will result infuture economic benefits. Suchdeferred expenditure should beamortised over a relatively shortperiod.[PCG art 361-4]


SHORT LEASEHOLD PREMIUMS

Rental holidays, reverse premiumsand other incentives paid to lesseesto enter into operating leasecontracts are required to be spreadon a straight-line basis over the leaseterm or, if shorter than the full leaseterm, to the review date on which therent is first adjustable to theprevailing market rate. Where, in theexceptional circumstances, thesepayments do not represent part ofthe lessor’s market return, anothersystematic and rational basis may beused.[UITF 28]

Leasehold contracts are usually threeto nine years in France.

Lessees are required to capitalisepremiums paid on these contracts(droit au bail) as intangible assets ifthey represent a negotiable right.They should not be amortised butwritten off where a permanentdiminution in value is identified.These premiums normally have amarket value at the end of the leaseterm.[PCG art 442-20]

If premiums paid on leaseholdcontracts represent in substanceadditional rental expense, theyshould be accounted for as deferredcharges and amortised over theperiod of the lease.


COST

Tangible fixed assets are initiallyrecorded at cost. There is no specificminimum value for capitalisation.

REVALUATION

The law permits tangible fixedassets, intangible fixed assets (exceptgoodwill), investments and stocks(inventories) to be recorded at avaluation (generally current cost ormarket value at the date of the lastvaluation).[1985 CA, Sch. 4]

FRS 15, which is effective for periodsending on or after 23 March 2000,requires companies revaluing assetsto use the following valuation basesfor unimpaired tangible fixed assets:

� non-specialised properties –existing use value, with theaddition of notional directlyattributable acquisition costs,where material;

� specialised properties –depreciated replacement cost;

� properties surplus to an entity’srequirements – open marketvalue, after deducing expecteddirectly attributable selling costs,where material; and

� tangible fixed assets other thanproperties – market value, or

Tangible fixed assets are initiallyrecorded at cost. Items with a valuebelow FF2,500 (†381) are generallyexpensed.

In both statutory and consolidatedaccounts, revaluation of tangiblefixed assets and financial assets ispermitted (although rare in practice).Where a company adopts a policy ofrevaluation it must revalue allrelevant asset categories. Intangibleassets (Section 5) and stocks (Section8) may not be revalued. The rules forvaluation of financial investmentsare discussed in Section 7.[Code de Commerce, Art. L123-18al.4, PCG art 350-1]

The detailed rules for an individualcompany’s accounts are derivedfrom the tax rules and are as follows:

� legal revaluation – tax freerevaluation of intangible andtangible fixed assets and fixedasset investments was allowedin the period 1976-1977.Surpluses arising from upwardrevaluation of non-depreciableassets were credited directly to arevaluation reserve, réserve deréévaluation légale. Surplusesarising from upward revaluationof depreciable assets wereinitially credited to a specific


6. TANGIBLE FIXED ASSETS



depreciated replacement costwhere market value is notavailable.

Revalued assets should be carried atcurrent value at the balance sheetdate. Specific guidance exists on howthis can be achieved using a five-yearvaluation cycle.[FRS 15]

provision account, provisionspéciale de réévaluation, and thenreleased to the profit and lossaccount over the useful life ofthe relevant asset; and

� voluntary revaluation – from1984 onwards surpluses arisingfrom any upward revaluation areimmediately taxable at thecorporation tax rate, andtherefore such revaluations arevery rare. The surpluses arecredited to a revaluation reserveaccount, écart de réévaluationlibre. Depreciation is based onthe revalued amount and theexcess depreciation chargeresulting from the revaluation istax allowable. The calculation ofprofit or loss on disposal of arevalued asset is based on its netcarrying value at the date ofdisposal. The écart deréévaluation libre is part of equityand is not part of the profit orloss on disposal. The écart deréévaluation libre may not bedistributed or used to reduceaccumulated losses.

In addition to paying corporation taxon revaluation gains, companiesrevaluing their fixed assets will alsoface increased tax payable in respectof taxe professionnelle which is partlybased on the value of fixed assets.

Due to unfavourable tax treatment,revaluations in France are much lesscommon that in the UK. However,they may be of greater interest for a



Requirements in respect ofconsolidated accounts are the sameas for individual company’saccounts.

Where a tangible fixed asset isrevalued, all tangible fixed assets ofthe same class must be revalued.

Surpluses arising from upwardrevaluation are credited directly to arevaluation reserve and shown in thestatement of total recognised gainsand losses. Deficits are taken to theprofit and loss account to the extentthat they do not represent a reversalof a previous upwards revaluation.

However, if the revaluation loss isclearly caused by the consumption ofeconomic benefits, it is considered tobe similar to depreciation andrecognised in the profit and lossaccount.

FRS 15 requires other losses to berecognised in the statement of totalrecognised gains and losses to theextent that the asset’s recoverableamount is greater than its revaluedamount. Such losses, which havebeen demonstrated not to beimpairments, are in the nature of

company in danger of losingsignificant unrealised tax assetsresulting from tax losses broughtforward but nearing the end of thefive year period allowed for carryforward.

In the consolidated accounts, bothtangible fixed assets and financialassets may be carried at valuation.

When a group decides to revalue itsfixed assets, the same method mustbe consistently applied forconsolidation purposes by eachconsolidated company.

Surpluses arising from upwardrevaluation are credited directly to arevaluation reserve. Deficits aretaken to the profit and loss account.



losses caused by a general fall inprices.

Where fixed assets are revalued,depreciation is charged to the profitand loss account based on therevalued amounts.[FRS 15]

FRS 3 requires that recognition ofprofit or loss on disposal of an assetwhich has been revalued be based onits net carrying value at the date ofdisposal. Any past valuationsurpluses or deficits in therevaluation reserves relating to theasset are shown as a reserve transfer.The gain or loss calculated on ahistorical cost basis is shown in anote.

The note of historical cost profits andlosses reconciles the reported profiton ordinary activities before taxationto the equivalent historical costamount, and also shows retainedprofit on a historical cost basis.[FRS 3]

Depreciation is based on therevalued amount, and the profit orloss on disposal is calculated on thenet carrying value at the date ofdisposal.[Règ n°99-02]



Interest on capital specificallyborrowed to finance the productionof an asset may be included in thecost of the asset to the extent itaccrues in the period of production.[1985 CA, Sch. 4]

Whilst many companies capitaliseinterest, it is equally commonpractice not to do so.

DEPRECIATION

Depreciation rates are set to reducenet book value to the estimatedresidual value over an asset’s usefuleconomic life. The depreciationmethod used should result in adepreciation charge that reflects theeconomic use of the asset. Both thestraight-line and the reducingbalance methods are normally seenas acceptable. However, it is expectedthat the ASB will shortly make achange to FRS 15 which willspecifically disallow (with a limitedexception) back-end loaded methodsof depreciation such as the annuitybased method.

As in the UK, interest may becapitalised to the extent that it isincurred during the period ofproduction of an asset and that theexpenditure is financed by externalborrowing. However, this practice isless common than in the UK.[PCG art 331-1]

In the consolidated accounts, thedepreciation charge reflects theeconomic depreciation and is oftencalculated using the straight linemethod. Other methods are oftenused in statutory accounts where thedepreciation charge is based onadvantageous tax rules and options(e.g. reducing balance method oraccelerated tax depreciation).Consequently, restatement of thedepreciation charge is a commonconsolidation adjustment for Frenchenterprises.

To qualify for tax deduction in theindividual company’s accountsdepreciation must be charged usingthe standard rates accepted by taxauthorities.

Both the straight-line and reducingbalance methods may be used. Therates most often used under thestraight-line method are as follows:


CAPITALISATION OF BORROWING COSTS


Land is generally not depreciable.

Nature of fixed Depreciationassets rates

Commercial buildings 2 to 5%

Industrial buildings 5%

Office buildings 4%

Machinery 10 to 15%

Tools 10 to 20%

Vehicles 20 to 25%

Office furniture, equipment 10 to 20%

Fixtures and fittings 5 to 10%

Computer hardware 33.33%

Land is not depreciable.

Tax authorities will not normallychallenge the rates used as long asthey do not deviate from the aboverates by more than 20%.

The reducing balance method can beused only for a very limited list ofnew items of machinery andequipment with useful lives of atleast three years. The reducingbalance method may be used for taxpurposes even where it is establishedthat the straight-line method betterreflects economic depreciation of theasset. When this is the case, thedifference between depreciationcalculated using these two methodsis credited to a specific provisionaccount, provision pour amortissementdérogatoire. Reducing balance ratesare calculated by multiplying theappropriate straight-line rates by thefollowing coefficients:



Where estimates of useful economiclives of fixed assets are changed, theundepreciated cost should bedepreciated over the revisedestimates of the remaining lives.[FRS 15]

Where the depreciation method ischanged, the undepreciated cost ofthe asset should be written off overthe remaining useful life using thenew method.[FRS 15]

Useful life CoefficientBefore After1/1/01 1/1/01

3 or 4 years 1.5 1.25

5 or 6 years 2.0 1.75

More than 6 years 2.5 2.25

Where special accelerateddepreciation rates are introduced bythe authorities to encourage certaininvestments (e.g. in specific energy-saving and anti-pollution equipment,software, etc.) the difference betweenthe ‘normal’ depreciation charge andtax driven accelerated depreciation isshown in provision pouramortissement dérogatoire. Theprovision is subsequently reversedwhen the normal depreciationcharge exceeds the accelerateddepreciation charge.

As in the UK, where the estimate ofthe useful economic life of a fixedasset is changed, the remainingundepreciated cost is depreciatedover the revised estimates ofremaining lives.[PCG art 331-8]



Capital grants received are creditedto deferred income and amortisedover the lives of the assets to whichthe grants relate.[SSAP 4]

IMPAIRMENT REVIEWS

FRS 11 requires an impairmentreview to be carried out if events orchanges in circumstances indicatethat the carrying amount of fixedassets or goodwill may not berecoverable. The review will comparethe carrying amount of a fixed assetor of an income generating unit withits recoverable amount (i.e. thehigher of net realisable value, ifknown, and value in use). Anyshortfall, or for revalued assets – anyfall below depreciated historical costor one that is clearly caused by aconsumption of economic benefit,will be taken to the profit and lossaccount. For the revalued assets, theother part of the shortfall is setagainst revaluation reserve andrecognised in the STRGL.

In an individual company’saccounts, non-reimbursable grantsrelating to financing of capitalexpenditure are credited to a specialreserve account, subventiond’équipement, and subsequentlyreleased to the profit and lossaccount over the life of the asset towhich the grant relates.[PCG art 441-13]

In consolidated accounts such grantsare generally reclassified as deferredincome and released to the profitand loss account over the life of therelated asset.

Although no specific guidance isprovided, the French law requires ageneral impairment review every 12months. Consequently, if the netbook value of an asset appears to beoverstated, the asset will be writtenoff to its estimated recoverableamount by means of a “provision”which can thereafter be reversed ifthe recoverable value increases.[Code de Commerce, Art. L123-12al.2, PCG art 322-1]


CAPITAL GOVERNMENT GRANTS


Net realisable value will be based onmarket value. Value in use will becalculated based on the present valueof the future cash flows of the assetor income-generating unit.[FRS 11]

Where the recoverable amount of atangible fixed asset increasesbecause of a change in economicconditions or otherwise, a previouslyrecognised impairment loss isreversed. The reversal is recognisedin the profit and loss account forassets carried at cost. For revaluedassets the reversal is recognised inthe profit and loss account to theextent that the original impairmentloss, adjusted for subsequentdepreciation, was recognised in theprofit and loss account, and in theSTRGL to the extent of theremainder.[FRS 11]

INVESTMENT PROPERTIES

Investment properties (defined asland and/or building held forinvestment potential but excludingproperty held for own use or leasedto group companies) are notdepreciated and are included in thebalance sheet at their open marketvalue.[SSAP 19]

In France, no specific rules exist inrespect of investment properties and,consequently, general rules for fixedassets apply.



Under the historical cost convention,investments classified as current arevalued at the lower of cost and netrealisable value and those classifiedas fixed (long-term) are valued at costless provision for permanentdiminution in value. Any reductionin value from cost is charged to theprofit and loss account. A provisionfor diminution in value which is nolonger required must be writtenback. Investments carried as fixedassets may also be carried at avaluation.[1985 CA, Sch. 4]

Requirements in respect ofaccounting for investments in theUK do not distinguish betweeninterest bearing and equityinvestments. However, where thereis an intention to hold to maturityfixed asset securities which bear nocoupon rate but carry a premium atmaturity it would be normal practiceto accrue the premium over the termof the security.

Under alternative valuation rules(which are relatively rarely used inpractice) investments classified asfixed assets may be valued either:

� at market value as determined atthe date of their last valuation; or

� at a value determined on anybasis which the directorsconsider to be appropriate in thecircumstances.

(1985 CA, Sch. 4: 31(3))

Financial investments comprise:

� shares in subsidiaries andaffiliates;

� loans to subsidiaries andaffiliates;

� shares in a long-terminvestment portfolio;

� other fixed asset investments;and

� marketable securities (includingshares and bonds).

Marketable securities are classifiedas current assets. All of the othercategories above are classified asfixed asset investments.

Valuation rules at the balance-sheetdate vary for different classes of theinvestments:

� Investments in shares ofsubsidiaries and affiliatesrecorded in the individualcompany's accounts are carriedat cost.

At the balance sheet date, anypermanent diminution in valueis charged to the profit and lossaccount. Unrealised profits arenot accounted for.

Criteria such as expectedreturns, net equity value andaverage share price are thereforeused to help determine the valuein use at the balance sheet date.

[PCG art. 332-3]


7. FINANCIAL INVESTMENTS



In addition, current assetinvestments where a ready and activemarket exists are increasingly beingshown at market value, with gains orlosses being taken to the profit andloss account.[1985 CA, Sch. 4]

In the statutory accounts, as anexception to the above generalrule, companies publishingconsolidated accounts may valuetheir investments in subsidiaryundertakings using the equitymethod of accounting providedthat this valuation method isapplied to the whole portfolio ofsubsidiary undertakings.

Where the restatement betweenhistorical cost and the equitymethod results in a net surplus,the surplus is credited to arevaluation reserve account,écart d’équivalence.

Where the restatement resultsin a reduction below historicalcost, a provision for diminutionin value is charged to the profitand loss account. If therestatement results in a netdeficit, a provision for liabilitiesand charges is created.

[PCG art 332-4, 441/10]

� The ‘shares in a long-terminvestment portfolio' categorycomprises investments in sharesintended to be held with a viewto obtaining profits within areasonably long period of timebut which do not give rise to anymanagement influence over theinvestee.



At the balance sheet date, eachcategory of shares is valuedreferring to the future activity ofthe shareholding based inparticular on the market value.Any permanent diminution invalue is charged to the profit andloss account.

