Following the Industrial Revolution in 1850 or so, the traditional German accounting appeared in an economic context fiercely influenced by banks. Indeed, for almost a century, banks had been the major financing sources for enterprises. After the WWII, the internationalisation of markets has led to a system of equity financing among enterprises, and this evolution has also affected the financial reporting rules. In the USA as progressively in every business places in the world, the equity financing has governed the financial reporting standards in a way to supply the investors with true and fair information about the companies' financial situation.
In 2001, the Enron's financial scandal spread an entire suspicion on the financial information provided by companies, and in July 2002, the Sarbanes-Oxley Law (following "SOX") was amended in order to compel enterprises with new requirements concerning the openness & the exactness of financial information. This American law has concerned all the companies listed in the US financial markets.
By the way, the European Continental accounting system is affected by this new order, and notably the German accounting. Because it was made mainly for creditors, the formal German accounting nowadays faces the issues of international regulation which, at the same time, call into question the traditional German "corporatist" governance.
[...] At the same time, even the Commercial Law, codified in the HGB, allows to keep in reserves the benefits instead of distributing it to shareholders. The idea of creditor protection Because of the previous valuation principles, the German accounting rules are necessarily built over the idea of creditor protection. It is mainly due to the principle of prudence. This idea can be explained by the fact that in Germany, the importance of equity financing is not as wide that in the USA, for instance. [...]
[...] Tax law seriously guides the German accounting rules according to the “authoritative principle” or “principle of congruency”. It also has some interference with the international harmonization. The principle of congruency Tax law and Federal Fiscal Court decisions have a great impact on accounting practices, because tax accounts are calculated on the basis of the commercial balance sheet. So, this close link owes it to the determination of taxable income. Basically, the principle of congruency consists in the predominance of tax law over accounting rules. [...]
[...] German accounting rules are suitable for solely domestic companies but not for multinational enterprises. Discuss Introduction Following the Industrial Revolution in 1850 or so, the traditional German accounting appeared in an economic context fiercely influenced by banks. Indeed, for almost a century, banks had been the major financing sources for enterprises. After the WWII, the internationalisation of markets has led to a system of equity financing among enterprises, and this evolution has also affected the financial reporting rules. In the USA as progressively in every business places in the world, the equity financing has governed the financial reporting standards in a way to supply the investors with true and fair information about the companies' financial situation. [...]
[...] These principles, codified in the Commercial Law, are followed by uncodified laws which sustain the duality of the German accounting system with in the one hand, solely domestic companies obeying mainly to the HGB, and in the second hand, multinational enterprises directly affected by harmonization. It leads to a two-speed accounting system where the corporatist governance is particularly marked. Beyond the little role of accounting profession and the corporatist governance among enterprises, financial scandals like the Enron's one could lead to wonder whether a state-controlled governance is not preferable than a corporatist one. [...]
[...] The remaining issue is to know whether the German corporatist governance is likely to replace the traditional philosophy of the German accounting rules oriented towards the idea of creditor protection. This trend acknowledges that the German accounting rules, because of its dynamic evolution, gradually suit to multinational enterprises. Besides, the GoB are meant to receive a constant development of international standards, so they represent a sort of updates for multinational firms to reconcile with the German accounting rules. Therefore, as its French counterpart, Germany is in a dual accounting system. [...]
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