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International Accounting, 6/eMAHSINA,SE., MSI

By reference: Frederick D.S. ChoiGary K. Meek

Chapter 3: Comparative Accounting: Europe

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Learning Objectives Understand how financial reporting is regulated and

enforced in five European countries: France, Germany, the Czech Republic, the Netherlands, and the U.K.

Describe the key similarities and differences between the accounting systems of these five countries.

Identify the use of International Financial Reporting Standards at the levels of the individual company and the consolidated financial statements in these five countries.

Describe the audit-oversight mechanisms in these five countries.

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IFRS in the European Union Starting in 2005, all EU-listed companies must follow

IFRS in their consolidated financial statements. Generally, IFRS consolidated statements are

permitted for non-listed companies. Requirements for individual company financial

statements vary – IFRS may be required, allowed, or prohibited.

Indonesia Public Listed Co – IFRS – Start 1 Januari 2012, SMEs Co – SAK ETAP Start 1 Januari 2010

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IFRS (contin) IFRS are based on fair presentation principles IFRS may be overridden in rare circumstances to achieve fair

presentation Accounting measurements

Business combinations – purchase accounting Goodwill – annual impairments test (Variance: Acquisition Cost vs FV dari

Asset/ Utang yang diakuisisi Investments in associates – equity method dg penyesuaian L/R trans hulu

ke hilir porsi investor; Translation of financial statements of foreign operations – functional

currency concept; Neraca “entitas asing’ ditranslasikan pada tingkat penutupan (akhir tahun), Lap. L/R ditranslasikan oada tingkat penutupan rata-rata, Penyesuaian translasi dibebankan pada ekuitas pemegang saham.

Assets valued at historical cost or fair value Research costs – expensed; development costs – capitalized LIFO not allowed Finance leases – capitalized; operating leases – expensed Provisions – recognized when probable and estimable Deferred taxes – recognized in full, using the liability method, for temporary

differences between the carrying amount and tax base

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France (contin) Accounting regulation and enforcement

CNC – National Accounting Board Keeps plan current Makes rulings and recommendations on accounting issues

CRC – Accounting Regulation Committee Converts CNC rulings and recommendations into binding regulations

AMF – Financial Markets Authority Supervises securities markets

OEC – Institute of Public Accountants Represents the accounting profession Members prepare financial statements, and provide tax, information systems, and

management advisory services CNCC – National Institute of Statutory Auditors

Members audit and give an opinion on financial statements Must report criminal acts to the High Council of External Auditors Substantial overlap in OEC and CNCC membership Statutory auditors not allowed to provide accounting services to the same client AMF oversees audits of listed companies, but relies on a committee of the CNCC to

conduct audit-quality reviews

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France Overview

“The Plan” – national uniform chart of accounts (national accounting code), consist of: Objectives and principles of financial reporting Definitions of elements (asset, utang, ekuitas pemegang

saham, pendapatan dan pengeluaran) Recognition and valuation rules (Aturan Valuasi dan

Pengakuan) Standardized chart of accounts (Daftar akun, persyaratan

penggunaan & persyaratan tata buku lainya yg telah terstandarisasi)

Model financial statements (Contoh LK dan aturan presentasinya)

Other influences on French accounting rules Commercial legislation (Code de Commerce) Tax laws

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France (contin) Unusual features of French financial reporting

Must report results of environmental activities Reports aimed at preventing bankruptcies Social report

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Germany Overview

Creditor protection Conservative balance sheet valuations (Penilaian neraca konservatif) Reserves as protection against unforeseen risks and insolvency

(Simpanan dianggap sbg perlindungan thd resiko yang tak terduga dan kemungkinan kebangkrutan)

Accounting is designed to compute a prudent income amount that leaves creditors unharmed after distributions are made to owners (Akuntansi dirancang untuk menghitung jumlah pendapatan yg tepat yg bisa menjaga kreditur stlh adanya pembagian kpd pemilik/ dividen)