[PCG art 332-5]

� Other investments in shares andmarketable securities are valuedeither by the reference toaverage market price ofsecurities for the last monthprior to balance sheet date (ifquoted) or using estimates oflikely realisable value.Unrealised gains are notrecognised in the profit and lossaccount. A provision is requiredto be recognised for eachcategory of shares wherevaluation at balance-sheet datebecomes lower than the netcarrying amount.

Exceptionally the enterprise maybalance unrealised gains andlosses on quoted shares in caseof an unusual and temporarydiminution of value.

[PCG art 332-6, 332-7, 332-9]



STOCK VALUATION

Stocks are generally valued at thelower of cost and net realisable value.[SSAP 9]

SSAP 9 contains no exceptions to the‘lower of cost and net realisablevalue’ rule. However, the CompaniesAct allows stocks to be valued atcurrent cost, and in certain (very few)industries, such as commoditybrokers and plantation companies, itis accepted trade practice to valuestocks at market value.[SSAP 9, 1985 CA Sch. 4]

A number of various costapproximation methods arepermitted including weightedaverage cost, standard cost andFIFO. However, as the LIFO methoddoes not usually provide a fairapproximation of actual cost, thismethod is not generally permitted.[SSAP 9]

Cost comprises all expenditurewhich has been incurred in thenormal course of business inbringing the product or service to itspresent location and condition.

Production costs include all directexpenses as well as all relatedproduction overheads, even thoughthese may accrue on a time basis.

Similarly to UK GAAP, stocks arevalued at the lower of cost and netrealisable value.

Revaluation of stocks is notpermitted under French GAAP.

Cost methods that may be usedinclude actual cost for identifiablestocks, weighted average cost orFIFO.

The LIFO method is allowed in theconsolidated accounts but is veryrarely used in practice.[Code de Commerce, Art. L123-18al 3, Decree of 23 March 1967, Art. D 248-8c]

Cost includes purchase price(including freight and customduties) or production cost.

Production cost must include allcosts incurred in the manufacturingprocess including direct costs andallocation of production overheads,otherwise stock valuation could bechallenged by the tax authorities.


8. STOCKS AND LONG-TERM CONTRACTS



On these grounds, generaladministrative and selling expensesare normally excluded.

Whichever method of applyingoverheads is adopted, the overheadsshould be applied on the basis of thecompany’s normal level of activity.Overhead costs which are the resultof operating inefficiencies such asabnormal idle capacity or abnormalrectification work are not included inthe stock valuation.[SSAP 9]

Interest on borrowed capital tofinance the production of an assetmay be capitalised. Consequently,interest may be capitalised where, forexample, a company holds asignificant portion of maturingstocks such as whisky. However,generally interest should not beincluded in stock valuations sincecapital is normally borrowed tofinance the activities of the businessas a whole and not to finance stocksduring the period of production.[1985 CA Sch. 4, SSAP 9]

Net realisable value is defined as theactual or estimated selling price netof trade discounts and afterdeduction of all further costs tocompletion and of marketing, sellingand distribution.[SSAP 9]

As with UK GAAP, production costscannot include either research anddevelopment costs or generaloverheads, except if justified byspecific production conditions.

Production costs do not includeabnormal costs caused by lowerproduction or costs due to wastedmaterials.[PCG art 321-3]

Interest expense incurred to financethe production cycle may becapitalised either in the consolidatedaccounts or in the statutory accounts(in the latter, it is permitted onlywhen the production cycle is longerthan twelve months).[PCG art 333-1, 321-3; Decree of 23March 1967, Art. D248-8d)]

Net realisable value is calculated inthe same way as in the UK.



LONG-TERM CONTRACTS

One method of revenue recognitionon long-term contracts is permitted.Such contracts are assessed on acontract by contract basis, andturnover and related costs recordedas contract activity progresses. Theprofit recorded reflects theproportion of work completed andany known inequalities ofprofitability in the various stages ofthe contract.

No profit is taken where the outcomeof the contract cannot be assessedwith reasonable certainty. Where noloss is expected, turnover isrecognised as a proportion of thetotal contract value using a zeroestimate of profit. When a contract isexpected to make a loss, the whole ofthat loss is recognised immediately.

The definition of long-term contractsincludes significant contracts of lessthan one year's duration where theirexclusion from turnover and profitswould not give a true and fair view.[SSAP 9]

Profit on long term contracts may berecognised either on completion ofthe contract or using the percentageof completion method (the preferredmethod). Once an enterprise adoptsthe percentage of completionmethod it cannot revert back to thecompleted contract method.

When a contract is expected to makea loss, the whole of that loss isrecognised immediately, whateverthe stage of completion of thecontract. However, only the part ofthe loss corresponding to thecompleted portion of the contract istax deductible.

A similar definition exists in Francefor complex contracts which meetcertain criteria.

[PCG art 380-1, Règ n°99-02]



CAPITAL INSTRUMENTS

Capital instruments (other thanshares) are classified as debt if theycontain an obligation to transfereconomic benefits.[FRS 4]

Convertible debt is shown separatelyin the liabilities section of thebalance sheet. Conversion of debtinstruments should not beanticipated. On conversion, sharesissued are recorded at the amountequal to the carrying value of debt atthe date of conversion.[FRS 4]

In an individual company’s accountsaccounting for capital instrumentsgenerally follows their legal form.Non-redeemable financialinstruments are always classified aspermanent funds, but do not formpart of shareholders’ funds.[PCG art 434-1]

In consolidated accounts, financialinstruments should be classified asequity if the following two conditionsare met:

� the instrument is either notredeemable, or the decision toredeem is within control of theissuer, or the payment onredemption can be made withequity instruments; and

� servicing (e.g. interest or fixeddividends) is conditional onexistence of sufficientdistributable profits.

Where returns are to be paid in theabsence of sufficient profit, non-redeemable instruments areclassified as permanent funds, butdo not form part of shareholders’funds.[Decree of 23.03.67, Art. D248-8h)]


9. DEBT AND CAPITAL INSTRUMENTS



As an exception to the general rule offollowing legal form in classificationof capital instruments, non-equityshares in subsidiaries are disclosedin consolidated financial statementsas a liability to the extent that anymember of the group has anobligation to transfer economicbenefits. In all other cases they arereported as part of minority interests.[FRS 4]

See Section 13 ‘Share capital andreserves’ for a discussion of non-equity shares.

Debentures and loans are generallyrecorded at net proceeds. However incases where the redemption value ofbonds is different from nominalvalue, the debt is recorded atredemption value with the premiumrecognised as a separate asset in thebalance sheet. Redemptionpremiums are amortised over theterm of the debt either on a straight-line method basis or in proportion tointerest paid.[PCG art 361-5, 441/16][Règ n°99-02]


DISCOUNTS AND PREMIUMS ON ISSUE OF DEBT

Any instruments issued as a meansof raising finance includingdebentures, loans and debtinstruments are initially recorded atnet proceeds. The finance costs,being the difference between netproceeds and total amounts payablein respect of the debt, are allocatedover the term of the debt at aconstant rate on the carryingamount.[FRS 4]


DEBT ISSUE COSTS

The Companies Act prohibits debtissue costs being recorded as assets.FRS 4 requires the debt to bepresented net of debt issue costs.

The Companies Act permits issuecosts to be debited to the sharepremium account (additional paid incapital). This is achieved by means ofa reserve transfer each year from theprofit and loss account reserves tothe share premium account for theproportion of the debt finance chargerelating to issue costs.[CA 1985, Sec. 130 and Sch. 4:22and 24]

Cost incurred in issuing debt mayeither be expensed immediately orspread over the term of the debt (thelatter is the preferred method).[PCG art 361-6][Règ n°99-02]



PENSION COSTS

Many UK companies providepension benefits for their employeesunder the terms of employment.Pension schemes typically have largeportfolios held outside the companyin a trust, administered by fundmanagers. Whilst the obligation tofund the pension scheme may beshown within a UK company’saccounts, the assets and liabilitiesrelating to future pension paymentsare generally shown outside theaccounts, under the standardcurrently in force (SSAP 24).Forthcoming changes in the UKaccounting treatment for pensionsare considered below.

All companies participate in the statepension scheme and somecompanies participate also in specialindustry schemes. In both casesthese are funded with regularcontributions and the contributionsare treated as an expense foraccounting and for tax purposes.

A retirement bonus based onseniority is due to staff at retirementage. Some companies may also haveadditional pension plans. Under thetax rules, contributions paid to anindependent fund to cover suchadditional pension plans orretirement bonus commitments aretax deductible expenses. Otherprovisions are not tax allowable andretirement bonuses are onlydeductible when paid.


10. EMPLOYEE BENEFITS


DEFINED CONTRIBUTION SCHEMES

For defined contribution schemes,where the rate of contribution isnormally specified in the scheme’srules, accounting is relatively simple,as the employer’s cost for the periodcomprises the contributions payablefor the period.[SSAP 24]

Accounting for defined contributionschemes is the same as in the UK.


DEFINED BENEFIT SCHEMES

Under a defined benefit scheme, therules specify that the benefits to bepaid are usually based on theemployee’s average or final pay.

For defined benefit schemes, SSAP24 permits use of a range of actuarialmethods and assumptions,providing the resulting annualpension expense is a substantiallylevel percentage of current andexpected future pensionable payroll.No specific method of amortisationof variations from regular cost overthe service lives of members isrequired.

Pension liabilities are usuallydiscounted using an interest raterepresenting the expected long-termreturn on plan assets.

Variations from regular cost(experience gains and losses, theeffect of changes in assumptions,retroactive amendments) can beamortised over remaining employeeservice lives either in the aggregateor by separately amortising thevariation arising from eachvaluation.

Companies are encouraged toinclude anticipated ex-gratia pensionincreases in actuarial assumptions,with any actual experience variationsfrom assumptions included in theoverall experience gain or loss.Alternatively, provided the increasesgenuinely are ex-gratia and are notthe result of an implied

Under French GAAP companiesmay choose whether to recognise ornot recognise obligations underdefined benefit schemes and othersimilar post-employment benefits.Furthermore, if such obligations arerecognised, an enterprise maychoose whether to recognise them infull or on a partial basis. However,accounting for legal and constructiveobligations for all forms of employeebenefit plans is considered to be thepreferred method both in statutoryand consolidated accounts.

If such obligations are notrecognised, the estimatedunrecorded pension commitmentshave to be disclosed in the notes.Once a policy of full recognition ofpension obligations is adopted itcannot be reversed.[Règ n°99-02][CNC n°97-06 of June 1997; CNCUrgent issues Committee n°00-0A of6th July 2000]]

There are no official Frenchstandards on accounting forpensions obligations. Guidanceissued by OEC recommends that:

� actuarial methods should beused. However the choice ofmethods is not defined andpractice may vary;

� measurement should includeestimated future salaryincreases; and



commitment, the capitalised cost ofthe increase not covered by a surplusis expensed at the time of the award.

There is no requirement to record adeficiency of net assets comparedwith the pension obligation (but seetransitional provisions below) as aliability.

The frequency of plan valuations isnot specified but this is normallydone triennially.

Plan assets may be valued using anyreasonable method.

Refunds of contributions that aresubject to deduction of tax may beaccounted for in the period when therefunds occur.[SSAP 24]

When the normal level ofcontributions is significantlychanged in order to eliminate asurplus or deficit resulting from asignificant reduction on members,any reduction in contributions isrecognised as it occurs, except wherethe reduction of members is relatedto the sale or termination of anoperation. In such cases, theassociated pension cost or creditshould be recognised immediately tothe extent necessary to provide forany losses not expected to be coveredby the future profits of the operationon the disposal of its assets.[SSAP 24 as amended by FRS 3]

� actuarial gains and lossesassociated with post-retirementobligations should be recognisedon a systematic basis overemployees’ average remainingservice lives.



UITF 6 has extended the scope ofSSAP 24 to cover provision of otherpost retirement benefits.

30 November 2000 the ASB issuedFRS 17 Retirement Benefits which willintroduce major changes to thecurrent regime:

� use of market values for schemeassets;

� use of a high-quality corporatebond rate in discounting forpension obligations;

� immediate recognition ofdeficits and surpluses on thebalance sheet and in the STRGL;and

� prescribing the use of theprojected unit method for theactuarial calculation of pensionliability.

FRS 17 becomes fully effective foraccounting periods ending on orafter 22 June 2003.


POST RETIREMENT BENEFITS OTHER THAN PENSIONS

Although arrangements to providepost retirement benefits other thanpensions are still relatively rare inthe UK, many UK holdingcompanies have overseassubsidiaries which do provide suchbenefits.

UITF Abstract 6 extends the scope ofSSAP 24 to cover the provision ofother post retirement benefits.


The profit and loss account ischarged with intrinsic value ofoptions awarded to employeesspread over the related performanceperiod. Intrinsic value is measuredas the difference between the fairvalue of the options at the grant dateless any amount that the employeesare required to pay for them.(UITF 17)

PROFIT SHARING

No national plan exists in the UnitedKingdom; profit sharing plans are atthe discretion of the employer.

No specific guidance exists inFrance. In practice, companiesusually make provision as soon as itis probable that share options will beexercised by employees, in case theyare obliged to repurchase shares tofulfil these options.

At the balance sheet date, a provisionis made for the difference betweenthe repurchase price then estimatedand any contribution required of theemployee.

Every company established for morethan three years (the three yearexemption applies only to newcompanies, which excludescompanies created by mergers) andemploying more than 50 employeesmust allocate a share of profits to itsemployees under the National ProfitSharing Plan, the Frenchparticipation des salariés aux résultatsde l’entreprise. Annual transfers to aprovision for this profit sharingallocation are determined by a legalformula. The amount attributable tothe company’s employees is frozenfor five years before they are entitledto receive it, free of tax.

Agreements with the employees maybe drawn up which are morefavourable than the minimum legalrequirements.


ACCOUNTING FOR SHARE OPTIONS


HOLIDAY PAY

Holiday entitlement is at thediscretion of the employer, althoughthe normal level of holiday in the UKis four weeks with increased levelsfor management.

For many UK entities, staff takeholidays at a range of dates such thatproduction and staff activity continuethroughout the year. Accordingly,recognition of accrued holiday pay isnot a significant issue.

However, in certain industries it ismore common for staff to take aholiday at the same time with theeffect that the entity’s business shutsdown for a period, for example, themonth of August. Since the entityhas no revenue in this period, thecost of paying staff during theholiday may be accrued and spreadover the eleven months when activityoccurs. Such a basis is not prohibitedby FRS 12, and should be disclosedas an accrual.[FRS 12(11)]

Employees are entitled to five weeksholiday per year but specificarrangements, which are morefavourable to the employees, may beset up by companies. As aconsequence of the new legalworking hours standard based on 35hours, additional weeks holidays ortime off are often agreed to balancehigher working hours.

Provisions for holiday entitlementnot taken are compulsory underFrench law and may be significant asthe legal period for calculating theprovision covers twelve months from1 June.



