Corporate governance and earnings management ... - CEREG

against equities and even to restrict this solution to certain subsidiaries which stirs the
reprobation of the majority of authors.
These observations permit to draw the following conclusions. From 1985 onwards the
German legislator has opened the doors to allow for the use of dynamic solutions (in the
individual and the consolidated accounts) and the weakened static solution (consolidated
accounts only) while retaining the possibility of a pure static solution. The German groups
have “voted” and showed their clear preference for a solution of the weakened static style.
The dynamic solution although not negligible is a secondary one. The pure static solution has
become an oddity.
All that material permits to ascertain that, due to the decisive importance of the
consolidated accounts, the 1985-2000 period has rather been that of the weakened static
solution. So, what could appear for Mildebrath in 1931 (Mildebrath, 1931), as an anglo-saxon
specificity has become 50 years later a German oddity!
3.3. Phase 2 in France: the fiscal approach (1917 – 1982)
From 1917, a new, powerful actor began to intervene on the French accounting scene: the
tax administration. Its theory of how goodwill should be treated was to have great influence
on commercial doctrine and regulations, so much so that the situation has been described as
the “hijacking” of accounting by taxation. This phenomenon was unique in the four countries
studied and lasted more than sixty years from 1917 to 1982.
a) The new doctrine of the French tax administration in the individual financial statements
To begin with, when the first major French law (the law of July 31, 1917) on income taxes
was enacted, the tax view was not openly hostile to the static approach. Article 4 of the law
simply stated that taxable profit was the amount after deduction of all expenses, including
“amortization generally accepted in the practices of each type of industry”.
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