Axel Haller

Financial Accounting Developments in the European Union: Past Events and Future Prospects

The decision of the Commission of the European Union (EU) to oblige listed European companies, from 2005 onwards, to establish their consolidated financial statements according to IFRS (IAS) represents a preliminary peak in the internationalization process of financial accounting in Europe. The purpose of this paper is to highlight the landmarks of accounting developments in the EU since the Fourth and Seventh Directives and to reveal the obvious internationalization process of financial accounting in the EU, which has accelerated considerably during the last ten years. Owing to the considerable pressures exerted by market forces, a clear convergence of accounting practice as well as of the regulatory frameworks of the EU and its Member States with IFRS (IAS) is recognizable. The harmonization effects of the market forces on national regulators and companies appear to be much larger than those of the Fourth and Seventh Directives. In addition to the explanation and reasoning behind past developments, this paper also discusses some future prospects of financial reporting within the EU and identifies some of its major challenges.

The Adaptation of German Accounting Rules to IFRS: A Legislative Balancing Act

ABSTRACT The accounting strategy of the EU Commission for the last ten years, which reached one of its goals with the Regulation on IAS, is challenging all EU Member States. This article gives an analytical insight into the way the German legislator has confronted this challenge. It explains the statutory changes introduced to adapt the accounting regime in Germany, against the background of arguments for reform and proposals which have been put forward in the German accounting literature and by influential interest groups. The major characteristics of the governments accounting strategy are analysed: an increasing focus on the macroeconomic benefits of adequate accounting regulations, a perception of accounting as a material part of the corporate governance regime, greater weight given to the notion of public interest and the information function of accounting, a focus on consolidated accounts for the revision of existing rules, and, at the same time, considerable reluctance to change any recognition and measurement rules for individual entity accounts. In general the accounting reform strategy of the German government can be characterized as being slow, conservative and reactive, following a marginal step-by-step approach.

The value added statement – an appropriate instrument for Integrated Reporting

Purpose - – The purpose of this paper is to contribute to the current discussions about the concept of Integrated Reporting (IR) and provides a practical and useful proposal of an instrument that could help to apply the IR concept in corporate practice. Design/methodology/approach - – The study uses a deductive normative research approach. Findings - – Based on a comprehensive review of international literature and research, the paper argues that a structured presentation of the traditional measure of “value added” in a so-called “value added statement” (VAS) has the potential to serve as a practical and effective reporting instrument for IR. The proposed VAS not only meets the guiding principles of IR but also reports on the monetary effects of different types of capital included in IR and in this way complements and represents the concept of IR very well. Research limitations/implications - – The authors intend to stimulate the academic as well as institutional discussion on how to apply the concept of IR at the corporate level. As the characteristics of the proposed VAS comply well with the guiding principles and concepts developed in the Integrated Reporting Framework project of the International Integrated Reporting Council (IIRC) and with the ultimate objective of integrated thinking, the study can inform the current considerations within and outside of the IIRC. Originality/value - – The future of IR and the probability of its world-wide application in practice will depend on the development of appropriate reporting tools that incorporate the central ideas of IR, currently no such reporting tools exist. In this paper the authors make an argument for a VAS as a complementing, useful and therefore appropriate reporting tool for IR.

The Influence of Tax on IFRS Consolidated Statements: The Convergence of Germany and the UK

The literature on the links between tax and financial reporting suggests that the strength of those links varies over time and from one jurisdiction to another. The links in Germany were seen to be particularly strong, and those in the UK rather weak. Previous literature was largely set in the context of unconsolidated statements but authors have suggested that their findings were relevant for consolidated reporting. This paper examines the scope for tax influence on IFRS consolidated financial reporting in the two above countries. We find that the overall position for Germany and the UK is now similar, that is, that the potential for tax influence is much weaker in Germany than recorded in previous studies. We also find that, even for unconsolidated reporting under domestic accounting rules, the extreme positions recorded for the two countries in the 1990s have been modified.

Does Size Influence the Suitability of the IFRS for Small and Medium-Sized Entities? -- Empirical Evidence from Germany

This study is set within the context of the IASBs initiative to develop an IFRS for small and medium-sized entities (SMEs). It is based on a questionnaire survey of small and medium-sized entities in Germany exploring the suitability of the IASBs proposed SME standard for entities of different size classes. Quantitative size criteria are used in many national jurisdictions to differentiate financial reporting requirements between entities. However, there is very little empirical evidence on the question whether the economic size of an entity has an impact on the economic issues that should be regulated by accounting rules and on managements preferences for specific accounting methods. This paper addresses these deficiencies by exploring to what extend an entitys economic size has an impact on its international exposure, the relevance of specific accounting issues and preparers’ perceptions on costs and benefits associated with the application of selected accounting methods. Our findings are ambiguous. Size effects are revealed with regard to the structure of entities, their international exposure and to a large extent to the relevance of particular accounting issues. Cost and benefit assessments of accounting methods also differ within and between the size clusters investigated, albeit a generalisation of size as a factor determining the cost-benefit considerations of firms with regard to particular accounting treatments and methods is not supported by the studys results.