DEFERRED TAXATION

Under the current standard(SSAP 15), deferred taxation isprovided for timing differences tothe extent that it is probable that aliability or asset will crystallise(partial provision basis). If it is notprobable that a liability or asset willcrystallise, then no deferred taxationprovision is made in respect of thattiming difference. This approachrequires an assessment of:

� the probability that the reversingtiming differences will bereplaced by new (future) timingdifferences such that a taxliability or asset will notcrystallise; and

� the likelihood that deferred taxdebit balances will be recoveredin the future.

Deferred taxation is calculated usingthe liability method. This methodapplies the tax rates likely to be ineffect during the periods in whichthe liability or asset is expected tocrystallise.

Deferred tax assets are recognisedfor future deductions and utilisationof tax credit carry-forwards whererecovery is assured beyond areasonable doubt.

Either the full provision basis(recognising the tax effect of all

Normally, only current tax isrecorded in the individual company’saccounts. Deferred tax liabilities mayhowever be recognised in limitedcircumstances such as in respect ofgains arising on contributed ormerged assets.

Deferred tax must be recognised inconsolidated accounts. Deferred taxliabilities must be recognised for alltemporary differences arisingbetween the carrying amount of anasset or a liability in the balancesheet and its tax base (with theexception of acquired goodwill andintangible assets acquired in abusiness combination that cannot bedisposed of separately from theacquired company).

Deferred taxes are calculated usingtax rates which will apply to the yearsin which deferred taxes are expectedto reverse.

A deferred tax asset is recognised tothe extent that there are sufficienttaxable temporary differences whichare expected to reverse in the sameperiod, or that it is probable thatfuture taxable profit will be availableagainst which the unused tax lossesand tax credits can be utilised.


11. ACCOUNTING FOR INCOME TAXES



transactions in the period) or thepartial provision basis (accountingfor the tax which is temporarilydeferred or accelerated which willreverse in the foreseeable futurewithout being replaced) may be usedin accounting for deferred tax arisingfrom recognition of pension and/orother post-retirement benefitobligations.[SSAP 15, as amended]

On 7 December 2000 the ASB issuedFRS 19, Deferred Tax which willreplace the current partial provisionbasis for deferred tax with a form offull provisioning called theincremental liability approach.FRS 19, which becomes effective foraccounting periods ending on orafter 23 January 2002, will:

� require full provision for alltiming differences, including,for example, acceleratedallowances for depreciation,short-term timing differencesand unrelieved tax losses;

� exempt provision for deferredtax on revaluation gains (unlessthere is a binding saleagreement for the asset at thebalance sheet date), rolled overgains and unremitted earningsof subsidiaries, associates andjoint ventures; and

� allow, but not require, deferredtax liabilities and assets to bediscounted.



TAX RELATED PROVISIONS

There are no equivalent provisions inthe UK.

In France, certain tax relatedprovisions can be recognised in theindividual company’s accounts. Anexample of such provisions isprovision pour amortissementdérogatoire (discussed in Section 6).Such provisions are shown underthe heading of provisions réglementéesincluded within shareholders’ equity.[PCG art 441/14]

The other such tax driven provisionsthat can be made in an individualcompany’s accounts include:

� Provision pour hausse des prix(stock provisions). If the unitprice of raw material inventoriesat the end of the financial periodhas increased by more than 10%in comparison to the twoprevious periods, the companyis entitled to record a provisionequal to the amount of theincrease exceeding the 10%threshold. This provision isreversed and added back totaxable profit at the end of sixyears.[CGI, art. 39-1-5]

� Provision pour implantation àl’étranger (provision for foreigninvestment) may be made byFrench companies investingabroad by setting up a branch,creating a company orincreasing their share in foreignundertakings.



GENERAL REQUIREMENTS

Provisions are liabilities of uncertaintiming or amount. Provisions shouldbe recognised when:

� an entity has a presentobligation (legal or constructive)as a result of a past event;

� it is probable that a transfer ofeconomic benefits will berequired to settle the obligation;and

� the amount of the obligation canbe reliably estimated.

On this principle no provisionshould be made for future operatinglosses.

However, provision should be madefor the present obligation under anonerous contract. Onerous contractsare narrowly defined; an example is alease on vacant property.

The amount provided should be thebest estimate of the expenditurerequired to settle the presentobligation at the balance sheet date.The provision should be discountedwhere this has a material effect.[FRS 12]

The CRC recently issued a newstandard on provisions containingrequirements which are very similarto those in the UK. The standard iseffective from 1 January 2002, butearlier application is allowed.[Règ CRC n°2000-06 of 07.12.00]

Under the old regime, provisionswere recognised when:

� it was probable that a liabilitywould arise as a result of a pastevent or one in progress at thebalance sheet date; and

� there was a potential liabilityrelated to a specific risk .

Consequently, French texts neverallowed provisions for general risks.However, recognition of a provisionwas not necessarily conditional onthe ability to measure it reliably.

A provision was also recognisedwhen the obligation arose after thebalance sheet date but before thedate of approval of the financialstatements by the board of directors.[Code de Commerce, Art. L123-20;Decree of 29 November 1983, Art 8;PCG art 311-3]


12. OTHER PROVISIONS AND CONTINGENCIES



Under the new rules a provisionshould be recognised only when:

� an entity has a presentobligation (legal or constructive)as a result of a past event;

� the obligation exists at thebalance-sheet date; and

� it is probable that a transfer ofeconomic benefits will berequired to settle the obligation.

[Règ CRC n°2000-06]

However:

� as an exception, provisions for“heavy” maintenance andrepairs expenditure are stillallowed; and

� although provision cannot berecognised for future operatinglosses, provision is required forexpected unavoidable losses onlong term contracts.

Under the transitional requirementsof Règ CRC n°2000-06 provisionsthat do not meet criteria of the newregulation should be transferreddirectly to equity as of 1 January2002. This applies to all provisionswith the exception of provisionsrelating to the introduction of theEuro which will be reversed throughthe P&L account when the actualexpenses are incurred (up to theamount of the actual costs incurred).



Gains on the expected disposal ofassets should not be taken intoaccount in measuring a provision.[FRS 12]

RESTRUCTURING COSTS

A restructuring provision isrestricted to the direct expenditurearising from the restructuring,which is both:

� necessarily entailed by therestructuring; and

� not associated with the ongoingactivities of the entity.

Restructuring costs should beprovided for only when the generalrecognition criteria for provisions aremet. A constructive obligation torestructure arises only when theentity has a detailed formal plan forthe restructuring and has raised avalid expectation in those affectedthat it will carry out therestructuring, by starting toimplement that plan or announcingits main features to those affectedby it.

As in the UK, gains on the expecteddisposal of assets are not taken intoaccount in measuring a provision.[Code de Commerce, Art. L123-21]

Provision is made for restructuringcosts only when the generalrecognition criteria for provisions aremet. CRC Regulation n°99-02 gavethe specific guidance in respect ofsuch provisions, which relates onlyto restructuring provisions arisingon the acquisition of another entity.Conditions to be met before theseprovisions can be recognised are asfollows:

� restructuring plans are clearlydefined by the board of directorsand give sufficient details of thecosts to be incurred;

� the plans and theirconsequences have beenpublicly announced before theend of the first financial yearfollowing the date of acquisition.

[Règ n°99-02]

The requirements of Règ CRCn°2000-06 in respect of provisionsfor restructuring costs are similar toUK GAAP and are more restrictivethan those of the previous regulationand of Règ CRC n°99-02.Consequently, it is anticipated thatthe application of the new rules islikely to result in fewer restructuringprovisions being recognised byFrench companies or provisionsbeing recognised at a later stage.



In FRS 12 the term contingency isreserved for those items where theirexistence will be confirmed by theoccurrence of one or more uncertainfuture events which are not withinthe entity’s control. In addition, FRS12 defines contingent liabilities asliabilities which do not meet thecriteria for recognition as provisions,either because a payment is notprobable, or because no reliableestimate of the amount can be made.

Contingent liabilities and assets arenot recognised but instead they aredisclosed in the notes.[FRS 12]

Contingencies include all potentialand future rights and obligationsthat are not reflected in the balancesheet, which may substantiallychange the net assets of anenterprise.[PCG art 448]

Similarly to UK GAAP, contingentliabilities and assets are disclosed inthe notes.[PCG art 531-2; Règ n°99-02]


CONTINGENT LIABILITIES AND ASSETS


Although many shares have featureswhich make them economicallysimilar to debt, because of their legalstatus, UK GAAP requires them tobe classified as shares and includedin shareholders’ funds. While thiscategorisation reflects the legal formof the instruments, FRS 4 requiresadditional analysis between equityand non-equity interests on the faceof the balance sheet. Shares areclassified as equity or non-equityshares on the following basis:

� non-equity – shares having anyterms which limit the amount ofdividends (other than byreference to profit or assets), orlimits the amount of capitalrepayable (if this has acommercial effect), or which areredeemable at the request of theholder;

� equity – unrestricted shares.[FRS 4]

Under UK GAAP, any instrumentwhich is capable of being separatelytransferred or redeemed is separatelyaccounted for. For example, if a debtinstrument is issued with warrantsand the warrants are capable ofbeing separately transferred, a valueis allocated to the warrants andreported within equity.

French GAAP does not distinguishbetween equity and non-equityinterests. Preference shares arepresented within shareholders’funds.

No similar requirement exists inFrench GAAP.


13. SHARE CAPITAL AND RESERVES



PURCHASE OF OWN SHARES

Company law requires that sharesredeemed or purchased must becancelled.

A public company is required tomake the redemption or repurchaseonly from distributable profits. Inaddition to writing off any premiumon redemption/repurchase, a capitalredemption reserve is created and anamount equal to the nominal valueof the shares redeemed orrepurchased is transferred to thisreserve from distributable profits.[1985 CA Sec. 160(1)(a), 170 and171(1)]

In certain circumstances a companymay hold its own shares through aspecially created trust, for example tosatisfy its obligations under anemployee share option scheme. Inthis case, such shares should beshown as an asset on the balancesheet in accordance with CompaniesAct 1985 formats of accounts.

Companies are allowed to purchasetheir own shares for redemption, to‘regulate’ stock prices or to distributethem to employees under stockoption plans.

A company is allowed to holddirectly no more than 10% of its ownshares. Any excess over that amountshould be written off against capitaland reserves or sold back to themarket. Such ‘treasury shares’ do nothave voting rights and are notentitled to dividends.

In the individual company’saccounts and in the consolidatedaccounts, treasury shares held tosatisfy obligations under stock optionplans or for short term tradingpurposes are accounted for ascurrent investments at the lower ofcost or market value.

Treasury shares that are held forother purposes are shown as fixedasset investments in the statutoryaccounts. In the consolidatedaccounts such treasury shares areoffset against reserves[PCG art 442 and 445; Code deCommerce, Art. L225-206 to L225-217, Règ n°99-02]


The finance charge in respect ofnon-equity shares is calculated in thesame manner as for debt (seeSection 9). The difference betweenthe initial net proceeds and the totalamounts to be paid on the shares isrecognised over the term of theshares at a constant rate on thecarrying amount. The finance chargetherefore includes any premium ordiscount on the redemption ofredeemable shares.

The amount of the finance charge inrespect of non-equity shares isnormally shown as the appropriationof profit at the bottom of the profitand loss account (with the creditentry going to an appropriatereserve). As the total amount ofdividends paid in respect of eachyear is required to be shown on theface of the profit an loss account(see above), any difference betweenthe finance charge for the periodand dividends paid or proposed isshown as an appropriation of profit.[FRS 4]


FINANCE CHARGE IN RESPECT OF NON-EQUITY SHARES


SHARE ISSUE COSTS

Expenses, commissions or discountson any issue of shares can be writtenoff against the share premiumaccount.[1985 CA s130 (2)]

In the statutory accounts, externalcosts incurred in relation to anequity transaction may be treated inone of the following ways:

� expensed immediately;

� capitalised as intangible assets(“frais d’établissement”) andamortised over a period notexceeding five years; or

� debited to the share premiumnet of related income tax benefit(the preferred method).

In the consolidated accounts, thecosts of an equity transaction (net ofincome tax benefit) are alwayswritten off against the sharepremium account.[Code de commerce, Art. L232-9 al 2;PCG art 361-1 and 361-3][CNC – Urgent Issues Committee n°2000-D of 21 December 2000]



SHARE PREMIUM ACCOUNT

The share premium account is anundistributable reserve whichrepresents the extent to whichconsideration received in respect ofshares issued exceeds the shares’nominal value.[1985 CA s130 (1), Sch 4]

The share premium account can beused to:

� issue fully paid bonus shares;

� write off preliminary expenses;

� write off expenses, commissionor discount on any issue ofshares or debentures; or

� provide for any premiumpayable on redemption of sharesand debentures of the company.

[1985 CA s130 (1), Sch 4]

REVALUATION RESERVE

This reserve is used to record anygains or losses (subject tolimitations) arising fromrevaluations of assets. The balance ofthe revaluation reserve represents anunrealised surplus and is notdistributable.

As in the UK, the share premiumaccount is shown as a specific lineitem in the balance sheet.

The share premium account may beused to write off expenses associatedwith the issue of new shares (seeabove). It may also be distributedprovided this is in accordance withthe articles of association of thecompany or is approved by anordinary shareholders’ meeting.

Revaluation reserves are discussed inSection 6 above.


LEGAL RESERVES AND OTHER RESERVES

There is no UK equivalent for legalreserves or tax related reserves.

A capital redemption reserve mayarise on the redemption or purchaseby a company of its own shares. It isan undistributable reserve.

In the statutory accounts, aminimum of 5% of retained profitsmust be transferred to a designatedlegal reserve (réserve légale) annuallyuntil it equals 10% of the issuedshare capital of the entity. The legalreserve is not distributable.[Code de Commerce, Art. L232-10]


A merger reserve may be created as aresult of the application of the legalexemption from transferring thepremium on the issue of shares tothe share premium account incertain circumstances defined by theCompanies Act.

A company may also create otherreserves, for example, as provided forby the company’s Articles ofAssociation. However, this is notcommon in the UK.

Additionally, the articles ofassociation may require anadditional element of profit to betransferred to statutory orcontractual reserves, réservesstatutaires, which are also non-distributable.

A regulated capital gains reserve(réserve spéciale des plus values à longterme) must be created for net longterm gains realised on sales of fixedassets. A net long term gain is taxedat a reduced rate of corporation tax(currently 19% plus additional taxes).The remaining portion of the gainmust be credited to this regulatedreserve. If this reserve is distributed,an equalisation tax, representing thebalance of tax on the original netgain, is levied at the standardcorporate tax rate at the date ofdistribution.

The remaining profit (or loss) afterdividends and transfers to thedesignated legal reserve and otherreserves as appropriate is transferredto the profit and loss reserve, report ànouveau. This reserve isdistributable.



