European Financial Reporting: Adapting to a Changing World

Cover......Page 1
Contents......Page 6
List of Exhibits......Page 12
Acknowledgements......Page 13
Foreword......Page 14
1.1.1 The corporation......Page 20
1.1.2 Smaller corporations......Page 24
1.1.3 A third corporate form: the limited partnership......Page 29
1.2 The separation of ownership from management......Page 30
1.3 The corporation's financial statements......Page 32
1.4.1 Data......Page 33
1.4.2 Analysis of the top one hundred......Page 39
1.4.3 Comparison of Allianz with DaimlerChrysler......Page 41
Annex: How to measure the size of an enterprise......Page 42
2.1 The information function of the financial statements......Page 48
2.2 The maintenance of capital: the regulation of dividends......Page 49
2.3 The monitoring of management: stewardship......Page 53
2.4 Information for investors......Page 54
2.5 Information for the state......Page 55
2.6 Information for employees......Page 57
2.8 Computation of tax......Page 59
2.9 Synthesis......Page 61
2.11 The preparers' viewpoint......Page 63
3.1 Why are rules needed......Page 65
3.2 The case for the market......Page 67
3.3.1 Financial statements as 'public goods'......Page 69
3.3.2 The problem of insider trading......Page 70
3.3.3 The supply of information......Page 71
3.4 The verdict......Page 72
3.5.1 Uniform rules......Page 74
3.5.3 The conflict between uniformity and relevance......Page 76
3.6 The role of law......Page 77
3.6.2 The advantages of law......Page 78
3.7 The need for additional rules......Page 79
3.8.1 Law......Page 80
3.8.3 Court judgments......Page 82
3.8.4 Standards......Page 83
3.8.5 Rules of other bodies......Page 84
3.8.7 External bodies......Page 85
3.9 Conclusion......Page 86
4.1 The state as rule-maker......Page 87
4.1.2 National accounting plans......Page 88
4.1.3 Laws versus decrees......Page 90
4.1.4 Tax regulations......Page 92
4.1.5 The courts of law......Page 95
4.2.1 Data......Page 96
4.2.2 The rules issued by standard-setting bodies......Page 98
4.2.3 The composition of the standard-setting bodies......Page 102
4.2.4 The 'free riders': Austria and Ireland......Page 104
4.3.1 The stock exchanges......Page 105
4.3.2 Professional associations......Page 106
4.4 Individuals......Page 107
4.5 The relative importance of laws, standards and other rules......Page 108
4.6 The historical development of financial reporting......Page 110
4.7 Concluding remarks: the diversity of national systems......Page 111
Annex: The accountancy profession of Western Europe......Page 112
5.1 The European Union......Page 116
5.2.1 The common market......Page 117
5.2.3 Competition: 'the level playing field'......Page 118
5.2.4 Harmonisation before relevance......Page 119
5.3 The EU's harmonisation programme......Page 120
5.5 The definition of the annual accounts......Page 122
5.6 Specified formats......Page 123
5.7.1 The EU's rules......Page 125
5.7.2 Prudence in Germany......Page 126
5.8 The 'true and fair view' rule......Page 129
5.8.1 The 'true and fair view' rule in Britain......Page 130
5.8.2 The 'true and fair view' in Continental Europe......Page 133
5.9 Options......Page 139
5.10 The Seventh Directive: the consolidated accounts......Page 140
5.12 The impact of the EU's directives......Page 141
5.13 The EU's limitations as a rule-maker......Page 145
6.1.1 The problems facing the multinational enterprises......Page 148
6.1.2 The case of Daimler Benz......Page 150
6.2.2 The IASC's objectives......Page 152
6.2.4 The need for reform......Page 153
6.4.1 Objectives......Page 155
6.4.2 Structure......Page 156
6.4.3 The composition of the IASB's board......Page 159
6.5 The IASB's operations......Page 162
6.6 Comments on the IASB's structure......Page 164
6.7 Conclusions......Page 169
7.2 US GAAP......Page 171
7.2.1 How the rules of US GAAP are set......Page 172
7.2.2 The nature of the rules......Page 173
7.3 The EU's dilemma......Page 174
7.4 The IASC–IOSCO agreement......Page 176
7.5 The IASC–EU agreement......Page 177
7.7 Recent developments: the EU and the IASC/IASB......Page 178
7.7.2 Voluntary adoption of the IASC's standards......Page 179
7.7.3 Compulsory adoption of the IASB's standards......Page 180
7.7.4 EU endorsement of the IASB's standards......Page 182
7.7.5 The EU's endorsement mechanism......Page 183
7.7.6 The reform of the EU's directives......Page 185
7.8 The IASB and the national standard-setters......Page 186
7.9.1 The IASB and the SEC......Page 187
7.9.2 The IASB and the FASB......Page 188
7.10 The contest between the IASB's standards and US GAAP......Page 189
7.10.2 The present situation......Page 190
7.10.3 Possible scenarios......Page 191
8.2 Convergence in the United Kingdom......Page 195
8.2.1 The ASB's policy......Page 196
8.2.2 The magnitude of the task: the gap between UK GAAP and the IASB's standards......Page 197
8.2.3 Foreign currency translation......Page 199
8.2.4 Assessment of the significance of the differences......Page 202
8.2.5 The causes of the differences......Page 203
8.2.6 Removing the differences......Page 204
8.2.7 The remaining difference: recycling......Page 205
8.2.8 An overall evaluation of progress towards convergence in the UK......Page 206
8.3.1 Inventory......Page 207
8.3.3 Financial instruments......Page 208
8.4 Convergence with US GAAP......Page 210
8.5 Conclusion......Page 211
9.1 The scandals in the USA......Page 212
9.2.1 Enron: the business......Page 213
9.2.2 Enron's financial statements......Page 214
9.2.3 The failure of Enron's corporate governance......Page 219
9.3.1 WorldCom......Page 221
9.3.2 Waste Management......Page 222
9.4 The faults in the American financial reporting system......Page 224
9.4.1 US GAAP......Page 225
9.4.2 The accountancy profession......Page 226
9.4.3 The regulatory authorities......Page 227
9.5.1 The Sarbanes-Oxley Act......Page 228
9.5.2 The supervision of the auditing profession......Page 229
9.5.3 Auditor independence......Page 230
9.5.5 Changes to US GAAP......Page 234
9.5.6 Principles-based rules: comparison with the UK......Page 235
9.6.1 European companies listed in the USA......Page 236
9.6.3 Action by European authorities......Page 237
9.8.1 The efficient market hypothesis......Page 239
9.9 Conclusions......Page 240
Annex: How a special-purpose entity may be used to manipulate the accounts......Page 241
10.1.1 The invention of double entry book-keeping......Page 245
10.1.2 The accountancy profession......Page 246
10.2.1 The great divide: the British approach versus the Continental approach......Page 250
10.2.2 The reality......Page 255
10.2.3 The advantages of diversity......Page 256
10.2.5 The objectives of financial reporting: shareholders versus stakeholders......Page 258
10.2.6 The impending triumph of the British approach......Page 259
10.4 The future......Page 260
E......Page 263
I......Page 264
S......Page 265
X......Page 266