Accounting for brands in France and Germany compared with IAS 38 (intangible assets): An illustration of the difficulty of international harmonization

Abstract This paper compares the positions taken by IAS 38 over brands and the related treatments in France and Germany. Despite many points of convergence, the paper shows that these two countries, often to be found in the same cluster of national accounting systems (the “Continental-European” model), have adopted very different solutions in relation to each other and to IAS 38. The results of the study highlight the difficulty of international harmonization. They also show that as far as the qualitative characteristics of accounting are concerned, the frequently made association between Anglo-American accounting philosophy and “relevance,” and between Continental-European accounting philosophy and “reliability,” may not apply when it comes to brand accounting. To resolve this international “disharmony,” our paper militates in favor of disclosure of additional information.

Accounting Education for Professionals in Germany – Current State and New Challenges

Abstract In comparison to other countries, the requirements on the education of professional auditors in Germany have been considered to be the toughest in the world. However, German professionals risk losing this position since there are countries which seem to adapt more quickly and appropriately to changes in the accounting environment. The first part of the paper provides a review of the current state of the education for qualified auditors in Germany with special reference to the according EU-Directives and IFAC-Rules. It is shown that there are various issues which have to be accounted for in order to meet the challenges of the future. The remainder of the paper focuses on challenges due to changes in the accounting and auditing environment, on challenges due to an enlargement of the scope of statutory audit and — finally — on challenges due to the need for diversification from auditing to assurance services.

The effects of accounting standards – a comment

This paper brings together the comments made by the European Accounting Associations Financial Reporting Standards Committee to a discussion paper (DP) issued by European Financial Reporting Advisory Group/UK Accounting Standards Board (ASB). It analyses the content of the DP and then discusses what effects should be considered. It considers that all effects should be evaluated, irrespective of whether they normally fall within the standard-setters purlieu, and provides a taxonomy of effects. It illustrates the difficulty of determining what effects should be considered by the standard-setter. The paper then discusses when effects should be reviewed. It agrees with the DP that effects need to be considered from inception of the project. It disagrees that the standard-setter should necessarily be responsible for all of the effects analysis. It argues that effects are likely to be different by geographical region and industry sector, and recourse should be had to national standard-setters and other organisations. While preparers may make representations about effects during the due process, these are not likely to be a representative sample. The paper suggests that in particular post-implementation reviews are better carried out independently. It observes that the DP does not address the practicalities of carrying out research in this area.

Shortcomings of performance reporting under IAS/IFRS: a conceptual and empirical study

According to the Framework of the IASB, profit is a frequently used measure of an entitys performance. Yet in developing its standards, the IASB has not paid much attention to the presentation of profit, but primarily concentrated on recognition and measurement requirements. As a consequence, the International (Accounting) Financial Reporting Standards (IAS/IFRS) do not provide a sound conceptual basis for the presentation of income and expenses. The aim of this paper is to analyse the extent to which these shortcomings in current IAS/IFRS are likely to reduce or impair the relevance and comparability of financial statements. It empirically investigates income statements and statements of changes in equity of German and Austrian listed companies applying IAS/IFRS. The results of the study support heavily the current effort of the IASB to develop a new format for the presentation of financial performance.

The persistence of international accounting differences as measured on transition to IFRS

The international accounting classification literature emphasises the importance of understanding how institutional factors shape accounting regulations and practices. With the mandatory adoption of International Financial Reporting Standards (IFRS) in the European Union and Australia in 2005, our empirical study examines whether three international accounting classification systems relating to equity financing, law and culture still had merit as measured on transition to IFRS and explore whether they are effective in grouping accounting systems. Using IFRS as the yardstick, we find statistically significant differences in the measurement of shareholders’ equity as between strong (Class A) versus weak (Class B) equity financing systems, common law versus code law systems and cultural systems based on ‘Anglo’, ‘Nordic’ and ‘More Developed Latin’ cultural groups. With regard to the measurement of net income, however, we find statistically significant differences only in respect of strong (Class A) versus weak (Class B) equity financing systems. Our findings demonstrate that traditional international accounting system differences still persisted at the time of IFRS adoption even after long periods of harmonisation and growing international accounting convergence.