Revenue Recognition and EU Endorsement of IFRS

Abstract

This paper comments on a previous paper in this journal concerning EU endorsement of IFRS. It is suggested here that the previous authors should consider whether there can be more than one true and fair view even in one country and especially across European countries. It is further suggested that the previous analysis of five accounting standards does not support the claim that the European Commission wrongly endorsed them. It is also argued here that the previous analysis of the nature of most gains under IFRS is faulty.

Acknowledgements

The author is grateful for comments on an earlier draft from David Alexander (University of Birmingham), Lisa Evans (University of Stirling), Axel Haller (University of Regensburg), Sigvard Heurlin (EFRAG), Erlend Kvaal (Norwegian School of Management), Andrew Lennard (Accounting Standards Board), Bob Parker (University of Exeter), Alan Roberts (University of Rennes), and from a reviewer and the editor of this journal.

Notes

¹I rely here on FEE (1991, ch. 7) and Ordelheide and Semler (1995).

²Papas (1993, p. 122) and Clark (1994, p. 154).

³Van Hulle (1993, p. 100) confirms that the English was the original. Nobes (1993) explains that the Commission had translated the true and fair view as ‘einen getreuen Einblick’ (in the 1974 draft of the Directive) but Germany regarded this as too vague, so ‘ein den tatsächlichen Verhältnissen entsprechendes Bild’ was substituted. At the least, the components of the German signifier are different from the English, stressing ‘true’ rather than ‘fair’.

⁴‘unter Beachtung der Grundsätze ordungsmässiger Büchfuhrung’.

⁵The obvious exception being financial institutions.

⁶Or as derivatives or designated as at fair value through profit or loss (IAS 39.9).

⁷For example, this is the case for the first three German companies' 2005 reports that I looked at: Bayer, p. 98; Volkswagen, p. 128; and Lufthansa, p. 87. I have never seen anything different in my previous studies of German use of IFRS or in recent UK use of IFRS or in US use of the similar standard, SFAS 115.

⁸This is confusing because liabilities (unlike assets) do not have a cost; they have the opposite of a cost.

⁹I say ‘appear’ because it could be argued that the gross inflow is an increase in equity, and the loss of the inventory is a decrease. This would be an obscure use of words and would render the words ‘when those inflows result in increases in equity’ redundant.

¹⁰The author was a UK representative on the Board of the IASC from January 1993 to March 2001. The November 1993 vote was on a whole package of standards. IAS 18 had been provisionally approved in 1992.