The Influence on Financial Accounting and Reporting in France

Evidence by analyzing the LVMH Group SA

Research Paper (postgraduate), 2011

18 Pages, Grade: 64


Table of contents

Executive Summary

List of figures

1. Introduction

2. Literature Review
2.1 Classification of French Accounting
2.2 Cultural, Historical and Legal influences on French Accounting

3. Application
3.1 Ratio analysis of the LVMH Group for year ended
3.2 Treatment of specific financial accounting features

4. Conclusion


Executive Summary

This paper examines the influences on French financial accounting and reporting, especially by analyzing the annual report for the year ended 2009 of the French listed company named LVMH Group SA (LVMH).The reader can find a brief introduction to the development and landscape of French accounting and its role in a comparative global financial reporting and accounting framework, where international standards (IAS / IFRS) put pressure in national and regional accounting systems. Furthermore, the classification and the influences on French accounting are briefly examined. Moreover this paper includes a ratio analysis of the LVMH Group SA for the year ended 2009. Finally,a more in-depth analysis of how specific features, such as asset valuation, consolidation and non-financial disclosures, are treated is done.

List of figures

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1. Introduction

In France the history of accounting requirements for businesses go back to 1673 when a royal decree, known as Savary Ordonnance required traders to record their business activities. According to this decree accounting did not become an obligation but without considering this rules there could be intense penalties e.g. in case of bankruptcy. The obligation to accounting was established initially in 1807 within the Napoleonic Code de Commerce (Commercial Code).

In the latest era of French accounting after 1946 it is to say that financial reporting was influenced by several laws such as tax law, company law and commercial law.In 1970s many large French companies started to publish secondary reports in English and sometimes according US-GAAP, to be more comparable in international capital markets. There it should be distinguished between individual accounts which are strongly influenced by tax rules and group accounts which eliminate tax effects.

In 1980s French accounting went through a strong upheaval caused by firstly the embedment of accounting Directives of the European Community - as we will see in chapter two, in recent times the accounting practices were strongly influenced by several European Directives such as 4th and 7th and the Bank Accounts Directive, and secondly by the internationalization of businesses and financial markets. Furthermore, in the last decade international standard setting organizations such as IASB (former IASC) put pressure with their standards on national standard setters, so in France. The primary objective of domestic standard setters is to solve similar accounting problems by giving a similar framework for all domestic corporations. Whereby, international standard setters aim to harmonize accounting standards and make financial reports of multinational companies more comparable.

2. Literature Review

2.1 Classification of French Accounting

During the last century there were several tries to classify accounting systems all over the world. Mueller (1968)classified accounting systems into four patterns of development. According to Mueller’s first approach of classification French accounting operates within a macroeconomic framework where accounting is an instrument to support national economic policies. The main emphasize is to stress value added/ social accounting, to be equivalent to tax accounting and to include social responsibility.

Nobes first international accounting classification of accounting systems in 1980’s distinguished between two main classes the Micro and the Macro (figure 1). French accounting was classified under macro-uniform, government-driven, tax dominated and plan based.

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Figure 1: Nobes first classification of accounting systems in 1980

After strong critics and new data available, Nobes developed a new classification scheme (figure 2) in which accounting systems where classified between strong equity and weak equity. In this new scheme French accounting was seen as weak equity system.

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Figure 2: Nobes second classification of accounting systems in 1998

Hofstede looked in his classification at structural elements of culture that affected social behaviour in work, organizations and institutions. He determined four basic dimensions of culture:

- Individualism versus collectivism
- Large versus small power of distance
- Strong versus weak uncertainty avoidance
- Masculinity versus femininity

In relation to this, Gray (1988) uses these cultural differences to classify international differences in accounting behaviour. He therefore distinguished between:

- Professionalism versus statutory control: This means that accountants are perceived to have independent attitudes throughout the world. Gray counts France to the more-developed Latin countries. In France accountants need to implement detailed legal requirements, so accounting is almost public regulated.
- Uniformity versus flexibility: This is related to uniform accounting plans and imposition of tax rules for measurement purposes where in France accounting has to facilitate national planning and to chase macroeconomic goals. So, the level of uniformity in France is very high. Gray implemented these two behaviors into a graph (figure 3).

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Figure 3: Gray’s Authority and Enforcement

- Conservatism versus optimism: French accounting is strongly conservative. This means that long-term orientation, collectivism and strong uncertainty avoidance exist.
- Secrecy versus transparency: Secrecy in accounting is related to the level of disclosure. In that sense the level of secrecy in French accounting is high. Gray implemented the two behaviors of conservatism and secrecy into a graph.

