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1、chapter three key1. Compare and contrast the mechanisms for regulating and enforcing financial reporting in the four countries discussed in this chapter. Regulating and enforcing financial reporting is a government function in France. The National Accounting Board (CNC) and the Accounting Regulation
2、 committee (CRC) set accounting standards under the jurisdiction of the Ministry of Economy and Finance. The Financial Markets Authority (AMF) ensures compliance with French accounting rules (for listed companies). It is also a government agency. Public and private sector bodies are involved in the
3、regulation and enforcement of financial reporting in Germany. The German Accounting Standards Board is a private sector body that develops German reporting standards for consolidated financial statements. However, German law (the HGB) governs financial statements at the individual company level. Enf
4、orcement also involves private and public sector bodies. The Financial Reporting Enforcement Panel is a 1 private sector body that investigates compliance and relies on companies to voluntarily correct any problems that it finds. Matters that cannot be resolved are referred to the Federal Financial
5、Supervisory Authority, a government agency, for final resolution. A private sector group is responsible for regulating financial reporting in the Netherlands. The Dutch Accounting Standards Board issues guidelines on acceptable accounting principles. Enforcement is handled by the Enterprise Chamber,
6、 a special accounting court. It rules on whether companies have used acceptable accounting practices, but only after an interested party has brought a complaint. The Financial Reporting Supervision Division of the Netherlands Authority for Financial Markets is responsible for enforcing reporting req
7、uirements for listed companies. Regulation of financial reporting is in the private sector in the United Kingdom. The Accounting Standards Board determines Financial Reporting Standards. The authority of the ASB is set out in the law. Two groups are responsible for 2 enforcing financial reporting st
8、andards, one in the private sector and the other in the public sector. The Financial Reporting Review Panel (private sector) and the Department of Trade and Industry (public sector) can investigate complaints about departures from accounting standards. If necessary, they can go to court to force com
9、panies to revise its financial statements. 2. What is the difference between consolidated and individual company financial statements? Why do some EU countries prohibit IFRS in individual company financial statements while others permit or require IFRS at the individual company level? Consolidated f
10、inancial statements are the statements of a group of companies under common management or control. Individual company financial statements are the statements of the separate legal entities (parent and subsidiaries) that make up the group. EU countries prohibit IFRS for individual company financial s
11、tatements when these statements are the basis for taxation and dividend distributions. They are legal compliance countries (see Chapter 2) and individual company financial statements must comply with the law. Other countries permit or require IFRS for individual company financial statements because
12、they are fair presentation 3 countries (Chapter 2). Individual company financial statements are not the basis for taxation or dividends. Local accounting standards follow fair presentation principles. 3. The most novel feature of the Dutch accounting scene is the Enterprise Chamber of the Court of J
13、ustice of Amsterdam. What is the mission of the Enterprise Chamber? How is the mission carried out? The Dutch Enterprise Chamber of the Court of Justice of Amsterdam helps ensure that filed or published Dutch financial statements conform to all applicable laws. Shareholders, employees, trade unions,
14、 or public prosecutors may bring proceedings to the Chamber by alleging that officially filed or published financial statements do not conform to applicable requirements. The Enterprise Chamber carries out its mission by determining whether the allegations of deficient financial reporting are true a
15、nd how material such deficiencies are. Depending upon the case, the Chamber may require that financial statements be modified or it may seek penalties through the Court of Justice. The Chamber is composed of three judges and two Dutch RAs. There is no jury. Appeals of any of the Chambers rulings are
16、 4 difficult, may only be lodged with the Dutch Supreme Court, and are restricted to points of law. 4.A feature of British accounting is the true and fair override. What is the meaning of this term? Why is the true and fair override found in the United Kingdom but almost nowhere else? British financ
17、ial statements must present a true and fair view of a companys financial position and results of operations. The intent is similar to the U.S. presents fairly. However, the presents fairly test in the United States is whether financial statements conform to U.S. GAAP. The true and fair test in the U
