OXFORD BROOKES UNIVERSITY
The Business School
Undergraduate Programmes
BA International Banking and Finance (IK)
International Financial Accounting

U.S. GAAP and German HGB - A comparative Approach

27.06.2003

by

Markus Bruetsch

I. Table of Contents

II.a Table of Figures  3
II.b Table of Abbreviations  3

1. Introduction  4

2. A comparison: HGB and USGAAP  4
2.1. Accounting in Germany  5
2.1.2 Accounting and Taxation: The ‘Maßgeblichkeitsprinzip’  6
2.2 Accounting in the United States of America  6

3. The level of conservatism  7
3.1 § 252,1 HGB  8
3.2 SFAC No. 2 Par. 92  8
3.3 Measuring conservatism  12

4. The concept of True and Fair View  14
4.1 “A picture according to the facts”  14
4.2 The ‘overriding’ principle  15

5. Conclusion  16

III. Table of Literature  17
III.a References  17
III.b Bibliography  19
III.c Websites  20

II.a Table of Figures
Figure 1: Selected balance sheet data of the Siemens AG  4
Figure 2: Factors for Changes in Accounting (source Roberts et al., 1998)  5
Figure 3: Equity & Liabilities from the HGB report of the Siemens AG 2000  9
Figure 4: Liabilities from the F-20 report of the Siemens AG 2000  ..9
Figure 5: Details on provisions under HGB in 2000 ..10
Figure 6: Intangible assets under HGB  11
Figure 7: Securities trading in the U.S. GAAP report  12

II.b Table of Abbreviations
AG = Aktiengesellschaft ( public limited company)
AktG = Aktiengesetz (stock corporation law)
CON = Statements of Financial Accounting Concepts
EstG = Einkommensteruergesetz (Income tax law)
FASB = Federal Accounting Standard Board
GAAP = General Accepted Accounting Standards
GoB = Grundsätze ordnungegemaesser Buchfuehrung
(Principles of orderly bookkeeping)
HGB = Handelsgesetzbuch (commercial code)
MNC = Multi-national company
SEC = Stock exchange commission
SFAC = Statements of Financial Accounting Concepts

1. Introduction

This essay will compare and contrast the accounting systems of Germany and the United States of Amerika. First the single systems, their core concepts and purposes will be introduced. Second, the two core concepts of conservatism and true and vair value will be presented. Both systems will be examined in order to show how they incorporate these concepts and how this might affect the calculation of profits. Where data is available, selected examples from published company accounts will be shown. Finally some short comments on how the systems come closer to each other since several german companies aim for crosslistings in both countries. A conclusion will summarize the main facts.

2. A comparison: HGB and USGAAP

Different accounting systems might come to different results in their calculations of profits. This can be shown by drawing an example from the Siemens AG’s annual report 2000. In their report based on German GAAP (General Accepted Accounting Principles) the net income in 2000 was 7,901 million €. The same calculation based on U.S. GAAP amounts in the F-20 report for the Securities and Exchange Commission (SEC) to 8,860 million € (see figure 1). Now the Question is how come this difference of nearly 14%? Is one system more exact?

Figure 1: Selected balance sheet data of the Siemens AG
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As we have seen in assignment 1, accounting is not a science. It has been developed to serve a purpose. Accounting systems are influenced by several social and economic factors (Radebaugh and Gray, 1997).

Figure 2: Factors for Changes in Accounting (source Roberts et al., 1998)
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It seems that German GAAP and US GAAP have different objectives. Therefore we will analyze the two systems in their national contexts now.

2.1. Accounting in Germany

German accounting is dominated by the objective of carefully calculated profits. The protection of creditors is one of the main purposes of German GAAP. In order to classify the German accounting system, Nobes (1980) describes the system as macro-uniform, government-driven and tax dominated. We will find further proof for this in the following parts, in particular fort he close link to taxation, since the „Maßgeblichkeitsprinzip“(§ 5,1 EstG) provides a important principle for German accounting.

Nobes (1998) also describes the system as based on fairly weak equity. This is because the sources of financing are very much bank related and credit based (Hill, 1999 and Mueller et al., 1991).

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