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Figure 4: Gray’s Measurement and Disclosure

2.2 Cultural, Historical and Legal influences on French Accounting

Traditionally there are three main French attitudes connected with accounting: (Scheid and Walton, 1992)

Firstly, the conservative attitude which indicates that French ordinary person does not like risks. Furthermore, he mistrusts new ideas and prefers “on the whole to consolidate a moderately satisfactory material wealth rather than to innovate”.

Secondly, the weighting of authority which the French want to be well-established and formalized and which adverse they behave very respectful.

Lastly, the individualism which is an old traditional French philosophical attitude. French people like diversity as well as weakness of support for instance in political systems.

As we saw above, the French accounting system is strongly influenced by the national law. Company law predominates and tax law overrides accounting rules either. The roots of French law are in the codified Roman law which is more abstract than the common law used by UK, USA, Australia, Ireland etc. According to Nobes and Parker (2010) common law countries tend to have larger equity markets and higher level of disclosure.

Historically, the government established an accounting code (Plan Compatible Général) (PCG) to promote more effective national economic planning. The PCG includes a detailed chart of accounts and rules related to valuation and profit measurement, models for financial statement presentation and consolidation requirements.

There have been further political influences in French accounting, for instance the adoption of the accounting plan after German occupation, also known as Vichy regime, in 1940’s. Maybe the strongest and recent influences French accounting experienced in the last years were the implications of the 4th and 7th European Union Directives. With the Directive number four the ‘true and fair view’ principle and various valuation methods in French accounting began to receive more attention. However, just under the fourth European Directive there were more than thirty optional areas of harmonization which provide several opportunities of implementing the directive. The seventh Directive provided requirements for consolidation and the ‘fair value’ approach.

3. Application

3.1Ratio analysis of the LVMH Group for year ended 2009



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The calculation of debtors includes trade receivables in short-term and long-term. It excludes any other type of receivables unrelated to ordinary trade activity.


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For further analysis we have to consider the following information:


LVMH has strong liquidity ratios; both current ratio and quick ratio are over the sector level. For the current ratio 1.814 current assets cover the current liabilities. However, for an industry company the quick asset ratio is of higher importance, because empirically it is to state that such companies have high inventories. Therefore a quick asset ratio of 0.881:1 indicates good liquidity for LVMH.


Stock holding and debtors collection periods are very high. This could mean that LVMH is liquid enough and that LVMH trusts his debtors to pay their obligations in the future. It could be also a sign of good working capital control. On the other hand, creditors payment period is 101 days, this means that creditors trust LVMH either to be able to pay the invoices. However, this could also indicate that the payment and collection management of the company is not well organized.

To sum up, LVMH is liquid enough to pay his creditors 264 days in advance, before receiving money from his debtors and before selling the goods. This confirms the good liquidity figures above.

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The profit margin is 11.57%. This means that from every 1 Euro revenue just 11.57 cents remain as net profit. However, the profitability ratios of LVMH are quite good for an industry company. It is to state, that the high Marketing and selling expenses seem to influence the profitability essentially. This could be normal for a company which sells high end luxury goods.

The ROCE ratio is very high with 17.69%. This indicates that the capital employed in the company is good allocated within the business activities.

The ROE ratio is with 14.3% high either. This is very good for a listed concern with high equity as we will see next.


Gearing in relation equity to long term debt (which is the better ratio compare to the total debt gearing ratio) is 29.55%. This can be seen as normal figure for a listed French company. The total debt gearing ratio is 73.39%. It could be regarded as safe, considering that all borrowings (long term and short-term) account for 73.39% of the company equity. And industry companies have strong fixed assets structure, so undisclosed reserves can be supposed. Furthermore, the EBITDA covers the interest expenses by almost 10 times.


Excerpt out of 18 pages


The Influence on Financial Accounting and Reporting in France
Evidence by analyzing the LVMH Group SA
University of Westminster  (Westminster Business School)
MSc Finance and Accounting
Catalog Number
ISBN (eBook)
ISBN (Book)
File size
1417 KB
Influence, French Accounting, Financial Reporting, France, LVMH, Louis Vuitton, Moët Hennessy, Louis Vuitton Moët Hennessy, Comparative Accounting, Ratio Analysis
Quote paper
Panagiotis Papadopoulos (Author), 2011, The Influence on Financial Accounting and Reporting in France, Munich, GRIN Verlag,


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