On consolidation, adjustments aremade to eliminate tax relatedreserves and provisions describedelsewhere in this publication.

Other reserves represent mainlyaccumulated profits and losses of theparent company and group share ofthose of the consolidated companiesfrom date of acquisition.



FRS 3 defines extraordinary itemsvery restrictively as material itemspossessing a high degree ofabnormality which derive fromevents or transactions outside theordinary activities of the companyand which are not expected to recur.In practice, there are no examples.[FRS 3]

FRS 3 defines exceptional items asmaterial items which derive fromevents or transactions that fall withinthe ordinary activities of thereporting entity and whichindividually or, if of a similar type, inaggregate, need to be disclosed byvirtue of their size or incidence if thefinancial statements are to give atrue and fair view. Exceptional itemsare included in profit or loss fromordinary activities unless they areone of three ‘non-operatingexceptional items,’ namely: profits orlosses on the sale or termination ofan operation; costs of a fundamentalreorganisation or restructuring; andexceptional profits or losses on thedisposal of fixed assets.

French GAAP does not distinguishbetween extraordinary andexceptional items. In statutoryaccounts the French résultatexceptionnel is loosely defined so asto include any gain or loss that isexceptional by its amount or thatdoes not occur in the normal courseof business. These normally includegains or losses on disposals of fixedassets and restructuring costs.Exceptional items are presentedbelow the operating result and netinterest income (or expense), andbefore income tax.[Decree of 29 November 1983, Art.D14]

In consolidated accounts, it ispermitted to present extraordinaryand exceptional items separately andto include most of the exceptionalitems in operating income (or loss).


14. EXCEPTIONAL AND EXTRAORDINARY ITEMS



The cumulative effect of a change inan accounting policy is shown as anadjustment of the opening balance ofreserves. The prior year comparativeinformation is restated under thenew policy.

The cumulative adjustment is notedat the bottom of the statement oftotal recognised gains and losses ofthe current period, and included inthe reconciliation of movements inshareholders’ funds of thecorresponding period.[FRS 3]

In addition to disclosure of the effecton the results for the precedingperiod, FRS 18 requires disclosure ofthe effect on the current year’sresults.

A change in depreciation method orrate does not constitute a change inaccounting policy; rather, theunamortised cost of the asset shouldgenerally be written off over theremaining useful life on the newbasis.[FRS 15]

Changes in accounting policies areshown as an adjustment to openingreserves. Such changes may onlyoccur as a result of a new regulationor the adoption of a new accountingrule which improves the quality ofinformation. (This is the case whenadopting one of the preferredmethods – e.g. for post retirementobligations – referred to inSection 1.)

Prior year comparative financialstatements must be restated underthe new policy.

Changes in accounting estimates areaccounted for prospectively, anddisclosed in the notes.[CNC n°97-06, PCG art 311-5]

This is the same under FrenchGAAP.


15. CHANGES IN ACCOUNTING POLICIES AND PRIOR PERIOD ADJUSTMENTS


Exceptions to this general rule mayoccur when an accounting policychanges because of a new standard.Transitional provisions in applicablestandards specify the acceptableapproach(es) to record such changes.

FRS 18 “Accounting policies",effective for years ending on or after22 June 2001, requires an entity toadopt the accounting policies that arethe most appropriate to itscircumstances.

PRIOR PERIOD ITEMS

Corrections of fundamental errorsare accounted for in a similar way tochanges in accounting policies (asdescribed above, i.e. by restating thecomparative figures and adjustingthe opening balance of reserves forcumulative effect). All otheradjustments in respect of priorperiods are recorded in the currentperiod’s profit and loss account.

A fundamental error is one which isof such significance as to destroy thetrue and fair view, and therefore isrecognised in very rarecircumstances.[FRS 3]

This is the same under FrenchGAAP.

Adjustments in respect of priorperiods resulting from the correctionof errors are recorded in the currentperiod’s income statement, except ifthe original entry was accounted fordirect to equity. If material, suchadjustments are shown as a separateline in the profit and loss account.[CNC n°97-06, PCG art 311-5]



The following profit and loss accountheadings should be analysedbetween continuing operations,acquisitions (as a component ofcontinuing operations) anddiscontinued operations:

� each of the statutory formatheadings between turnover andoperating profit, inclusive;

� profits or losses on the sale ortermination of an operation;

� costs of a fundamentalreorganisation or restructuring;and

� profits or losses on the disposalof fixed assets.

Profits and losses on discontinuanceof a business segment and othergains or losses from the sale orabandonment of fixed assets may notbe reported as extraordinary itemsunder FRS 3.[FRS 3]

See Appendix A.II for examplepresentation.

French GAAP has no specificguidance on discontinuedoperations. However, in consolidatedaccounts companies are required togive information for comparativepurposes related to the effect on thebalance sheet, the income statementand the cash flow statement of anysignificant change in the reportingentity.[Règ n°99-02]

The preferred method is to presentproforma income statements withprior years restated as if the changehad always been in effect. Proformainformation is required foracquisitions that have a significanteffect on the reporting entity. TheCOB defines significant by referenceto various financial ratios (e.g.contribution to turnover, profit,assets, indebtedness, etc).

In such a case, the proforma incomestatement should take into accountfinancial costs and depreciation andamortisation related to fair valueadjustments and goodwill that wouldhave been recognised had theacquisition occurred at the start ofthe prior periods presented.

Proforma information is alsorequired in all cases where changescaused by a total or partial disposal ofa former consolidated subsidiaryhave a significant effect on theconsolidated accounts.[Règ n°99-02]


16. ACQUISITIONS, CONTINUING AND DISCONTINUED OPERATIONS



DISCONTINUED OPERATIONS

An operation is treated asdiscontinued if it is sold orterminated and it meets all of thefollowing conditions:

� the sale or termination iscompleted within the year orbefore the earlier of the end ofthe three month period after theyear end or the approval date ofthe financial statements;

� if a termination, activities haveceased permanently;

� the sale or termination has amaterial effect on the nature andfocus of the reporting entity’soperations and represents amaterial reduction in operatingfacilities resulting from eitherwithdrawal from a particularmarket or a material reductionin turnover from continuingmarkets; and

� the discontinued assets,liabilities and operations areclearly distinguished physically,operationally and for financialreporting purposes.

French GAAP also allows analternative treatment on disposal ofan enterprise or a significantbusiness segment or activity. Thegroup’s share of the net profit andloss of the disposed business may beshown as one line with the details ofcomponents of income and expensedisclosed in the notes.

Where there is an agreement todispose of a business at the balancesheet date and the actual transfer ofcontrol occurs after the year end butbefore the accounts are prepared, theassets and liabilities of the enterprisebeing disposed of can also becombined and presented as a singleline on the consolidated balancesheet, provided that relevantinformation is given in the notes.Similarly to UK GAAP, income andexpenses of the company disposed ofshould be included in theconsolidated profit and loss accountup to the date of disposal, i.e. thedate where control or significantinfluence ceases.[Règ n°99-02]



The total of any dividends paid andproposed must be shown as aseparate item in the profit and lossaccount, any unpaid amounts beingshown in the balance sheet as acurrent liability.[1985 CA, Sch. 4]

Interim dividends are often paid bylisted companies.

Dividends paid and proposed are notshown on the face of the profit andloss account for the year, but arededucted from reserves in the year ofpayment.

For listed companies, interimdividends are not as common as inthe UK.


17. DIVIDENDS



Entities whose ordinary shares orpotential ordinary shares are, or willbe, publicly traded are required todisclose basic and diluted earningsper share on the face of the profitand loss account.

Basic earnings per share iscalculated by dividing the net profitor loss attributable to ordinaryshareholders by the weightedaverage number of ordinary sharesoutstanding during the period.

Diluted earnings per share giveseffect to dilutive potential ordinaryshares outstanding during theperiod. Detailed guidance on itscalculation is found in FRS 14.[FRS 14]

In consolidated accounts, both basicearnings per share and dilutedearnings per share are required to bedisclosed for all companies, whetherlisted or not.[Règ n°99-02]

As in the UK, basic earnings pershare is calculated by dividing thenet profit or loss attributable toordinary shareholders by theweighted average number ofordinary shares outstanding duringthe period.

Diluted earnings per share giveseffect to diluting financialinstruments that entitle their holdersto receive shares of the parentcompany in future periods (e.g.convertible bonds or share options).

Règ n°99-02 does not specify howbasic and diluted earnings per shareshould be determined but guidancecan be found in OECpronouncements.

In statutory accounts, informationon earnings per share is disclosed inthe historical information statement,tableau des résultats des cinq derniersexercices, in respect of the results forthe last five years. The Tableau desrésultats des cinq derniers exercices ispresented as a separate statement tothe shareholders.


18. EARNINGS PER SHARE



The diluted earnings per sharefigure must be disclosed in a note tothe accounts and in the directors’report where a company haswarrants, convertible bonds or bondswith warrants attached.



REPORTING CURRENCY

While it is customary for a UKcompany to produce financialstatements in pounds sterling, thereare no restrictions in UK companylaw which would prevent a companyfrom using a different currency.

Financial statements of Frenchcompanies may be expressed eitherin French francs or in Euro from1 January 1999 onwards. However,once the change to reporting in Eurohas been made, it is irrevocable.


19. FOREIGN CURRENCY


TRANSLATION OF FOREIGN CURRENCY TRANSACTIONS

Foreign currency transactionsundertaken by a company arerecorded at the rate prevailing wheneach transaction occurs. Non-monetary assets, such as stocks,tangible fixed assets and equityinvestments normally remain at theinitially recorded amount and are notretranslated, since these balancesreflect the historical cost of acquiringthe assets.

All monetary assets and liabilities,such as cash and bank balances,debtors and creditors, which aredenominated in foreign currenciesshould be retranslated into thereporting currency using the rates ofexchange ruling at the balance sheetdate.

Foreign exchange gains and losses,both realised and unrealised, arenormally recognised in the profitand loss account.

Foreign currency transactionsundertaken by a company arerecorded at the rate ruling at the dateof transaction. Realised exchangegains and losses generated onsettlement of creditors or debtors arerecorded in the profit and lossaccount.

At the balance sheet date, unrealisedexchange gains and losses arecalculated on all balancesdenominated in a foreign currency(with exception of hedged positions).In the consolidated accounts,unrealised exchange losses aredebited directly to interest expense,and the preferred method is torecognise unrealised exchange gainsas financial income.[Règ n°99-02]


The two exemptions to the aboverule are:

� as for consolidated accounts (seebelow), exchange differencesarising from foreign currencyborrowings used to finance orprovide a hedge against aninvestment in a foreign entitymay be offset against reservemovements representing theexchange differences arising onthe net investments in foreignenterprises; and

� where a rate of exchange is fixedin the contract or where the ratewas fixed by entering into arelated or matching forwardcontract, the rate specified inthose contracts may be used fortranslation.

[SSAP 20]

In statutory accounts, the rules aredifferent. In the balance-sheet theunrealised exchange losses aredebited to a balance sheet account,écart de conversion actif; theunrealised exchange gains arecredited to écart de conversion passif.

Unrealised exchange losses arecharged to the profit and lossaccount and a separate provision forexchange loss is established with theexception of unrealised exchangelosses on hedged positions.Unrealised exchange gains are notallowed to be taken to the profit andloss account, although they areincluded in taxable profits.[PCG art 342-5, 342-6, 342-7]


CONSOLIDATION OF FOREIGN ENTITIES

When translating financialstatements of consolidated foreignenterprises, either the temporal orthe closing rate method applydepending on the way the foreignentity is financed or operates inrelation to the reporting enterprise.

The net investment method oftranslation should be applied toforeign enterprises which operate asseparate or quasi-independententities. Balance sheet assets andliabilities should be translated usingthe closing rate of exchange. UKGAAP allows either the closing rate

Conditions for the use of thetemporal method (or historical ratemethod) and net investment (closingrate) method are the same as thosein the UK.

Under the closing rate/netinvestment method, balance sheetitems are translated using theclosing rate. All items in the profitand loss account are translated usingthe average rate for the period(including depreciation charges).


or the average rate for the period tobe used in translating the profit andloss account.

Exchange differences are dealt withby direct transfer to or from reserves(recorded in a separate foreignexchange translation reserve or aspart of the profit and loss reserve)and should be reported in theSTRGL. The proportion of exchangegains/losses of the group relating tothe interests of third parties isadjusted against minority interests.[SSAP 20]

On disposal of a foreign entity, thecumulative amount of the exchangedifference is not recorded in theprofit and loss account. It isnormally dealt with as a reservetransfer.[FRS 3]

The temporal method is theappropriate method to consolidatenon-autonomous companies.Monetary items in the balance sheetare translated using the closing rateand non-monetary items aretranslated using the historical rate.

The resulting exchange differencesare recognised in the profit and lossaccount.

Most items in the profit and lossaccount are translated using the rateruling at the date of transactions orthe average rate. Depreciation andimpairment charges are translated atthe same rate as applied to the assetconcerned (historical or valuationrate).

Gains and losses are recognised inshareholders’ equity under aseparate caption écart de conversion tothe extent that they relate to thegroup, with the remaining portionrecognised in minority interests.

On the disposal of a foreign entity,the cumulative amount of theexchange differences included inequity should be recognised asincome or as a loss in the sameperiod the gain or loss on disposal isrecognised.[Règ n°99-02]

Application of the temporal methodis similar to that in the UK.

The resulting exchange differencesare recognised in the profit and lossaccount and presented as financialincome or expense.



CLASSIFICATION

A lease should be accounted for as afinance lease (capitalised) if ittransfers substantially all the risksand rewards of ownership of theasset to the lessee. Where thepresent value of the minimum leasepayments equals 90% or more of theasset’s fair value, it is presumed thatthe lease is a finance lease. At theinception of a finance lease, thelessor should include both the leasedasset and the related lease obligationat the present value of the minimumlease payments.

In more complicated arrangementseven if the “90% test” is not met, thesubstance of the arrangement may beone of financing. In this situation thelessee capitalises the asset at the netpresent value of the lease payments.

SALE AND LEASEBACK

A gain or loss on the sale of an assetwhich is leased back is deferred ifthe leaseback is a finance lease, andis recognised immediately when theleaseback is an operating lease(although, in the latter case, some ofthe gain or loss is deferred if the saleprice is not the fair value).Measurement of gain or loss is madeafter providing for any permanentdiminution in value based on theasset's fair value prior to theleaseback.(SSAP 21)

In consolidated accounts of a lessee,capitalisation of finance leases isencouraged as the preferred methodbut is not mandatory. However, iffinance leases are not capitalised,equivalent information must bepresented in the notes.[Règ n°99-02]

In the statutory accounts, all leaseagreements are treated as operatingleases. In a lessee's accounts leaserentals are directly expensed asincurred.

Certain specific information onleases must be disclosed in the notesto the accounts.