18、nited Kingdom requires auditors to step back and see whether the financial statements taken as a whole result in a fair presentation. U.K. GAAP may be overridden if complying with them would result in an unfair presentation. In other words, judgment is exercised in determining whether the financial
19、statements are true and fair. 5. Write down the definition of (1) Duality in individual company and consolidated statements (2) True and fair override 5 (3) Provisions and reserves (4) Statutory auditors 1. The question asked for five expressions, terms, or short phrases unfamiliar or unusual in the
20、 students home country. Taking the United States as the home country, here are eighteen: a. Duality in individual company and consolidated statements The idea that the two sets of financial statements may be based on different GAAP, as in France in Germany. b. Social report Required in France for co
21、mpanies with 300 or more employees it describes, analyzes, and reports on matters of training, industrial relations, health and safety conditions, wage levels, benefits, and other work conditions. c. Companies Act National law regulating, among other things, financial reporting and disclosures by co
22、mpanies. 6 d. True and fair override The idea in the U.K. that professional judgment can override a standard or commercial law if necessary to give a true and fair view. e. Provisions and reserves Used to smooth income and often based on tax laws, such as in Germany. f. National chart of accounts A
23、formal chart of accounts designed for an entire economy and typically used for strong central economic control. g. Secret reserves Undisclosed and deliberate understatements of assets or overstatements of liabilities. h. Plan Comptable Gnral French uniform national chart of accounts. i. Sworn book e
24、xaminers A class of statutory auditors legally sanctioned in Germany to conduct independent audit examinations of companies. 7 j. Statutory auditors Auditors who are required by law (statute) to audit a companys financial statements. k. Enterprise Chamber of the Court of Justice of Amsterdam A judic
25、ial institution receiving formal complaints of nonconformance with established Dutch accounting and reporting standards. l. Generally acceptable accounting principles Accounting guidelines issued by the Dutch Accounting Standards Board in the Netherlands. m. Proportional consolidation Consolidation
26、technique often used for joint ventures where all assets and liabilities are prorated to the owners in strict proportion to their respective ownership interest percentages. n. Legal reserves Appropriations of retained earnings required by law in most code law countries. 8 o. Determination principle
27、German requirement for book/tax conformity. p. Parent company only statements Unconsolidated financial statements of a company controlling other (subsidiary) companies. q. Coupon voucher privatization system - the method used by the Czech Republic to privatize large-scale, government-owned enterpris
28、es. Vouchers allowed CR citizens to buy shares for a nominal price. Joint stock companies and limited liability companies - the terms used in the CR for corporations and limited liability partnerships, respectively. Joint stock companies issue shares while limited liability companies do not. 6.Refer
29、 to Exhibit 3-6 (page 63) Required: Which countrys GAAP appears to be the most oriented toward equity investors? Which countrys GAAP appears to be the least oriented toward equity investors? 9 Why do you say so? The country whose GAAP is most oriented toward equity investors appears to be the United
30、 Kingdom. Its GAAP is closest to IFRS, which is clearly aimed at equity investors. Under U.K. GAAP, goodwill may be capitalized and impairments tested, the IFRS treatment. LIFO is also not permitted, the IFRS treatment. The Netherlands comes in second, but Dutch GAAP differs with IFRS on these two i
31、ssues. The country whose GAAP is least oriented toward equity investors appears to be France. 7. In most countries, accounting standard setting involves a combination of private- and public- sector groups. The private sector includes the accounting profession and other groups affected by the financi
32、al reporting process, such as users and preparers of financial statements, and organized labor. The public sector includes government agencies, such as tax authorities, ministries responsible for commercial law, and securities commissions. The stock market is another potential influence. Required: C
33、omplete a matrix indicating whether each of the above groups significantly influences accounting standard 10 setting in the four countries discussed in this chapter. List the groups across the top and the countries down the side; indicate the influence of each group with a YES or NO. Accou OrgaTax CommSecuritStoies ck nting Users/Prnized Authoercial profeseparers sion France Germany Yes (some) Netherlands United Kingdom Yes Yes No No Yes Yes Yes No Yes (some) Yes No Yes Yes Yes No No Laborities Law r Yes Yes Yes CommiMassions Yes rket No No No No No No Yes 11
