There's no accounting for Europe

The European Union (EU) has yet to harmonize its hodge-podge of accounting rules. As a result, US investors have to look beyond the bottom line to find the financial information they need. In countries where capital has traditionally come from non-equity sources, the needs of creditors and the needs...

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Bibliographic Details
Published in:The Journal of European business 1994-05, Vol.5 (5), p.12
Main Author: Merryweather, Mark I
Format: Article
Language:English
Subjects:
Accounting policies
Accounting procedures
American dollar
Balance sheets
Capital leases
Comparative analysis
Conservatism
Consolidated financial statements
Conventions
Currency transactions
EC single market
Equity method
Foreign subsidiaries
Goodwill
Inventory
Operating leases
Profitability
Profits
Retained earnings
Stockholders
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Summary:The European Union (EU) has yet to harmonize its hodge-podge of accounting rules. As a result, US investors have to look beyond the bottom line to find the financial information they need. In countries where capital has traditionally come from non-equity sources, the needs of creditors and the needs of governments have influenced the accounting frameworks, which have become more legalistic than those of the US and UK. As a result, in general, continental European companies do not want to report high profitability because the higher the profit, the more tax they must pay. Instead, most of continental Europe places importance on balance sheet strength. Valuation principles thus tend to be conservative with regard to liabilities, assets, and income measurements, hence the creation of "hidden" reserves. The conservatism of European accounting conventions is reinforced by the fact that the public sector sets accounting and reporting rules to strict, codified law.
ISSN:1044-002X