For finance leases, any profitresulting from sale and leasebacktransactions should be treated asdeferred income and amortised overthe life of the new contract.[Règ n°99-02]

In the case of operating leases, bestpractice is to recognise the gain inthe profit and loss account when thesale and the leaseback are at marketvalue, and to defer the part exceedingthe market value when the sale priceis higher than the fair value of theassets.[OEC pronouncement number 29]


20. LEASES



The costs of making the necessarymodifications to assets to deal withthe Euro should be written off to theprofit and loss account except inthose cases where:

(a) an entity already has anaccounting policy to capitaliseassets of the relevant type; and

(b) the expenditure clearly results inan enhancement of an assetbeyond that originally assessedrather than merely maintainingits service potential.

Other costs associated with theintroduction of the Euro should alsobe written off to the profit and lossaccount.

Expenditure incurred in preparingfor the changeover to the Euro andregarded as exceptional should bedisclosed. Particulars ofcommitments at the balance sheetdate in respect of costs to be incurred(whether to be treated as capital orrevenue) should be disclosed wherethey are regarded as relevant toassessing the entity’s state of affairs.Where the potential impact is likelyto be significant to the entity, thatother information and discussionshould be given, including anindication of the total costs likely tobe incurred. This information maybe more appropriately located in thedirectors’ report or any operating

The costs incurred of making thenecessary modifications to assets todeal with the Euro should be writtenoff to the profit and loss account.However, they may be capitalisedunder certain circumstances:

� costs incurred on fixed assetsunder construction;

� costs incurred to create softwareaiming to deal with the Euro;and

� costs related to a fixed asset,which meet the generalconditions for capitalisation, inparticular by increasing theasset’s useful life.

The expected costs can be providedfor and accounted for as exceptionalcharges if the following conditionsare met:

� the decision to incur the costshas already been taken bymanagement;

� the costs are clearly identifiable;

� the amount and timing of thecosts are not definitely fixed butthe costs can be reasonablyestimated; and

� the costs are additional expensesincurred over the normal activityof the company and areexceptional costs incurred onlywith a view to adapting thecompany to the Euro.

[CNC n°97-01 of January 1997]


21. EURO ACCOUNTING IMPLICATIONS



and financial review or otherstatement included in the annualreport published by the entity.[UITF 21]

Cumulative foreign exchangetranslation differences recognised inthe statement of total recognisedgains and losses should remain inreserves after the introduction of theEuro and should not be reported inthe profit and loss account.

Where gains and losses on financialinstruments used as anticipatoryhedges are at present deferred andmatched with the related income orexpense in a future period, theintroduction of the Euro should notalter this deferral and matchingtreatment.

Cumulative foreign exchangetranslation differences included inshareholders’ equity should remainin reserves after the introduction ofthe Euro and should not be reportedin the profit and loss account.

As for UK GAAP.



Appendix A – Formats ofFinancial Statements in the UKand in France

APPENDIX A.I

BRITISH HOLDING PLC BALANCE SHEET WITH LITERAL FRENCHTRANSLATION

FRENCH CONSOLIDATED BALANCE SHEET WITH LITERALENGLISH TRANSLATION

FRENCH BALANCE SHEET WITH LITERAL ENGLISH TRANSLATIONINDIVIDUAL ACCOUNTS – TAX FORMAT

APPENDIX A.II

BRITISH HOLDING PLC PROFIT AND LOSS ACCOUNT WITHLITERAL FRENCH TRANSLATION

FRENCH CONSOLIDATED PROFIT AND LOSS ACCOUNT WITHLITERAL ENGLISH TRANSLATION (ACCOUNTS CLASSIFIED BYNATURE)

FRENCH CONSOLIDATED PROFIT AND LOSS ACCOUNT WITHLITERAL ENGLISH TRANSLATION (ACCOUNTS CLASSIFIED BYDESTINATION)

FRENCH PROFIT AND LOSS WITH LITERAL ENGLISHTRANSLATION. INDIVIDUAL ACCOUNTS – TAX FORMAT

108 APPENDIX A – FORMATS OF FINANCIAL STATEMENTS IN THE UK AND IN FRANCE


APPENDIX A.III

BRITISH HOLDING PLC – CASH FLOW STATEMENT WITH LITERALFRENCH TRANSLATION

FRENCH CONSOLIDATED CASH FLOW STATEMENT WITH LITERALENGLISH TRANSLATION



APPENDIX A.I

BRITISH HOLDING PLC BALANCE SHEET (BILAN) WITH LITERAL FRENCHTRANSLATION

Financial Year Financial YearExercice Exercice

N N-1£’000 £’000 £’000 £’000

FIXED ASSETS ACTIF IMMOBILISEIntangible assets Immobilisations incorporelles XX XXTangible assets Immobilisations corporelles XXX XXXInvestments in joint Part des sociétés en ventures: participation (joint ventures):

Share of gross assets Part des actifs XX XXShare of gross liabilities Part des passifs (XX) (XX)

XX XX

Investments in associated Titres de participation mis XX XXundertakings en équivalenceOther investments Autres immobilisations XX XX

financières

XX XX

XXX XXX

CURRENT ASSETS ACTIF A COURT TERMEStocks Stocks XXX XXXDebtors Créances XXX XXXInvestments Valeurs mobilières de placement X XCash at bank and in hand Disponibilités XX XX

XXXX XXXX

CREDITORS: amounts DETTES: partie à moinsfalling due within one year d’un anDebenture loans Emprunt obligataire XXX XXXBank loans and overdrafts Emprunts et découverts bancaires XX XXTrade creditors Fournisseurs XXX XXXProposed dividend Distribution de dividendes prévue X XAccruals and deferred Charges à payer et produits XX XXincome constatés d’avance

XXX XXX

NET CURRENT ASSETS ACTIF NET A COURT TERME XXX XXX

TOTAL ASSETS LESS TOTAL ACTIF MOINS PASSIF XXX XXXCURRENT LIABILITIES A MOINS D’UN AN

CREDITORS: amounts DETTES: partie à plus d’un an XX XXfalling due after more than one year

PROVISIONS FOR PROVISIONS POUR RISQUES XX XXLIABILITIES AND ET CHARGESCHARGES

XXX XXX

MINORITY INTERESTS INTERETS MINORITAIRESEquity minority interests Intérêts minoritaires en capital X XNon-equity minority interests Autres intérêts minoritaires X X

XXX XXX



Financial Year Financial YearExercice Exercice

N N-1£’000 £’000 £’000 £’000

CAPITAL AND RESERVES CAPITAUX PROPRESCalled up share capital Capital souscrit XX XXShare premium account Primes d’émission XX XXRevaluation reserve Réserve de réévaluation X XOther reserves Autres réserves X XProfit and loss account Résultat de l'exercice et XXX XXX

report à nouveau

XXX XXX

SHAREHOLDERS’ FUNDS FONDS PROPRESAttributable to equity Revenant aux actionnaires XX XXshareholders en capitalAttributable to non-equity Revenant aux autres XXX XXXshareholders actionnaires

These financial statements were approved by the Board of Directors on [X].Signed on behalf of the directors

Ces états financiers ont été approuvés par le conseil d’administration le [X]Signés pour le compte du conseil d’administration:



FRENCH CONSOLIDATED BALANCE SHEET (BILAN CONSOLIDE) WITH LITERALENGLISH TRANSLATION

ACTIF ASSETSExercice Exercice

Financial FinancialYear Year

N N-1

ACTIF IMMOBILISE FIXED ASSETSEcarts d'acquisition Goodwill XX XXImmobilisations incorporelles Intangible fixed assets XX XXImmobilisations corporelles Tangible fixed assets XX XXImmobilisations financières Financial assets XX XXTitres mis en equivalence Investments accounted for using XX XX

the equity method

Total actif immobilisé Total fixed assets XXX XXX

ACTIF CIRCULANT CURRENT ASSETSStocks et en cours Stocks and work in progress XX XXClients et comptes rattachés Trade debtors and related accounts XXX XXXAutres créances et comptes Other debtors and prepayments XX XXde régularisationValeurs mobilières de placement Marketable securities XXX XXDisponibilités Cash at bank and in hand XXX XXX

Total actif circulant Total current assets XXX XXX

TOTAL ACTIF TOTAL ASSETS XXXX XXXX



PASSIF LIABILITIESExercice Exercice


N N-1

CAPITAUX PROPRES SHAREHOLDERS’ EQUITYCapital (1) Share capital (1) XXX XXXPrimes (1) Share premium (1) XXX XXXRéserves et résultat consolidés (2) Reserves and consolidated profit XXX XXX

or loss (2)

Autres (3) Other (3) XXX XXX

INTERETS MINORITAIRES MINORITY INTERESTS XX XX

PROVISIONS POUR RISQUES PROVISIONS FOR LIABILITIES XX XXET CHARGES AND CHARGES

DETTES CREDITORSEmprunts et dettes financières Borrowings and other financial XXX XXX

liabilitiesFournisseurs et comptes rattachés Trade creditors and related accounts XXX XXXAutres dettes et comptes de Other creditors and accruals XXX XXXrégularisation

TOTAL DU PASSIF TOTAL LIABILITIES XXXX XXXX

(1) De l'entreprise mère consolidante (1) Of the parent company(2) Dont résultat net de l'exercice (2) Including profit or loss for the year(3) A détailler dans le tableau de variation (3) To be detailed in the consolidated statement of

des capitaux propres consolidés* movements on reserves*

* par exemple, réserves de conversion sur * for instance; exchange differences arising on les filiales étrangères, écart d’acquisition translating the accounts of foreign subsidiaries, imputé sur les capitaux propres dans la reserve difference arising on application of méthode dérogatoire. merger accounting



FRENCH BALANCE SHEET (BILAN) WITH LITERAL ENGLISH TRANSLATIONINDIVIDUAL ACCOUNTS – TAX FORMAT*

ACTIF ASSETS ExerciceN

Financial Year Exercice

N N-1Brut Amort./ Net Net

Prov.Cost Provision Net

Capital souscrit non appelé Called up share capital not paid XX XX XXACTIF IMMOBILISE FIXED ASSETS

Immobilisations incorporelles Intangible fixed assets XXX (X) XX XXImmobilisations corporelles Tangible fixed assets XXX (X) XX XXImmobilisations financières (1) Financial assets (1) XXX (X) XX XX

Total I Total I XXXX (XX) XXX XXX

ACTIF CIRCULANT CURRENT ASSETSStocks et en cours Stocks and work in progress XXX (X) XX XXAvances et acomptes versés Payments on account XXX XXX XXXsur commandesClients et comptes Trade debtors and related XXX (X) XX XXrattachés (2) accountsAutres créances (2) Other debtors (2) XXX XXX XXXValeurs mobilières de Marketable securities XXX (X) XXX XXplacementDisponibilités Cash at bank and in hand XXX XXX XXXCharges constatées Prepayments (2) XXX XXX XXXd’avance (2)

Total II Total II XXXX (XX) XXX XXX

COMPTES DE REGULARISATIONCharges à répartir sur Deferred charges (III) XX XX XXplusieurs exercices (III)Primes de remboursement Redemption premiums (IV) XX XX XXdes obligations (IV)Ecarts de conversion actif (V) Unrealised exchanged losses (V) XX X X

TOTAL GENERAL GENERAL TOTAL XXXXX (XX) XXXX XXXX(I+II+III+IV+V) (I+II+III+IV+V)

(1) Dont à moins d’un an (net) … (1) Including current (net) …(2) Dont à plus d’un an (brut) … (2) Including long term (gross) …

* The tax format and model in the Plan Comptable Général require more details for assets. Only theprincipal items have been presented above.



PASSIF LIABILITIES Exercice ExerciceN N-1

CAPITAUX PROPRES SHAREHOLDERS’ EQUITYCapital social (dont versé…) Share capital (of which paid up…) XXX XXXPrimes d’émission, de fusion, Share or merger premium XXX XXXd’apportEcarts de réévaluation Revaluation reserve XXX XXXRéserves Reserves XXX XXXReport à nouveau Retained profit or loss brought forward XXX XXXRésultat de l’exercice Profit or loss for the period XXX XXXSubventions d’investissement Capital grants XXX XXXProvisions réglementées Tax related provisions XXX XXX

Total I Total I XXXX XXXX

PROVISIONS POUR PROVISIONS FOR RISKS & RISQUES ET CHARGES CHARGESProvisions pour risques Provisions for risks XX XXProvisions pour charges Provisions for charges XX XX

Total II Total II XXX XXX

DETTES LIABILITIESEmprunts obligataires convertibles Convertible debt XXX XXXAutres emprunts obligataires Other debtEmprunts et dettes auprès des Bank loans (2) XXX XXXétablissements de crédit (2)

Emprunts et dettes financières Borrowings and other financial XXX XXXdivers (3) liabilities (3)

Avances et acomptes reçus sur Payments received on account XXX XXXcommandes en coursDettes fournisseurs et comptes Trade creditors and related accounts XXX XXXrattachésDettes fiscales et sociales Tax and social security payable XXX XXXDettes sur immobilisations et Amounts payable for fixed assets and XXX XXXcomptes rattachés related accountsAutres dettes Other creditors XXX XXX

COMPTES DE REGULARISATION (1)

Produits constatés d’avance Deferred income XX XX

Total III Total III XXXX XXXX

Ecart de conversion passif (IV) Unrealised exchange gains (IV) XX XX

TOTAL GENERAL (I+II+III+IV) GENERAL TOTAL (I+II+III+IV) XXXX XXXX

(1) Dont à moins d’un an… (1) Including current …(2) Dont concours bancaires courants et soldes (2) Including short term bank loans and overdrafts…

créditeurs de banques…(3) Dont emprunts participatifs… (3) Including participating loans…


APPENDIX A.II

BRITISH HOLDING PLC PROFIT AND LOSS ACCOUNT (COMPTE DE RESULTAT)WITH LITERAL FRENCH TRANSLATIONPROFIT AND LOSS ACCOUNT COMPTE DE RESULTAT Financial Year Financial Year

Exercice ExerciceN N-1

£’000 £’000

Turnover Chiffre d’affaires

a) Continuing operations a) Activités poursuivies XXX XXXb) Acquisitions b) Acquisitions XX XXc) Discontinued operations c) Activités abandonnées X X

Total turnover Chiffre d’affaires total XXXX XXXX

Less: share of joint ventures’ Quote-part du chiffre d’affaires des (XX) (XX)turnover sociétés contrôlées conjointement

Group turnover Chiffre d’affaires du groupe XXXX XXXXCost of sales Coût des ventes (XXX) (XXX)

Gross profit or loss Marge brute XX XX

Distribution costs Coûts de distribution (XX) (XX)Administrative expenses Frais administratifs (XX) (XX)

Other operating income Autres produits d’exploitation XX XXOperating profit Résultat d’exploitation XX XXa) Continuing operations a) Activités poursuivies XX XXb) Acquisitions b) Acquisitions X Xc) Discontinued operations c) Activités abandonnées X X

