The Adaptation of German Accounting Rules to IFRS: A Legislative Balancing Act

ABSTRACT

The accounting strategy of the EU Commission for the last ten years, which reached one of its goals with the Regulation on IAS, is challenging all EU Member States. This article gives an analytical insight into the way the German legislator has confronted this challenge. It explains the statutory changes introduced to adapt the accounting regime in Germany, against the background of arguments for reform and proposals which have been put forward in the German accounting literature and by influential interest groups. The major characteristics of the government's accounting strategy are analysed: an increasing focus on the macroeconomic benefits of adequate accounting regulations, a perception of accounting as a material part of the corporate governance regime, greater weight given to the notion of public interest and the information function of accounting, a focus on consolidated accounts for the revision of existing rules, and, at the same time, considerable reluctance to change any recognition and measurement rules for individual entity accounts. In general the accounting reform strategy of the German government can be characterized as being slow, conservative and reactive, following a marginal step-by-step approach.

Notes

1. See for further detail Eierle and Haller (2004). The enforcement regime should have a two-tier structure with a private and a public enforcement body. The private body should examine individual or consolidated annual statements (together with the directors' report) of publicly traded companies. The body should get active, if there are indications of accounting law violations, by random selection or by order of the second-tier enforcement body. In the case of detection of incorrectness the body should have only the authority to require the correction of the unlawful accounting treatment. The body must report to the public enforcement institution which is the commission for capital market oversight (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) its intention to examine a company, a lack of co-operativeness of the examined company as well as the result of the examination, the required measure of correction and whether the company has carried out the corrections in its accounts as required by the body. The public institution (BaFin) gets active if a company is not co-operative with the private body and refuses to accept the examination or the demanded corrections of the accounts, the BaFin will install public sanctions. The BaFin has also the right to re-examine annual accounts which have been examined by the private body if it has concrete doubts about the correctness or reliability of the private body's activities. Although the private body should have the responsibility to also examine the financial statements of financial institutions and insurances, the BaFin has the authority to examine the financial statements of these institutions apart from the examinations of the private body at any time. The BaFin should co-operate with the enforcement bodies of other states and may exchange information on concrete cases with those of other Member States within the EU and the EC to reach a comparable and consistent enforcement of IFRSs between those states.

2. The Schmalenbach Society is an influential association which aims at creating and promoting close relationships between research in business administration, teaching and business practice. Several working groups deal with specific subject areas.