History of Fourth Directive
Company law directives are published under the authority of the Treaty of Rome (Article 54(3) (g)). The council and the commission want to co-ordinate safeguard to protect the interest of member state and others, in such a way that these safeguard are become similar across the EU. The objective of EU is to convey a common market that allows freedom of capital, goods, persons and services between member countries. EU adopted so many directives which are dealing with accounting issues. From that, the Fourth Directive and Seventh Directive are most important. Drafting of the Fourth Directive was started in 1965 when there were only six members of European Communities but it was completed after 15 year in 1978 when there were nine members. The first draft was published in 1971 before the UK, Ireland and Denmark had entered the EU in 1973. The main objective of the Fourth Directive to harmonize accounting principles, presentation, publication and audit, by laying down minimum standards to be applied by members states (Nobes, 2000). It addresses all aspects of the financial statements of individual companies. Differences between (UK, Germany & France)
There are so many areas of financial reporting in which differences be found but here are the some of the examples like formats, treatment of leases, Inventory, deferred tax and recognition of Intangibles. Now here are detail overviews of difference in three European Countries. Formats
The format means the kind of structure for Income Statement, Balance Sheet and Cash Flow Statement, which country using which type of formats for financial statements. The first of all about Income Statement, UK companies are using the formats according to prescribed company law of UK which describe four formats for Income Statement but generally two formats are used in practice which are turnover less expenses by function and expenses by type. Germany may only be prepare in vertical format and France having option at enterprise either two column format or single column narrative form. Balance Sheet format as per UK GAAP they are following company law which prescribes two formats, Germany may only take double entry form of B/S and France have format of assets left side and equity & liabilities right side. Now about Cash Flow Statement, UK GAAP is more detail and required separate classification of Cash Flows, in Germany its require specific format and in France the cash flow statement may be reconciled to net indebtedness rather than to cash. According to Fourth Directive it includes Article 9, 10 for Balance sheet and Article 23-26 are for Income Statements and in Income Statement Fourth Directive gives two options by type of expenditure and function of the expenditure which means there are various option to prepare and present Financial Statements, therefore it doesn’t led to Harmonization. Inventories
According to IAS 2, Inventory means which includes assets held for sale in the ordinary course of business, in the process of production for such sale or in the form of materials or supplies to be consumed in the production process or in the rendering of service. Inventory is measure by carried at lower of cost or net realisable value in UK GAAP, Germany measure Inventory by Net realisable value, if not than replacement cost and in France they are using lower of cost and Net realisable Value, now about the methods Inventory measurement are LIFO (Last In First Out), FIFO (First In First Out) and WAC (Weighted Average Cost) methods. UK GAAP allowed only FIFO and WAC methods, Germany allowed all three methods and France is also allowed FIFO and WAC same as UK GAAP. Fourth Directive Article 40, the purchase or production cost of stocks and fungible items, i.e., replaceable items including investment to calculated either on LIFO or FIFO or WAC methods, members states have options on the valuation of stock of goods and the value shows in B/S, differs materially, amount of...
Mohapatra Das, A.K (2007) International Accounting, Eastern Economy Edition, New Delhi: Prentice-Hall of India Private limited.
Nobes & Parker, (2000) Comparative International Accounting, 6th Edition, Financial Times Prentice Hall.
Roberts, Weetman, Gordon, (1998) International Financial Accounting: A Comparative Approach, Financial Times, Pitman Publishing.
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