Influence of tax law Determination principle (massgeblichkeitprinzip): taxable income

is determined by what is booked in a company’s financial records Reliance on statutes and court decisions

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Germany (contin) Accounting regulation and enforcement

German Commercial Code (HGB) Applies to all business entities

German Accounting Standards Board Develops recommendations for consolidated financial statements

Financial Reporting Enforcement Panel Enforces compliance with German financial reporting requirements

and IFRS by listed companies Chamber of Accountants

Oversees WPs (“enterprise examiners”)/ Wirtschaftsprufer Formal Accountant Public of Germany

Unusual features of German financial reporting Auditor’s private report to board of directors and supervisory

board on company’s future prospects

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Czech Republic Overview

Accounting changed directions several times in 20th century, reflecting the country’s political history Until end of World War II – German influences After World War II – Soviet influences After 1989 – EU influences (market orientation)

Accounting regulation and enforcement Ministry of Finance

Oversees Commercial Code (modeled on German commercial law) Oversees Accountancy Act (based on EU directives)

Chamber of Auditors Oversees auditors

Unusual features of Czech financial reporting Form over substance still applies in some cases Still implementing accounting practices consistent with EU directives and

IFRS

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The Netherlands Overview

Accounting paradoxes Permissive requirements, but high professional practice standards

(UU Akt & Persyaratan LK bebas, tapi standar praktek professional sangat tinggi)

Code law country whose accounting is oriented toward fair presentation (negara hukum yang akuntansinya ke arah kewajaran penyajian)

Fair presentation orientation developed without a strong stock market (Akuntansi kewajaran dikembangkan tanpa adanya pengaruh kuat pasar modal)

Other influences on Dutch accounting U.K. and U.S. as much as continental European countries Accounting profession Business economics (microeconomics) IASB(Terutama BU International Phillips, Royal Dutch Shell, & Unilever)

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The Netherlands (contin) Accounting regulation and enforcement

Company law – Act on Annual Financial Statements (1970), : Annual Report hrs menunjukkan gambaran jelas posisi keuangan dan hasil keuangan tahub tersebut, LK harus disusun berdasarkan praktik bisnis yg aman, Dasar-dasar utk penulisan aset dan utang utk menentukan hasil operasi hrs diungkapkan, LK hrs disusun pada dasar yg konsisten pengaruh materil dari perubahan hrs diungkap, Informsi Keuangan yg komparatif dg periose sebelumnya hrs diungkap)

Dutch Accounting Standards Board (Private Organizations funded by Business Community & Audit Profession) Develops guidelines on generally acceptable accounting standards

(The member : Penyusun LK, Pengguna LK & Auditor LK) Enterprise Chamber (dewan yg terhubung dg High Court of

Amsterdam) Enforces compliance with accounting requirements – menilai

kepatuhan pelaksanaan Akuntansi NIvRA (Netherlands Institute of Registered Accountants)

Oversees auditing profession

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The Netherlands (contin) Unusual features of Dutch financial reporting

Financial statements may be in Dutch, French, German, or English

Other than consolidated financial statements of Dutch listed companies, financial statements may be based on Dutch guidelines, IFRS, or a combination

Flexible accounting measurements Current values are permitted for tangible assets Opportunities for income smoothing

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United Kingdom (contin) Accounting regulation and enforcement

Companies Act Broad financial reporting framework

Financial Reporting Council oversees: Accounting Standards Board

Issues Financial Reporting Standards (FRSs) UITF clarifies FRSs

Auditing Practices Board Issues auditing standards

Financial Reporting Review Panel Enforces compliance with FRSs

Professional Oversight Board Oversees auditing profession Audit Inspection Unit

Monitors the audit of listed companies Accountancy Investigation and Discipline Board

Investigates and disciplines accountants for professional misconduct Unusual features of British accounting

True and fair override

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United Kingdom Overview

Legacy of British accounting First country to develop an accountancy profession Fair presentation (true and fair view) Exported British accounting around the world

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Other Chapter Exhibits (contin)

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Other Chapter Exhibits

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Other Chapter Exhibits (contin)