Corporate governance and earnings management ... - CEREG
Corporate governance and earnings management ... - CEREG Corporate governance and earnings management ... - CEREG
3.4.4. Germany: the (short) dynamic phase (2000-2005) In a context of globalisation and of rising power of the American type of governance backed by some international accounting organisations such as the IASB it is not surprising that numerous voices could be heard in Germany at the end of the 20 th century saying to put an end to the German “peculiarities” and proposing an alignment on the dominant American views. A lot of studies have shown that the German companies the most oriented towards the American market and more broadly towards the international markets wished a “convergence” of the consolidation rules with those of the IASB and even those of the FASB. This influence has weight on the position of the accounting standard-setters and the representatives of the chartered accountants, leading to what Busse von Colbe (1995) has described as a “change of paradigma”. But an unexpected problem raised with another change of paradigma that occurred in the US at the very time when a new philosophy, already obsolete, came to the birth in Germany: hence the extreme shortness of this phase. Paradoxally, it is the tax jurisprudence which had first given the example in abandoning as soon as 1971 its actuarial position while asserting that the goodwill was indeed a “mortal” economic asset: this new position had leaded to the admission of the deductibility of tax depreciations in 1985 (Söffing, 1988, p. 612). But in 1988, the Board of the Chartered accountants had taken a position against the writeoff of goodwill in compensation of retained earnings and proposed a systematic capitalisation with an amortization over its period of use assorted with a limit of 40 years in the mood of the American regulation (Küting, 2000). But, as in France, the positions of the Chartered accountants have not the character of regulations and have remained a dead letter, all the more than the length of the amortization period had been criticized (Küting, 1997, p. 451). In 1998, the law “on the facilitation and the reception of capitals” (KapAEG) had introduced an article 292a in the Commercial Code that allowed the German groups (until 2004) to adopt the IAS rules and even the FASB’s rules for consolidated accounts, under the 54
condition that these rules will be compatible with the European Directives and the GoB’s (“Grundsätze ordnungsmässiger Buchhaltung”, i.e. “Principles of proper accounting”) positions. The DSR (Deutscher Standardisierungsrat - German Accounting Standard Board), that new organism charged by the Ministry of Finance to forge a new regulation in matter of consolidated accounts, had confirmed with its first standard, the DSR1, that the American rules could be considered as an equivalent to the GoB. Then in July 2000, the DSR had published the DRS4 (DSR, 2000) on the “acquisitions of companies and group accounts. This DRS, schematically: - imposes the systematic capitalization of goodwill as an element of the companies’ wealth (DRS 4.1f); - prohibits all write-offs against the equities (DRS 4.27-29); - imposes a systematic amortization (normally a straight line) over the period of use with a limit of 20 years (DRS 4.31). This amortization is assorted with an eventual impairment if the recoverable value is inferior to the net book accounting value (DRS 4.34). Clearly, as a whole, the DRS had espoused the IASC’s thesis, itself fundamentally in line with the American conception of the time. So at the end of the year 2000 things seem to be clear in Germany. Under the influence of the US and the IASC and at the demand of more and more companies that wanted to be able to invest in the American market without to be obliged to (largely) modify their accounting statements, the new German regulatory board had, in spite of the resistance of partisans for a static conception of accounting, boldly opted for the dynamic solution. But “lack of chance”, in 2001 the American standard-setter published the FAS 142 which rang the bell for the systematic amortization of goodwill to the profit of actuarial solution (simple impairment based on the estimation of future cash flows). The DSR found itself before a difficult problem: could it go on asserting that the new American rules were compatible with the European and the GoB rules 55
- Page 3 and 4: Introduction It was several decades
- Page 5 and 6: All the countries examined (with th