Total operating profit Résultat d’exploitation total XX XXShare of operating profit in joint Quote-part du résultat d’exploitation X Xventures and associated des sociétés contrôlées conjointement undertakings et mises en équivalence

Group operating profit Résultat d’exploitation du groupe XX XX

Profit on sale of properties in Plus-value de cession d’immeubles continuing operations des activités poursuivies X XProvision for loss on operations Provisions pour pertes sur les activités to be discontinued destinées à être abandonnées (X) (X)Loss on disposal of discontinued Pertes liées aux activités (X) –operations abandonnées,Less: provision made in previous nettes de provisions de l’exercice X –year précédent. X –

Profit on ordinary activities Résultat des activités ordinaires avant before interest frais financiers XX XXInterest receivable Produits financiers XX XXInterest payable Frais financiers (XX) (XX)



PROFIT AND LOSS ACCOUNT COMPTE DE RESULTAT Financial Year Financial YearExercice Exercice

N N-1£’000 £’000

PROFIT ON ORDINARY RESULTAT DES ACTIVITES XX XXACTIVITIES BEFORE ORDINAIRES AVANT IMPOTTAXATIONTax on profit on ordinary activities Impôt sur le résultat courant (X) (X)

PROFIT ON ORDINARY RESULTAT NET COURANT X XACTIVITIES AFTER TAXATION DES ACTIVITES ORDINAIRESMinority interests Intérêts minoritaires X X

Profit before extraordinary items Résultat avant éléments extraordinaires XX XXExtraordinary items Eléments extraordinaires X X

PROFIT FOR THE RESULTAT NET DE X XFINANCIAL YEAR L’EXERCICE

Dividends paid and proposed Dividendes payés et dont la distribution (X) (X)including amounts in respect of est proposée y compris ceux relatifs auxnon-equity shares actions autres que de capital Difference between non-equity Ecart entre les coûts financiers (X) (X)finance costs and dividends des actions autres que le capital et

les dividendes

Profit retained, transferred to Bénéfice non distribué, affecté aux X Xreserves réserves

Earnings per share Bénéfice par action X X

Diluted earnings per share Bénéfice par action dilué X X



FRENCH CONSOLIDATED PROFIT AND LOSS ACCOUNT (COMPTE DE RESULTATCONSOLIDE) WITH LITERAL ENGLISH TRANSLATION (ACCOUNTS CLASSIFIEDBY NATURE)

COMPTE DE RESULTAT PROFIT AND LOSS ACCOUNT Exercice ExerciceFinancial Financial

Year YearN N-1

Chiffre d’affaires Turnover XXXX XXXXAutres produits d'exploitation Other operating income XX XXAchats consommés Purchases consumed XXX XXXCharges de personnel Payroll costs XXX XXXAutres charges d'exploitation Other operating charges XX XXImpôts et taxes Taxes other than income taxes XX XXDotations aux amortissements et Depreciation and amortisation XXX XXXaux provisions expense

Résultat d’exploitation Operating income (loss) XX XX

Charges et produits financiers Interest income (expense), net X X

Résultat courant des entreprises Income (loss) of consolidated XX XXintégrées companies before items below

Charges et produits exceptionnels Non operating income (expense), net X XImpôts sur les résultats Income taxes XX XX

Résultat net des entreprises Net income (loss) of consolidated XX XXintégrées companies

Quote-part dans les résultats des Share in net income (loss) of XX XXentreprises mises en équivalence affiliated companies Dotations aux amortissements Amortisation of goodwill XX XXdes écarts d'acquisition

Résultat net de l'ensemble Net income (loss) before minority XX XXconsolidé interests

Intérêts minoritaires Minority interests XX XX

Résultat net (Part du groupe) Net income (loss) (Group share) XX XX

Résultat par action Earnings per share X XRésultat dilué par action Diluted earnings per share X X



FRENCH CONSOLIDATED PROFIT AND LOSS ACCOUNT (COMPTE DE RESULTATCONSOLIDE) WITH LITERAL ENGLISH TRANSLATION (ACCOUNTS CLASSIFIEDBY DESTINATION)


Year YearN N-1

Chiffre d’affaires Turnover XXXX XXXXCoûts des ventes Cost of sales XX XXCharges commerciales Distribution costs XXX XXXCharges administratives Administrative costs XXX XXXAutres charges et produits Other operating expenses and XX XXd’exploitation revenues

Résultat d’exploitation Operating income (loss) XX XX

Charges et produits financiers Interest income (expense), net X X

Résultat courant des entreprises Income (loss) of consolidated companies XX XX intégrées before items below

Charges et produits exceptionnels Non-operating income (expense), net X XImpôts sur les résultats Income taxes XX XX

Résultat net des entreprises Net income (loss) of consolidated XX XXintégrées companies

Quote-part dans les résultats des Share in net income (loss) of XX XXentreprises mises en équivalence affiliated companies Dotations aux amortissements Amortisation of goodwill XX XXdes écarts d’acquisition

Résultat net de l’ensemble Net income (loss) before minority XX XXconsolidé interests

Intérêts minoritaires Minority interests XX XX

Résultat net (Part du groupe) Net income (loss) (Group share) XX XX

Résultat par action Earnings per share X XRésultat dilué par action Diluted earnings per share X X



FRENCH PROFIT AND LOSS (COMPTE DE RESULTAT) WITH LITERAL ENGLISHTRANSLATION – INDIVIDUAL ACCOUNTS – TAX FORMAT


Year YearN N-1

Produits d’exploitation Operating revenuesVentes de marchandises Sales of goods for resale XXXX XXXXProduction vendue Sales of finished goods XX XXChiffre d’affaires Turnover XXXX XXXX

Production stockée Changes in stocks of finished XX XXgoods, and work in progress

Production immobilisée Own work capitalised XX XXSubventions d’exploitation Operating subsidies XX XXReprises sur provisions et Write back of provisions and XX XXamortissements, transferts depreciation, transfers of expensesde chargesAutres produits Other revenues XX XX

Total I Total I XXXX XXXX

Charges d’exploitation Operating expensesAchats de marchandises Purchases of goods for resale XXX XXX

Variation de stock Changes in stocks XX XXAchats de matières premières et Purchases of raw materials and XXX XXXautres approvisionnements other supplies

Variation de stock Changes in stocks XX XXAutres achats et charges externes Other purchases and external charges XX XXImpôts, taxes et versements Taxes (other than income taxes) XX XXassimilésSalaires et traitements Payroll costs XXX XXXCharges sociales Social security expenses XX XXDotations aux amortissements Depreciation and amortisation XXX XXXet aux provisions expenseAutres charges Other XX XX

Total II Total II XXXX XXXX

Résultat d’exploitation (I-II) Operating income (loss) (I-II) XX XXQuotes-parts de résultat sur Share of results from unincorporatedopérations faites en commun III joint ventures III (+ or -)(+ ou -)

XX XXXX XX





Year YearN N-1

Produits financiers Financial incomeDe participation Income from investments XX XXProduits des autres valeurs Income from other investments XX XXmobilières et créances de l’actif and loansimmobiliséAutres intérêts et produits Other interest receivable and XX XXassimilés similar incomeReprises sur provisions et Write back of provisions and transfers XX XXtransferts de charges of expensesDifférences positives de change Realised exchange gains XX XXProduits nets sur cessions de Gains from sales of marketable XX XXvaleurs mobilières de placement securities

Total IV Total IV XXX XXX

Charges financièresDotations aux amortissements Amortisation and depreciation XX XXet aux provisions expenseIntérêts et charges assimilées Interest payable and similar charges XX XXDifférences négatives de change Realised exchange losses XX XXCharges nettes sur cessions de Losses from sales of marketable XX XXvaleurs mobilières de placement securities

Total V Total V XXX XXX

Résultat financier (IV-V) Financial income (loss) (IV-V) XX XX

Résultat courant avant impôts Pre-tax income (loss) before XX XX(I-II+III+IV-V-) exceptional items

Produits exceptionnels Exceptional revenuesSur opérations de gestion From operations XX XXSur opérations en capital From capital transactions XX XXReprises sur provisions et Write back of provisions and transfers XX XXransfertsransferts de charge of charges

Total VI Total VI XXX XXX

Charges exceptionnelles Exceptional expensesSur opérations de gestion From operations XX XXSur opérations en capital From capital transactions XX XXDotations aux amortissements Amortisation and depreciation XX XXet aux provisions expense

Total VII Total VII XXX XXX

Résultat exceptionnel (VI-VII) Exceptional income (loss) (VI-VII) XX XX

Participation des salariés aux Employees’ profit sharing VIII XX XXrésultats de l’entreprise VIII

Impôts sur les bénéfices IX Income tax IX XX XX

Total des produits (I+III+IV+VI) Total income (I+III+IV+VI) XX XXTotal des charges Total expenses XX XX(II+III+V+VII+VIII+IX) (II+III+V+VII+VIII+IX)

Bénéfice ou perte Net income (loss) XX XX


APPENDIX A.III

BRITISH HOLDING PLC – CASH FLOW STATEMENT (TABLEAU DE FLUX DETRESORERIE) WITH LITERAL FRENCH TRANSLATION

Exercice ExerciceFinancial Financial

Year YearN N-1

Net cash inflow from operating Flux nets de trésorerie liés à XXX XXXactivities l’exploitation

Returns on investments and Revenus des investissements XXX XXXservicing of finance et coûts de financementInterest received Intérêts reçus XX XXInterest paid Intérêts payés (XX) (XX)Dividend to minority interests Dividendes versées aux interêts (XX) (XX)

minoritairesInterest element of finance Intérêts inclus dans les redevances lease rental payments de location-financement (XX) (XX)Dividends received from associated Dividendes reçus des sociétés mises XX XXundertakings en équivalence

Net cash inflow from returns on Flux nets de trésorerie liés auxinvestments and servicing of revenus des investissements et auxfinance coûts de financement XXX XXX

Taxation ImpôtsUK corporation tax paid Impôts sur les sociétés payés au

Royaume-Uni (XX) (XX)Overseas tax paid Impôts payés à l’étranger (XX) (XX)

Tax paid Impôts payés (XX) (XX)

Capital expenditure and Dépenses d’investissementfinancial investmentPayments to acquire tangible Paiements pour l’acquisitions (XX) (XX)fixed assets d’immobilisations corporellesReceipts from sales of tangible Encaissements sur cession XX XXfixed assets d’immobilisations corporellesPayments for additions to Acquisitions d’immobilisations (XX) (XX)investments financièresReceipts from sale of investments Encaissements sur cessions XX XX

d’immobilisations financières

Net cash outflow from capital Sortie nette de trésorerie expenditure and financial provenant d’opérations investment d’investissements X X

Acquisitions and disposals Acquisitions et cessionsPurchase of subsidiary undertakings Acquisition de filiales (X) (X)Net cash acquired with subsidiary Trésorerie acquise avec filiales XX XXundertakingsSale of business Cession d’activités XX XX

Net cash outflow from acquisitions Sortie nette de trésorerie liés aux X Xand disposals acquisitions et cessions




Exercice ExerciceFinancial Financial

Year YearN N-1

Equity dividends paid Dividendes versés aux actionnaires (XX) (XX)en capital

Management of liquid resources Gestion de la trésorerie court termeNet movement in short term Variation nette des dépôts à court X (X)deposits termeNet purchase of short term Acquisitions nettes de valeurs mobilières (X) (X)investments de placement

Net cash inflow from Flux nets de la gestion de trésorerie X (X)management liquid resources court terme

Financing Opérations de financementIssue of ordinary share capital Emission de capital en actions XX XX

ordinaires

Net repayment of loans Remboursement net d’emprunts XX XXCapital element of finance Part de capital des redevances de X (X)lease payments location-financement

Net cash inflow (outflow) Entrées/sorties nettes de trésorerie XX XXfrom financing provenant des opérations de

financement

Increase (decrease) in cash Augmentation (diminution) de XX XXla trésorerie

Statement of Net Debt Tableau d’endettement net

Net debt at the start of the year Endettement net à l’ouverture (XXX) (XXX)de l’exercice

Decrease in cash Diminution de la trésorerie (XXX) (XX)Net movements in short term Variation nette des dépôts à court (X) (XX)deposits termeNet purchase of short term Acquisition nette de valeurs (X) Xinvestments mobilières de placementChange in market value of Variation de la valeur de marché des (X) Xinvestments valeurs mobilières de placementNet repayments of loans Remboursement net d’emprunts XXX XXForeign exchange effects Incidence des variations de cours XX X

des devises

Net debt at end of the year Endettement net à la clôture (XXX) (XXX)de l’exercice


FRENCH CONSOLIDATED CASH FLOW STATEMENT (TABLEAU DE FLUX DETRESORERIE CONSOLIDE) WITH LITERAL ENGLISH TRANSLATION

Flux de trésorerie liés à l’activité Cash flow from operating Financial Financialactivities Year Year

N N-1

Résultat net des entreprises Net result of consolidated XX XXintégrées companies

Elimination des charges et Less non cash or non operating XX XXproduits sans incidence sur items:la trésorerie ou non liés à l’activité:� Amortissements et provisions (1)

� Depreciation and provisions (1) XX XX� Variations des impôts différés � Changes in deferred taxes XX XX� Plus-values de cession, nettes � Gains on disposal of fixed assets XX XX

d’impôt (net of taxes)

� Marge brute d’autofinancement � Cash flow from operating activities XX XXdes sociétés intégrées of consolidated entities

� Dividendes reçus des sociétés � Dividends from associated XX XXmises en équivalence undertakings

� Variation du besoin en fonds � Change in working capital from XX XXde roulement lié à l’activité (2) operating activities (2)

Flux net de trésorerie généré Net cash flow from operating XXX XXXpar l’activité activities

Flux de trésorerie liés aux Cash flow from investing opérations d’investissement activities

Acquisition d’immobilisations Acquisition of fixed assets (XX) (XX)Cession d’immobilisations, Sales of fixed assets, net of taxes XX XXnettes d’impôtIncidence des variations de Effects of changes in group (XX) (XX)périmètre (3) structure (3)

Flux net de trésorerie lié aux Net cash flow from investing XX XXopérations d’investissement activities




N N-1

Flux de trésorerie liés aux Cash flow from financing opérations de financement activitiesDividendes versés aux actionnaires Dividends paid to the parent company (XX) (XX)de la société mère shareholders Dividendes versés aux minoritaires Dividends paid to minority interests of (XX) (XX)des sociétés intégrées consolidated entitiesAugmentation de capital en Issue of share capital XX XXnuméraireEmissions d’emprunt Increase in borrowings XX XXRemboursements d’emprunt Repayments of borrowings (XX) (XX)

Flux net de trésorerie lié aux Net cash outflow from financing XX XXopérations de financement activities

Variation de trésorerie Change in cash XXX XXX

Trésorerie d’ouverture Cash at the beginning of the year XX XXTrésorerie de clôture Cash at the end of the year XXX XXXIncidence des variations de cours Effects of exchange rate fluctuations X Xdes devises

(1) A l’exclusion des provisions sur (1) Excluding provision on current assetsactifs circulant

(2) A détailler par grandes rubriques (stocks, (2) Main items to be detailed (stocks, trade debtors, créances d’exploitation, dettes d’exploitation) trade creditors)

(3) Prix d’achat ou de vente augmenté ou diminué (3) Purchase or selling price adjusted by subsidiaries’de la trésorerie acquise à détailler dans une cash. To be detailed in a notenote annexe



Appendix B – The Euro

On 1 January 1999, the Euro became the official currency of 11 countries of theEuropean Union and 300 million citizens.

