International Accounting Standarts

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Student:  Diana Mateo BA 05

Lecturer:

International Accounting

1. Introduction

The last decades of the 20th century brought an enormous dynamic in almost all areas of life. Personal horizons increased; at least with the development of the internet, national borders lost more and more in meaning especially in world wide business transactions.

For companies, there opened new possibilities of financing their business´.

As in the US already common, also European entrepreneurships get their financial means more and more from international capital markets (stock market) instead of financial institutions (banks).

However, if companies get their money from international capital markets, companies must be comparable to each other, as international complexity leads to higher competition also. Transparency becomes an overall criterion for potential investors (shareholder).

The German basis for accounting operations, the HGB, is worldwide criticised as being illogical for business management reasons futile; especially abroad German accounts often cannot be understood well.

On the contrary, international systems such as the IAS (International Accounting Standard) become more and more popular since new treaties for entering the New Market, require a standardised accounting system (either US-GAAP or IAS).

When foreign companies are planning to launch their shares on the Wall Street (as the German Telecom), accounts must be balanced in the US-GAAP format.  

Not at least that circumstance lead to a new law in Germany, which allows listed entrepreneurships to hand in their annual balance in IAS or US-GAAP format. 

Also the EU tried to set up guidelines, to uniform accounting systems at least among EU members. However, those guidelines still did not become valid yet and are no real alternative to IAS or US-GAAP (since they are established already).

To sum up, the following early developments of the past years made it highly necessary to establish an international common standard of balancing, in order to make business easier for all:

  • globalisation of trade markets
  • globalisation of entrepreneurship
  • increased harmonisation and internationalisation of accounting standards
  • worth oriented evaluation system (as  higher competition)

2. History of Accounting Standards

The differences of the HGB accounting standard and the IAS are only hard to understand without knowing about their basic idea.

The intentions, the maker of the two systems have had, were different from the scratch. Therefore the systems served for different reasons and the form and content differ.

2.1 The HGB Accounting Standard

The HGB is the oldest of the  three common accounting standards (HGB, IAS and US-GAAP).It was established in the year of 1900 and not changed much since that time (about 100 years).

In that time, in Europe it was common to get loans from credit institutions for financing the business (principle of borrower's bank), not from capital markets.

That circumstance lead to a special precise and accurate account towards creditors.

These conditions marked the laws a lot and lead to the following prescriptions:

All sole proprietorship and limited companies (§ 238 Abs.1 S.1 und 2 HGB), as well as corporate enterprises (§ 264 Abs.2 S.1 HGB) are bounded to balance their accounts in a way, a third person will be able the get a view that matches the real status of financial and assets items. Thereby the rules of adequate and orderly accounting shall be hold.

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Prof. Dr. Holger Pooten from the University of Muenster concluded from that the three main functions. the HGB is build on: 

1) Ascertainment of profits, distribution measurement, capacity accrual

2) Information for creditors

3) Documentation of transactions

The basic idea the HGB was built on, was to provide a view that mirrors the real financial situation. The Principle of Prudence, German Principles of Proper Accounting and Creditor Protection are the typical characteristics and basic guide lines.

Often the HGB refers to the principals of adequate and orderly accounting; however they are nowhere defined properly.

In praxis it leads to huge ...

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