- Page 7 and 8: another theory to explain standard
- Page 9 and 10: supplementary contribution in this
- Page 11 and 12: 2.2. The bankers The bankers’ mai
- Page 13 and 14: 2.4. The capital markets and profes
- Page 15 and 16: produce dramatically different fina
- Page 17 and 18: It is thus important to find out wh
- Page 19 and 20: The second view, rather larger, con
- Page 21 and 22: was “not merely immaterial but al
- Page 23 and 24: The first German law concerning goo
- Page 25 and 26: Verley (1906, p. 39) considers Fren
- Page 27 and 28: (1897, p. 46). He arrives at the co
- Page 29 and 30: goodwill in the balance sheet at (u
- Page 31 and 32: It is also clear that supporters of
- Page 33 and 34: Clearly, the “retaining” techni
- Page 35 and 36: principally leaning on the fact tha
- Page 37 and 38: against equities and even to restri
- Page 39 and 40: “balance sheet approach” and sy
- Page 41 and 42: stock market capitalism. Tax doctri
- Page 43 and 44: The AIA took an even clearer stand
- Page 45 and 46: application of this “new” doctr
- Page 47 and 48: Arthur Andersen came to the defense
- Page 49 and 50: “advantageous” form (eliminatio
- Page 51 and 52: confers a certain value” (CNC, 19
- Page 53: the part of companies (Brown, 1998,
- Page 57 and 58: IASC and the FASB before 2001. That
- Page 59 and 60: lawyers, or bankers defending credi
- Page 61 and 62: accounting system has gone from a p
- Page 63 and 64: most popular means of funding the i
- Page 65 and 66: (due partly to the needs coming fro
- Page 67 and 68: 5. Conclusion Our article sets out
- Page 69 and 70: Bensadon, D. (2002). La consolidati
- Page 71 and 72: Greve, H. (1933). Die Behandlung de
- Page 73 and 74: Niehus, R. (1986). Protokoll der ö
- Page 75 and 76: Wolff, W. (1967). Accounting for in
- Page 77: Figure 2 - Summary: Four phases of
3.4.4. Germany: the (short) dynamic phase (2000-2005)<br />
In a context of globalisation <strong>and</strong> of rising power of the American type of <strong>governance</strong><br />
backed by some international accounting organisations such as the IASB it is not surprising<br />
that numerous voices could be heard in Germany at the end of the 20 th century saying to put<br />
an end to the German “peculiarities” <strong>and</strong> proposing an alignment on the dominant American<br />
views. A lot of studies have shown that the German companies the most oriented towards the<br />
American market <strong>and</strong> more broadly towards the international markets wished a<br />
“convergence” of the consolidation rules with those of the IASB <strong>and</strong> even those of the FASB.<br />
This influence has weight on the position of the accounting st<strong>and</strong>ard-setters <strong>and</strong> the<br />
representatives of the chartered accountants, leading to what Busse von Colbe (1995) has<br />
described as a “change of paradigma”. But an unexpected problem raised with another change<br />
of paradigma that occurred in the US at the very time when a new philosophy, already<br />
obsolete, came to the birth in Germany: hence the extreme shortness of this phase.<br />
Paradoxally, it is the tax jurisprudence which had first given the example in ab<strong>and</strong>oning as<br />
soon as 1971 its actuarial position while asserting that the goodwill was indeed a “mortal”<br />
economic asset: this new position had leaded to the admission of the deductibility of tax<br />
depreciations in 1985 (Söffing, 1988, p. 612).<br />
But in 1988, the Board of the Chartered accountants had taken a position against the writeoff<br />
of goodwill in compensation of retained <strong>earnings</strong> <strong>and</strong> proposed a systematic capitalisation<br />
with an amortization over its period of use assorted with a limit of 40 years in the mood of the<br />
American regulation (Küting, 2000). But, as in France, the positions of the Chartered<br />
accountants have not the character of regulations <strong>and</strong> have remained a dead letter, all the more<br />
than the length of the amortization period had been criticized (Küting, 1997, p. 451).<br />
In 1998, the law “on the facilitation <strong>and</strong> the reception of capitals” (KapAEG) had<br />
introduced an article 292a in the Commercial Code that allowed the German groups (until<br />
2004) to adopt the IAS rules <strong>and</strong> even the FASB’s rules for consolidated accounts, under the<br />
54
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