EURO – TIMETABLE

Key date Events

1 January 1999 � 11 countries of the European Union became part ofthe Euro zone.(France is part of the Euro zone, the UK is notcurrently part.)

1 January 1999 � For these 11 countries, payments from one bank toanother are made in Euro.

1 January 1999 to � Transition period for the new currency, when the 1 January 2002 Euro is neither compulsory nor forbidden. During

this period shopkeepers are permitted to refusepayments in Euro.

� Financial statements can be drawn up using the Euroor the previous currencies, but the change to the Eurois irrevocable.

� All contracts signed can be denominated in Euro or inthe previous currency.

� Money in Euro (credit card, cheque book) isintroduced and can be used in the transition period.

1 January 2002 � Introduction of the Euro fiat money (notes and coins).

126 APPENDIX B – THE EURO


Key date Events

From 1 January 2002 � All transactions have to be made in Euro.

� All contracts signed have to be denominated in Euro.

� All contracts signed before 2002 continue, theamounts are automatically valued taking into accountthe permanent rate (e.g. rental contract employmentcontracts, etc.).

EURO / FRENCH FRANC RATE FIXED ON 1 JANUARY 1999

France (1 Euro = 6.55957 French francs)

APPENDIX B – THE EURO 127


Appendix C – Glossary

ENGLISH – FRENCH

A Account CompteAccountancy/Accounting ComptabilitéAccounting period ExerciceAccrued expenses Charges à payerAccruals basis (accounting principle) Principe d’indépendance des

exercicesAccrued income Produits à recevoirAcquiree Entreprise acquiseAdministrative expenses Charges administratives/frais

générauxAffiliate Société liéeAmortisation Amortissement (immobilisations

incorporelles)Annual General Meeting Assemblée Générale OrdinaireAnnual report Rapport annuelAppropriation of net income Affectation du résultatArticles of Association StatutsAssets ActifsAssociated undertaking Société mise en équivalenceAuditing firm Cabinet d’audit/de commissariat aux

comptesAuditors Auditeurs/Commissaires aux

comptesAuthorised capital Capital autorisé

128 APPENDIX C – GLOSSARY


B Balance SoldeBalance sheet BilanBank loan Prêt bancaireBank statement Relevé bancaireBearer share Action au porteurBenefits in kind Avantages en natureBill of exchange Lettre de changeBoard of directors Conseil d’administrationBond ObligationBook Comptabiliser, enregistrerBookkeeping Tenue de comptabilitéBorrowing EmpruntBranch SuccursaleBrand MarqueBroker CourtierBuildings Immeubles/ConstructionsBusiness Affaire/Entreprise/ActivitéBusiness combination Regroupement d’entreprisesBusiness tax Taxe professionnelle

C Called-up share capital Capital souscritCapital Capital socialCapital gain Plus-valueCapital loss Moins-valueCash at bank and in hand DisponibilitésCash flow Flux de trésorerieCash flow statement Tableau des flux de trésorerieChairman PrésidentCheque ChèqueChief Executive Officer Directeur généralClosing rate Cours de clôture (change)Commercial code Code de CommerceCommission CommissionCompany SociétéCompany accounts Comptes sociauxConsolidated financial statements Comptes consolidésContingent liabilities Passifs éventuelsContract ContratContribution ApportCorporation tax, corporate Impôt sur les sociétésincome tax



Cost accounting, management Comptabilité analytique, comptabilité accounting de gestionCost of sales Coût des ventesCosts Coûts/Frais/ChargesCredit CréditCredit limit Limite de créditCreditor CréancierCreditors DettesCurrency Devise/monnaieCurrent account Compte courantCurrent assets Actifs à court terme/actif circulantCurrent liabilities Passif à court termeCurrent tax Impôt exigible

D Debenture ObligationDebit and credit Débit et créditDebt DetteDebtor Créance/débiteurDeferral method Méthode du report fixeDeferred charge Charge à répartir/charges constatées

d’avanceDeferred income Produit constaté d’avanceDeferred tax Impôt différéDepreciation (balance sheet) Amortissement (immobilisations

corporelles)Depreciation charge Dotation aux amortissementsDiminution (impairment) in value DépréciationDirector AdministrateurDiscontinuing operation Activité en cours d’abandonDiscount Rabais, remise, ristourne, escompteDiscounted ActualiséDisposal CessionDispute LitigeDistribution costs Coûts de distributionDividend DividendeDoubtful debt/receivable Créance douteuseDue date Echéance

E Earnings BénéficesEmployee Employé, salarié



Employee profit-sharing Intéressement; participation légale des salariés aux résultats de l’entreprise

Equity Capitaux propresEquity method Méthode de la mise en équivalenceExchange rate Taux de changeExceptional/Extraordinary Exceptionnel/ExtraordinaireExecutive committee Comité exécutif/directoireExpenses ChargesExport Exportation

F Factory UsineFees HonorairesFinance lease Location-financementFinancial accounting Comptabilité généraleFinished goods Produits finisFixed assets ImmobilisationsFixed costs Coûts fixesFixtures and fittings Agencements et installationsFull provision method Méthode du report global (impôts (deferred tax) différés)Foreign currency Devise étrangèreForeign exchange ChangeFutures Contrats à terme normalisés

(« futures »)

G Gearing Ratio d'endettement/effet de levierGeneral expenses Frais générauxGeneral ledger Grand livreGoods MarchandisesGoodwill (purchased) Fonds commercial (comptes

individuels)Goodwill(consolidation) Ecart d’acquisition (comptes

consolidés)Gross margin/profit Marge brute/bénéfice brutGuarantee Garantie/caution

H Head office Siège socialHedging CouvertureHire purchase Location avec option d’achatHistorical cost Coût historiqueHistorical rate Cours historique (change)



I Impairment in value DépréciationIncome Bénéfice/résultat/produit/revenuIncome tax Impôt sur le revenu (individuals)/sur

les sociétés (companies)Insurance AssuranceIntangible assets Immobilisations incorporellesInterest IntérêtInterest payable Intérêts à payerInterest receivable Intérêts à recevoirInterim report Rapport intermédiaireInventory Inventaire physiqueInvestment Placement/InvestissementInvoice FactureIssue (of shares) Emission (d’actions)

J Joint Venture Co-entreprise

L Land and buildings Terrain et constructionsLease Bail/Location/Crédit-bailLease back Cession bailLeasehold premium Droit au bailLiabilities PassifsLiability method Méthode du report variableLitigation LitigeLoan PrêtLong term Long termeLoss PerteLoss to completion Perte à terminaison

M Management Direction/GestionManaging Director Directeur généralMaterial SignificatifMerger FusionMinimum annual tax payment IFA (Impôt forfaitaire annuel)Minority interest Intérêts minoritairesMoney ArgentMortgage Prêt/Hypothèque

N Net profit Résultat netNet worth Situation netteNon-recurring Non récurrentNotes to the financial statements Notes annexes/annexe



O Off balance-sheet commitment Engagement hors-bilanOffice BureauOperating income (loss) Résultat d’exploitation (opérationnel)Operating lease Location simpleOption OptionOrdinary activities Activités ordinairesOrdinary share Action ordinaireOther costs Autres coûtsOverheads Frais générauxOperating income (loss) Résultat opérationnel (d’exploitation)

P Parent company Société-mèrePartial provision method Méthode du report partiel (deferred tax) (impôts différés)Partnership Société de personnesPartnership (unlimited liability) Société en nom collectifPatent BrevetPayables DettesPayment made on account Acompte payéPayment received on account Acompte reçuPayment, disbursement Paiement/règlement/décaissementPension fund Fonds de pensionPension scheme Plan/Régime de retraitePermanent inventory Inventaire permanentPlant UsinePlant and machinery Installations techniques, matériel et

outillagePooling of interest method Méthode de la mise en commun

d’intérêtsPortion Quote-partPost Comptabiliser, enregistrerPost-employment benefits Avantages accordés au personnel

postérieurs à l’emploiPreference share Action préférentiellePrepayment Charge payée d’avancePrice PrixProfit BénéficeProfit and loss account Compte de résultatProperty Biens immobiliersProvision ProvisionProvision for liabilities and charges Provision pour risques et chargesProxy Procuration



Purchase AchatPurchase method of acquisition Méthode de l’acquisition

R Rate TauxRaw materials Matières premièresReceipt, collection EncaissementReceivable CréanceReceivership Redressement judiciaireRecord (to) Comptabiliser, enregistrerRedemption RemboursementRelated parties Parties liéesReport RapportResearch and development Recherche et développementReserve RéserveRestated RetraitéResult RésultatReturn RentabilitéRevaluation RéévaluationRoyalty Redevance

S Salary SalaireSales VentesSecretary SecrétaireSecurities Titres/valeurs mobilièresSecurity Sûreté réelle/garantieShare ActionShare capital Capital socialShare price Prix de l’actionShareholder ActionnaireShort term Court termeSolicitor AvocatSpecial purpose entity Entité ad hocStaff representative Délégué du personnelStandard NormeStart-up activities Activités en démarrageStatutory financial accounts Comptes annuelsStatutory reserve Réserve RéglementéeStock StockStock Exchange Bourse de valeursStock take/stock count Inventaire physiqueStores MagasinsStraight line (depreciation) Linéaire (amortissement)



Subsidiary FilialeSundry Divers/accessoiresSupervisory board Conseil de surveillance

T Take-over Acquisition/prise de contrôleTangible assets Immobilisations corporellesTax Impôt/TaxeTax authorities Administrations fiscalesTax base Base fiscaleTax basis Base imposableTaxable profit (loss) Bénéfice imposable (perte fiscale)Temporary difference Différence temporaireTrade creditors/payables Comptes fournisseursTrade debtors/receivables Comptes clientsTrade union SyndicatTrial balance Balance généraleTurnover Chiffre d’affaires

U Union representative Délégué syndicalUnrealised gain/loss Gain/perte latenteUseful life Durée d’utilité

V Value in use Valeur d’utilitéValuation EvaluationValue added tax Taxe sur la valeur ajoutée (T.V.A)Value in use Valeur d’utilitéVariable costs Coûts variables

W Wages SalairesWarranty GarantieWeighted average cost Coût moyen pondéréWinding up (company) LiquidationWork in progress En cours de productionWorking capital Fonds de roulementWorking capital requirement Besoin en fonds de roulementWorks committee Comité d’entreprise

Y Year end Clôture de l’exercice



FRENCH – ENGLISH

French English

A Abandon d’activité/Activité en Discontinuing operationcours d’abandonAchat PurchaseAcompte payé Payment made on accountAcompte reçu Payment received on accountAcquisition/prise de contrôle TakeoverActif circulant Current assetsActifs à court terme Current assetsActifs AssetsAction ShareAction au porteur Bearer shareAction ordinaire Ordinary shareAction préférentielle Preference shareActionnaire ShareholderActivités en démarrage Start-up activitiesActivité ordinaire Ordinary activitiesActualisé DiscountedAdministrateur DirectorAdministrations fiscales Tax authoritiesAffaire BusinessAffectation du résultat Appropriation of net incomeAgencements et installations Fixtures and fittingsAmortissement Depreciation (balance sheet)(immobilisations corporelles)Amortissement Amortisation(immobilisations incorporelles)Annexe Notes to the financial statementsApport ContributionArgent MoneyAssemblée Générale Ordinaire Annual General MeetingAssurance InsuranceAuditeurs/Commissaires aux comptes AuditorsAutres coûts Other costsAutres créditeurs Other payablesAutres débiteurs Other receivablesAvantages en nature Benefits in kindAvantages accordés au personnel Post employment benefitspostérieurs à l’emploi Post employment benefitsAvocat Solicitor



B Bail/Location/Crédit-bail LeaseBase fiscale Tax baseBalance générale Trial balanceBase imposable Tax basisBénéfices EarningsBénéfice brut Gross profitBénéfice imposable (perte fiscale) Taxable profit (tax loss)Besoin en fonds de roulement Working capital requirementBiens immobiliers PropertyBilan Balance sheetBourse de valeurs Stock ExchangeBrevet PatentBureau Office

C Cabinet d’audit/de commissariat Auditing firmaux comptesCaisse de retraite Pension fundCapital appelé Called up share capitalCapital autorisé Authorised capitalCapital social Capital/share capitalCapitaux propres EquityCaution GuaranteeCession DisposalCession bail Lease backChange Foreign exchangeCharge Cost, expensesCharge à répartir Deferred chargeCharge constatée d’avance PrepaymentCharges à payer Accrued expenseChèque ChequeChiffre d’affaires TurnoverClient Customer/client/trade

receivable/trade debtorClôture de l'exercice Year endCode de Commerce Commercial codeCo-entreprise Joint VentureComité d’entreprise Works committeeComité exécutif Executive committeeCommissaire aux comptes Statutory auditorCommission CommissionComptabiliser Record/book/postComptabilité Accountancy/Accounting



Comptabilité analytique, Cost accounting/management comptabilité de gestion accountingComptabilité générale Financial accountingCompte AccountComptes annuels Statutory financial accountsCompte courant Current accountCompte de résultat Profit and loss accountComptes clients Trade debtors/receivablesComptes consolidés Consolidated financial statementsComptes fournisseurs Trade creditors/payablesComptes sociaux Company accounts/individual

accounts/statutory accountsConseil d’administration Board of directorsConseil de surveillance Supervisory boardContrat ContractContrats à terme normalisés Futures(“futures”)Cours de clôture (change) Closing rateCours historique (change) Historical rateCourtier BrokerCourt terme Short termCoût des ventes Cost of salesCoût historique Historical costCoût moyen pondéré Weighted average costCoûts administratifs Administrative expensesCoûts de distribution Distribution costsCoûts fixes Fixed costsCoûts variables Variable costsCoûts CostsCouverture HedgingCréance douteuse Doubtful debt/receivableCréance Receivable/debtorCréancier CreditorCrédit CreditCrédit autorisé Credit limitCrédit-bail Lease (finance or operating)

D Date d'échéance Maturity dateDébit et crédit Debit and creditDébiteur DebtorDécaissement Payment, disbursementDécouvert Bank overdraft



