Comparison of Financial Reporting Systems

Comparison of monetary reportage SystemsComparison of pecuniary account governancesUK, France, Germany and PolandIntroductionAlthough recent moves open been made towards the harmonization of explanation and financial coverage systems at bottom the European Union (EU), there ar some differences between the ways that part states treat this issue (Ann Tarca, 2002). This paper compares the systems roled in four penis states, being the UK, France, Germany and Poland. In addition, it will too provide an evaluation of the harmonisation movement.Financial reporting systemsThe financial reporting systems of EU member states curb evolved from their political, culture histories, and have different levels of regulatory control and responsibility.UKThe placarding and financial reporting system in the UK has been developed in the main by accountants (Nobes and Parker, 2006, p.485), although in latter decades the state and EU have had a evidentiary influence upon its rules. Accou ntants have as well as been involved with the main legal commands that put one across to audits and reporting, such(prenominal) as the Companies Act 1989 and later am sackments, including that of 2006.Historic solelyy, the UK reporting system has been pitch towards meeting the needs of investors and therefore has a high level of transparentness and disclosure. As such, the impact of the taxation system is of less importance than in other EU countries. This has led to some differences between taxable and account income (Blake and Amet, 2003, p.213).The thrust of the system is to achieve financial reports that show a consecutive and fair value. Statements confirming this, and that applicable accountancy standards have been used, or explanations for divergency from this, mustiness be included within the report (Nobes and Parker, 2006, p.287). Following the mental institution of increased legal and regulatory rules of corporate governance, and the formation of the Financial account Council (2004), responsibility for accuracy f every(prenominal)s on auditors, directors and shareholders.From 2005 UK listed companies must use IFRS for their unite statements (Nobes and Parker, 2006, p.103)FranceFrance has a much sm each(prenominal)er report profession than the UK, with just 45 compared with 352 accountants per hundred thousand of the population (Saudagaran, 2003, p.10). Historically, its accounting system has been dominated by a macroeconomic central system and geared to providing information for establishment control purposes (Blake and Amet, 1993, p.114). Tax Law is the dominant influence and auditors are creditworthy to, and modulate by, the Ministry of Justice (Nobes and Parker, 2005, p.236).French accounting falls under the subject field Accounting Plan regulation, which is administered by the CNC (National Accounting Council). However, a peculiarity of the French accounting system is that the regulations apply to somebody companies, but non to groups (Nobes and Parker, 2005, p.226).The regulation rentments call for a uniform chart of accounts with standard bookkeeping procedures, account title and classification numbering. For example, all individual companies must report allowance and associated costs under account 641. Similarly, there are standard accounting statement formats as laid down by EU directives and a uniform procedural treatment for items such as fixed plus valuation and creation of legal reserves (Nobes and Parker, 2006, p.301). There are also strict regulations with regard to the methods of depreciation and expense calculation for use in reducing tax liabilities.At present, the detail between French and IFRS reporting details and procedures differs world-shatteringly.GermanyLike France, the accounting professions influence in Germany is low. Accounting rules are mainly determined by Tax law and Federal pecuniary Courts, although these incorporate EU directives. The keeping of books and records is a statutory requirement of the German Commercial Code (HGB 1985) and historical cost accounting is operated with strict inspection restrictions (Choi and Meek, 2005, p.79).Unlike the UK, the German accounting reporting system is heavily geared towards the shelterion of creditors and therefore, accruals and provisions tend to be high (Nobes and Parker, 2006, p.301). The income results are also aimed at a conservative position. Asset valuation tends to be describe on a forced sale basis and the financial results must equate to the taxable position. In addition, there is a requirement for a value of one tenth of nominal capital to be held in legal reserves. Whilst the answer of the German accounting reporting system is to protect creditors, because of the impact on results, it has also led to a position that does not encourage pop outside investment into German Businesses.Whilst IFRS rules apply in Germany, it is only applicable to a limited number of organisations. The majority st ill use German regulations for financial reporting purposes (Nobes and Parker, 20-06, p.290).PolandHistorically Poland, which is the largest ex-communist country to join the EU (Nobes and Parker, 2006, p.229), came from a state dominated economy, where enterprises were not autonomous, with all aspects of business controlled by the state. The accountancy profession was not very strong (Sucher and Kosmala-MacLullich, 2004, p.484) and there is a lacked of skilled professionals that is still being addressed.Since returning to a market economy, Poland has introduced accounting regulations, embodied within the Accounting Act 1994 and subsequent amendments, which are regulated by the Accounting Standards Committee, set up in 1997. Under these regulations, all businesses are required to adopt an accounting plan. Whilst these regulations incorporate parts of the EU directives, it is chiefly geared to the protection of the state and tax policies.Like France, the