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. 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? [...] 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). [...] It seems that German GAAP and US GAAP have different objectives. Therefore we
will analyze the two systems in their national contexts now.
Table of Contents
1. Introduction
2. A comparison: HGB and USGAAP
2.1. Accounting in Germany
2.1.2 Accounting and Taxation: The ‘Maßgeblichkeitsprinzip’
2.2 Accounting in the United States of America
3. The level of conservatism
3.1 § 252,1 HGB
3.2 SFAC No. 2 Par. 92
3.3 Measuring conservatism
4. The concept of True and Fair View
4.1 “A picture according to the facts”
4.2 The ‘overriding’ principle
5. Conclusion
Research Objectives and Themes
This essay aims to analyze and contrast the accounting systems of Germany and the United States, specifically focusing on the core concepts of conservatism and the "true and fair view." The research question explores how these differing national frameworks influence profit calculations and corporate financial reporting.
- Comparison of German (HGB) and U.S. (GAAP) accounting standards.
- Analysis of the principles of conservatism and imparity.
- Examination of the "true and fair view" and "overriding" principles.
- Evaluation of accounting impacts using the "conservatism index" and company case studies.
- Discussion on international harmonization and capital market orientation.
Excerpt from the Book
3.3 Measuring conservatism
As we have seen accounting differs due to different claims and requirements from its socio-economic environment. In order to compare figures from companies across accounting systems borders several adjustments are necessary. One relatively precise way to incorporate the level of conservatism in these adjustments is to create ‘conservatism index’. Gray (1980) approached this as follows:
Is the ratio more than one, it indicates that German profits are measured with relatively optimistic accounting practises. Less than one it indicates that German profits are measured relatively conservative. From a study of 57 companies in UK, France and Germany, Gray concludes that French and German results are significantly less optimistic than those from the anglo-saxonian examples. From the reconciliation reports of Siemens (2000), BASF (2002), Schering (2000), DaimlerChrysler (1998) and Schwartz Pharma (1998), all crosslisted at German and New York stock exchanges we find further confirmation of Grays proposal since profits in the profit & loss accounts of those reports are significantly lower in the HGB issues than in the U.S. GAAP issues.
Summary of Chapters
1. Introduction: Outlines the scope of comparing German and U.S. accounting systems, introducing the core themes of conservatism and the "true and fair view."
2. A comparison: HGB and USGAAP: Explores the national contexts of German accounting, influenced by tax and creditor protection, versus the market-oriented U.S. system.
3. The level of conservatism: Examines how the principle of imparity and the valuation of assets differ between the two systems, including a quantitative approach using a conservatism index.
4. The concept of True and Fair View: Investigates the conflict between legal rule conformity and the aim for fair presentation in financial reporting.
5. Conclusion: Summarizes the fundamental differences and discusses the ongoing trend towards international accounting harmonization.
Keywords
Accounting Systems, HGB, US GAAP, Conservatism, True and Fair View, Creditor Protection, Profit Calculation, Financial Statements, International Harmonization, Asset Valuation, Imparity Principle, Capital Markets, Siemens AG, Balancing Policy.
Frequently Asked Questions
What is the core focus of this research paper?
The paper provides a comparative analysis of German (HGB) and U.S. (GAAP) accounting systems, highlighting how different national objectives influence financial reporting and profit determination.
What are the central thematic fields addressed?
The main themes include the concepts of accounting conservatism, creditor protection in Germany, capital market orientation in the U.S., and the principle of a "true and fair view."
What is the primary goal of this study?
The goal is to demonstrate how differing accounting standards lead to significant variations in reported profits for the same company, using Siemens AG as a practical example.
Which scientific methods are applied in the paper?
The author uses a comparative analytical approach and applies Gray’s (1980) "conservatism index" to quantify the differences in profit reporting across the two accounting regimes.
What aspects are covered in the main section of the paper?
The main section covers the institutional foundations of HGB and U.S. GAAP, the mechanics of conservatism (such as the principle of imparity), and the qualitative requirements for transparent financial reporting.
Which keywords best describe this work?
Key terms include International Financial Accounting, HGB, US GAAP, Conservatism, True and Fair View, and Financial Harmonization.
How does the German "Maßgeblichkeitsprinzip" affect financial reporting?
It creates a close link between tax balance sheets and published financial statements, which often prioritizes creditor protection and tax-based conservatism over purely market-oriented reporting.
What role does the "conservatism index" play in the author's analysis?
It acts as a metric to determine whether reported profits are optimistic or conservative; an index result lower than one indicates that the accounting system in question is relatively more conservative.
- Quote paper
- Markus Bruetsch (Author), 2003, U.S. GAAP and German HGB - A comparative Approach, Munich, GRIN Verlag, https://www.grin.com/document/14850