Délégué du personnel Staff representativeDélégué syndical Union representativeDépenses, charges ExpensesDépréciation Diminution (impairment) in valueDettes Debts/payablesDevise CurrencyDevise étrangère Foreign currencyDifférence temporaire Temporary differenceDirecteur général Managing director, chief executive

officerDirection ManagementDirectoire Executive committeeDisponibilités Cash at bank and in handDivers SundryDividende DividendDotation aux amortissements Depreciation chargeDroit au bail Leasehold premiumDurée d’utilité Useful life

E Ecart d’acquisition Goodwill (consolidation)(comptes consolidés)Echéance Due dateEmission (d'actions) Issue (of shares)Employé EmployeeEmprunt BorrowingEn cours de production Work in progress(Travaux en cours)Encaissement Receipt, collectionEngagement hors bilan Off balance-sheet committmentEnregistrer Record/book/postEntité ad-hoc Special purpose entityEntreprise, société Company, firm, business, corporationEntreprise acquise AcquireeEscompte DiscountEtat de rapprochement bancaire Bank reconciliationEvaluation ValuationExercice Accounting periodExpert-comptable Chartered accountantExportation ExportExceptionnel ExceptionalExtraordinaire Extraordinary



F Facture InvoiceFiliale SubsidiaryFiliale sous influence notable Associated undertakingFonds commercial (comptes individuels) Goodwill purchasedFlux de trésorerie Cash flowFonds de pension Pension fundFonds de roulement Working capitalFournisseur Supplier/trade creditor/trade payableFrais Costs, expensesFrais généraux General expensesFrais généraux OverheadsFusion Merger/acquisition

G Gain/perte latente Unrealised gain/lossGarantie Guarantee, WarrantyGestion ManagementGrand livre General ledger

H Honoraires Fees

I IFA (Impôt forfaitaire annuel) Minimum annual corporation tax payment

Immeubles/Constructions BuildingsImmobilisations Fixed assetsImmobilisations corporelles Tangible fixed assetsImmobilisations incorporelles Intangible fixed assetsImpôt exigible Current taxImpôt différé Deferred taxImpôt sur le revenu (individuals) Income taxImpôt sur les sociétés (companies) Corporation tax/corporate income taxImpôt/Taxe TaxInstallations techniques, Plant and machinerymatériel et outillageIntéressement Employee profit-sharingIntérêt InterestIntérêts minoritaires Minority interestIntérêts à payer Interest payableIntérêts à recevoir Interest receivableInventaire Inventory (stock count)Inventaire permanent Permanent inventoryInventaire physique Inventory/stock take/stock countInvestissement Investment



L Lettre de change Bill of exchangeLimite de crédit Credit limitLinéaire (amortissement) Straight line (depreciation)Liquidation Winding up (company)Litige Dispute, litigationLocation simple Operating leaseLocation-financement Finance leaseLocation avec option d’achat Hire purchaseLong terme Long term

M Magasins StoresMarchandises GoodsMarge brute Gross marginMarque BrandMatières premières Raw materialsMéthode de l’acquisition Purchase method of acquisitionMéthode de la mise en équivalence Equity methodMéthode de la mise en commun Pooling of interest methodd’intérêtsMéthode du report variable Liability methodMéthode du report fixe Deferral methodMéthode du report global Full provision method (deferred tax)(impôts différés)Méthode du report partiel Partial provision method (deferred (impôts différés) tax)Moins-value Capital lossMonnaie Currency

N Non récurrent Non recurringNorme StandardNotes annexes/annexe Notes to the financial statements

O Obligation Debenture/bondOption Option

P Participation légale des salariés Employee profit-sharingavec résultats de l’entrepriseParties liées Related partiesPassif à court terme Current liabilitiesPassif LiabilityPassifs éventuels Contingent liabilitiesPerte Loss



Perte à terminaison Loss to completionPlacement InvestmentPlan/Régime de retraite Pension schemePlus-value Capital gainPrésident ChairmanPrésident Directeur General (PDG) Chairman and managing

director/chief executive officerPrésident du conseil Chairman of the board/chief d'administration executive officerPrêt LoanPrêt bancaire Bank loanPrêt/Hypothèque MortgagePrincipe d’indépendance Accruals basis (accounting principle)des exercicesPrix PricePrix de l’action Share priceProcuration ProxyProduit IncomeProduit à recevoir Accred incomeProduit constaté d’avance Deferred incomeProduits finis Finished goodsProvision ProvisionProvision pour risques et charges Provision for liabilities and charges

Q Quote-part Portion/share

R Rabais, remise, ristourne DiscountRachat/OPA TakeoverRapport ReportRapport annuel Annual reportRapport intérmédiaire Interim reportRatio d’endettement GearingRecherche et développement Research and developmentRedevance RoyaltyRedressement judiciaire ReceivershipRéévaluation RevaluationRegroupement d’entreprises Business combinationRelevé bancaire Bank statementRemboursement RedemptionRemise DiscountRendement, Rentabilité ReturnRéserve ReserveRéserve réglementée Statutory reserve



Résultat ResultRésultat net Net profitRésultat d’exploitation (opérationnel) Operating income (loss)Retraité RestatedRevenu Income

S Salaire SalarySalaires WagesSalarié, employé EmployeeSecrétaire SecretarySécurité SecuritySiège social Head officeSignificatif MaterialSituation nette Net worthSociété CompanySociété mise en équivalence AffiliateSociété de personnes PartnershipSociété en nom collectif Partnership (unlimited liability)Société liée Associated undertakingSociété mère Parent companySolde BalanceStatuts Articles of AssociationStock StockSuccursale, agence BranchSûreté réelle/garantie SecuritySyndicat Trade union

T Tableau des flux de trésorerie Cash flow statementTaux RateTaux de change Exchange rateTaxe professionnelle Business taxTaxe sur la valeur ajoutée (TVA) Value added tax (VAT)Tenue de comptabilité BookkeepingTerrain et constructions Land and buildingsTitres, valeurs mobilières SecuritiesTransaction TransactionTrésorerie Cash

U Usine Factory/plant

V Valeur d’utilité Value in useValeur nette comptable Net book valueVentes Sales



Appendix D – Liaison Resources

Deloitte & Touche provides audit, tax and consulting services to manycompanies operating in France and UK. As Deloitte & Touche in France andDeloitte & Touche in the UK, we have a large group of professionals skilled atserving French subsidiaries of UK companies, UK subsidiaries of Frenchcompanies, UK companies with securities traded on French stock exchangesand vice versa. We also have specialized support resources available to assistFrench companies doing business in the UK and UK companies doing businessin France. These resources include:

144 APPENDIX D – LIAISON RESOURCES

Based in the United Kingdom

Led by a UK partner and supportedby a number of managers secondedfrom France or who have been onsecondment in France, this Londonbased group specialises in Frenchaccounting and reporting matters.

One of the key areas of experience ofthe French Desk is in assisting ourclients as they grow. In particular wehave assisted many owner managedbusinesses to set up in the UK and todevelop their operations.

Based in France

Our French Desk liaises closely withour French firm, which has bothlarge quoted groups and many smalland medium sized owner managedbusiness among its client base. Inparticular, the firm has extensiveexperience of internationalassignments of all sizes.

In addition to audit activities, ourFrench firm with its consulting arm,assists clients in the managementand development of their growth.Similarly, the French legal firmprovides assistance to clients at alocal and international level in areasincluding tax advice andinternational tax planning, company


law, employment law, inheritanceand contract law. Additionally, thefirm benefits from a number ofspecialised teams which deal withfinancial structuring, corporatefinance, and corporatereorganisations.

APPENDIX D – LIAISON RESOURCES 145


Offices in the United Kingdom,Channel Islands and the Isle of Man

Aberdeen66 Queen's Terrace, Aberdeen AB10 1XLTel: 01224 625888 Fax: 01224 625025

Belfast19 Bedford Street, Belfast, Northern Ireland BT2 7EJTel: 028 9032 2861 Fax: 028 9023 4786

BirminghamColmore Gate, 2 Colmore Row, Birmingham B3 2BNTel: 0121 200 2211 Fax: 0121 236 1513

BracknellColumbia Centre, Market Street, Bracknell, Berks RG12 1PATel: 01344 54445 Fax: 01344 422681

BristolQueen Anne House, 69-71 Queen Square, Bristol BS1 4JPTel: 0117 921 1622 Fax: 0117 929 2801

CambridgeLeda House, Station Road, Cambridge CB1 2RNTel: 01223 460222 Fax: 01223 350839

CardiffBlenheim House, Fitzalan Court, Newport Road, Cardiff CF2 1TSTel: 029 2048 1111 Fax: 029 2048 2615

CrawleyGlobal House, High Street, Crawley, West Sussex RH10 1DLTel: 01293 510112 Fax: 01293 533493

146 OFFICES IN THE UNITED KINGDOM, CHANNEL ISLANDS AND THE ISLE OF MAN


Edinburgh39 George Street, Edinburgh EH2 2HZTel: 0131 225 6834 Fax: 0131 225 4049

GlasgowLomond House, 9 George Square, Glasgow G2 1QQTel: 0141 204 2800 Fax: 0141 221 1864

GuernseyP.O. Box 137, St. Peter’s House, Le Bordage, St. Peter Port, Guernsey,Channel Islands, GY1 3HWTel: 01481 724011 Fax: 01481 711544

Isle of ManGrosvenor House, P.O. Box 250, 66/67 Athol Street, Douglas,Isle of Man, IM99 1XJTel: 01624 672332 Fax: 01624 672334

JerseyP.O. Box 403, Lord Coutanche House, 66-68 Esplanade, St. Helier, JerseyChannel Islands, JE4 8WATel: 01534 37770 Fax: 01534 34037

Leeds10-12 East Parade, Leeds LSI 2AJTel: 0113 243 9021 Fax: 0113 244 5580

LiverpoolMartins Buildings, 4 Water Street, Liverpool L2 8UYTel: 0151 236 0941 Fax: 0151 236 2877

LondonHill House, 1 Little New Street, London EC4A 3TRTel: 020 7936 3000 Fax: 020 7583 8517

Stonecutter Court, 1 Stonecutter Street, London EC4A 4TRTel: 020 7936 3000 Fax: 020 7583 1198

ManchesterPO Box 500, 201 Deansgate, Manchester M60 2ATTel: 0161 832 3555 Fax: 0161 829 3800

OFFICES IN THE UNITED KINGDOM, CHANNEL ISLANDS AND THE ISLE OF MAN 147


Newcastle upon TyneGainsborough House, 34-40 Grey Street, Newcastle upon Tyne NE1 6EATel: 0191 261 4111 Fax: 0191 232 7665

Nottingham1 Woodborough Road, Nottingham NG1 3FGTel: 0115 950 0511 Fax: 0115 959 0060

SouthamptonMountbatten House, 1 Grosvenor Square, Southampton SO15 2BETel: 023 8033 4124 Fax: 023 8033 0948

St AlbansVerulam Point, Station Way, St Albans, Herts,AL1 5HETel: 01727 839000 Fax: 01727 831111

148 OFFICES IN THE UNITED KINGDOM, CHANNEL ISLANDS AND THE ISLE OF MAN


Offices in France

Bordeaux4 cours de Gourgue, 33000 BordeauxTel: +33 5 56 48 49 39 Fax: +33 5 56 48 49 30

Lille2 avenue Maréchal Leclerc, 59110 La MadeleineTel: +33 3 20 14 95 40 Fax: +33 3 20 14 95 49

Lyon“Park Avenue”, 81 boulevard de Stalingrad, BP 1284, 69608 Villeurbanne CedexTel: +33 4 72 43 37 00 Fax: +33 4 72 43 39 90

MarseilleLes Docks – Atrium 10.4, 10 place de la Joliette, 13002 MarseilleTel: +33 4 91 59 84 30 Fax: +33 4 91 59 84 59

Nantes1 allée Baco, BP91525, 44015 NantesTel: +33 2 40 89 73 73 Fax: +33 2 40 48 45 44

Paris185 avenue Charles de Gaulle, 92200 Neuilly sur SeineTel: +33 1 40 88 28 00 Fax: +33 1 40 88 28 28

Strasbourg18a rue de la Glacière, BP 30, 67300 Schiltigheim StrasbourgTel: +33 3 90 20 81 60 Fax: +33 3 90 20 81 70

Tours19 rue Edouard Vaillant, BP 1249, 37012 Tours Cedex 1Tel: +33 2 47 60 39 10 Fax: +33 2 47 60 39 05

OFFICES IN FRANCE 149


International Offices

Albania

Algeria

Angola

Anguilla

Argentina

Aruba

Australia

Austria

Bahamas

Bahrain

Bangladesh

Barbados

Belarus

Belgium

Belize

Bermuda

Bhutan

Bosnia &Herzegovina

Botswana

Brazil

British VirginIslands

BruneiDarussalam

Bulgaria

Cambodia

Cameroon

Canada

Cape VerdeIslands

Cayman Islands

Channel Islands

Chile

China

Colombia

Cook Islands

Costa Rica

Croatia

Cyprus

Czech Republic

Denmark

DominicanRepublic

Ecuador

Egypt

El Savador

Estonia

Finland

France

The Gambia

Gaza Strip

Germany

Ghana

Gibraltar

Greece

Greenland

Guam

Guatemala

Guyana

Honduras

Hong Kong

Hungary

Iceland

India

Indonesia

Ireland

Isle of Man

Israel

Italy

Ivory Coast

Jamaica

Japan

Jordan

Kazakstan

Kenya

Korea

Kuwait

Laos

Latvia

Lebanon

150 INTERNATIONAL OFFICES


Lesotho

Libya

Lithuania

Luxembourg

Macau

Macedonia

Madagascar

Malawi

Malaysia

Malta

Marshall Islands

Mauritania

Mauritius

Mexico

Micronesia

Moldova

Mongolia

Montenegro

Morocco

Mozambique

Myanmar

Namibia

Nepal

Netherlands

NetherlandsAntilles

New Zealand

Nicaragua

Nigeria

NorthernMariana Islands

Norway

Oman

Pakistan

Palau

Panama

Papua NewGuinea

Paraguay

Peru

Philippines

Poland

Portugal

Qatar

Romania

Russia and NewIndependentStates

San Marino

Saudi Arabia

Singapore

Slovak Republic

Slovenia

South Africa

Spain

Sri Lanka

Sudan

Sweden

Switzerland

Syria

Taiwan

Tanzania

Thailand

Trinidad &Tobago

Tunisia

Turkey

Turks & CaicosIslands

Uganda

Ukraine

United ArabEmirates

United Kingdom

United States

Uruguay

Venezuela

Vietnam

Yemen

Zambia

Zimbabwe

INTERNATIONAL OFFICES 151


Notes


EUROPEANCOMPARISON:UK&FRANCEThe main differences between UK and French accounting practice

by Chris Jones and Marie-Dominique Samar-Fauchon

EUROPEANCOMPARISON:U

K&

FRA

NC

E Euro comparison – UK/France 19/10/2001 3:33 PM Page 1

French vs UK GAAP

Documents

Transcript of French vs UK GAAP