semblance state is the main instigator and influence on accounting reforms (Sucher and Kosmala-MacLullich, 2004, p.438) and, because of this their system is not inherently geared as much towards attracting investors as more(prenominal) market based economies like the UK.Similarly, although IFRS is widely used, there are significant differences in the Polish system (Nobes and Parker, 2006, pp.236-8).SummaryAs can be seen from the above individual country analysis, whilst accounting reporting systems may all have similar aims, namely to provide financial information to end users, there are a range of factors that influence and create differences in accounting reporting systems between nations.From an internal viewpoint, the differences are driven primarily by cultural, political and economic factors. Added to these are the influence of the accountancy profession, which is greater in some countries than others, and the domination of state taxation requirements.Externally, individual reporting systems may respond to perceived dominant position of the United States and ontogenesis stature of the European Union in planetary mountain. From an investment stance, the gain of share ownership that has resulted from the global expansion of financial markets has also had an effect (Nobes and Parker, 2006, p.6).Lastly, the changing face of commercial organisation because of the continuing globalisation of trade has affected their need for differing accounting reporting systems. As has been seen, multi discipline corporations require a significantly higher level of control in these areas than do depicted objectly focused organisations. As Nobes and Parker (2006) earlier publications (1980 and 1998) have shown over the years, this has resulted in differing reporting classes of nations, between those who are driven by business or state and who have weak or strong equity markets.harmonisationHistorically the EU opposed outside(a) reporting standards, partially out of fear of the US dominance in thi s area. However when, by the premature 1990s it was shown that EU attempts at harmonisation was failing, it took on board international standards and became the most dominant force for change in this area (Nobel and Parker, 2005, p.105), for certain within its own community.Among the areas that the EU has dominated are the legalisation of enforcement, such as those used to support its 4th and 7th directives and the requirement for all corporations to adhere to international standards. By using EU regulations as a vehicle for this legislation, it is incumbent upon member states to incorporate these within domestic legislation. Although such legislation is not compulsory for multinational organisations for reporting, the EU transforms them into EU standards, (Flowers, 2002, p.273).The EU regulation has met with mixed reactions. Sir David Tweedie (2003, p.15) states that it provides the opportunity to unite its the EUs1 many national markets. However, others state, the reality is dis parity and muddle (Amat and Blake, 1993,p.5)The International standards are extensive and aimed to ski binding all aspects of financial reporting within corporations (Flowers, 2002, p.263). In general, they cover five-spot main areas. These include treatment of assets and revenue liabilities accounting for groups the context within which reporting takes place and disclosure statements (Nobes and Parker, 2000, p.6). In reality, the regulations have the effect of abject accounting away from the historical cost accounting format to a more current fair value system.Currently the international accounting and financial reporting system is subjected to thirty seven different standards (Nobes and Parker, 2006, p.6), although this is promising to change in the future as further harmonisation and clearing is sought.ConclusionDespite IFRS and its joining with US GAAP in 2002, individual nations financial reporting differences remain (Nobes and Parker, 2006, p.19). Attempts to harmonise th e EU position across its member states are continuing but, until or unless the influences that attach to individual nations are addressed both internally and nationally, it will be difficult to achieve.As Gregoriou and Gabers (2006) publication reveals, internationally there are still legion(predicate) accounting systems in place. In the opinion of the author, the relevant national and international regulatory and legal bodies will need to be cognisant of national differences as they seek improvements and further harmonisation of the global accounting reporting systems that currently exist.However, it is apparent from the current direction of international standards that they will ask to the end of individual nations reporting standards and influences (Nobes and Parker, 2006,p.103)ReferencesBlake, John and Amat, Oriol (1993). European Accounting. FT assimilator Hall.Choi, Frederick D.S and Meek, Gary K (2005). International Accounting. 5th Ed. FT. Prentice Hall. UK.Feature (2003) . IAS Whos Who pose the pace. Accountancy Age, UK 4th September 2003, p.15.Flower, John (2001). European Financial Reporting Adapting to a Changing World. Palgrave Macmillan. UK.Gregoriou, Greg N and Gaber, Mohamed (eds.) (2006) International Accounting Standards, Regulations, Financial Reporting. Butterworth-Heinemann. UK.Nobes, C. and Parker, R. (2006). proportional International Accounting. 9th Edition. FT Prentice Hall. UK.Saudagaran, Shahrokh M (2003). International Accounting A Users Perspective. 2 Rev. Ed. South westward College Publishing. UK.Sucher, Pat and Kosmala-MacLullich, Katarzyna (2004). A Comparative Analysis of Auditor Independence in Economies in Transition. ground of Chartered Accountants of Scotland, UK.Tarca, Ann. (2002). Achieving International Harmonisation through Accounting Policy Choice. University of Western Australia Department of Accounting and Finance. AustraliaFootnotes1 Brackets added by author