The European Union has made a political harmony between countries.
And due to this fact, many would think that the UK and German financial report will be similar. However, the accountant familiar with the practices of financial report in both countries knows that there’s in fact many differences. In this paper, the differences between the German HGB (Handelgesetzbuch) and UK Gaap ( Generally Accepted Accounting Principles) will be highlighted and analysed from their different historical background to their different balance sheet layout and Annual financial statement. 2.
History and Background of the German HDB and the UK GaapSince a long time, the UK was famous for its wide share ownership including multinationals and medium sized domestic companies. The development of the UK accounting practice history have been mostly influenced by the requirement of shareholders and the desire of companies to demonstrate continously upwards profit trends (By adrian crampton et al, 2011). In 1942 the T ( Tax and Financial Relation) has been created. The Council of ICAEW ( Instute of Chattered Accountant in England and Wale) established in 1880 asked it’s T&FR comittee to consider and to give recommendations on some aspects of the Companies account and to publish recommendations that will be approved for the Information members. In 1942, the first Recommendation on accounting principles has been made with subjects including war damages contribution and TRC (Tax Reserved Certificate).
Members of ICAEW have had an early training on accounting practice due to these recommendations and the ones that followed up.(Icaewcom, 2018)In the past, the German industries were dominated by private industries (mainly family businesses). Those private industries capital has been effectively provided by the banking sector. The German accounting has been developed mainly due to the needs of creditors instead of shareholders like for the UK. Thus, it is possible to argue that the balance sheet was more meaningful to the German user while the profit and loss account had a more significant meaning to the general user of the financial sheet statement in the UK (By adrian crampton et al, 2011). 3. Differences in Content and AimIn 1970, the Accounting Standards Steering Committee by the Institute of CharteredAccountants in England and Wales (ICAEW) has taken place and highlighted the beginning of the standard setting outside companies law. Later on, the ICAEW established the ASC and by establishing it, it has made these five statements for the advancement of accounting Standards presented as follow:-The many different accounting practice and areas of difference has to be narrowed.
This was meant to happen by publishing authoritative statements using the best accounting practice.-The accounting bases had to be disclosed. This was particularly needed when the accounts had important items.-Major proposals had to be exposed widely on accounting Standards.-Improved accounting Standards and regulatory measures had to be encouraged.
In 1991, the ASC which has been replaced by ASB has established it’s aims for the development of the standards of financial accounting and reporting. These are presented as the following:-Principles has to be developed in order to establish new standards and give framework which people can use in order to solve accounting issues.-Creating new accounting standards in order to evolves business practices -Solving urgent issues effectively (Accountingnotesnet, 2016).The German accounting standards are controlled by the Gaap and outlines the way the bookkeeping activity of a company must be performed. The system had many changes over time.However, the Gaap declared that only gains will be considered as profit. The Gaap financial statement should incorporate the following:-The statement containing financial position-The statement containing cash flow and equity -The statement containing the income (Bridgewesteu, 2018).
4. Differences in accounting policies For the UK, current assets are recognised as assets by the law. The consumption, the realisation or the selling of the good within a specified period of time is not restricted. The current Asset which will become fixed assets will be transferred at the lower of cost or net realisable value. Liabilities are considered as amount decreasing due within one year or after one year. Similar disclosure happens to the creditors after five years. In Germany, current assets are not recognised by the law but fixed assets are clearly defined as assets by the HGB.
After one year, the amount of Debtors due must be disclosed from the balance sheet book. Adding to this, the disclosure is usually noted in the account. After one year, the amount of liabilities will be also disclosed from the balance sheet. Due after more than five years, the amount falling must be also disclosed from the financial book.
Deferred income is considered as a separate line item (By adrian crampton et al, 2011).For the UK, a goodwill is calculated as the cost of the entity minus the fair value of the net identifiable assets. A Goodwill is now considered as an asset. A goodwill is considered to be useful for 20 years or less. A negative goodwill is considered as a negative asset. In contrast with the German accounting principles, the UK GAAP asks for the same concept to be used for the negative goodwill that contains future costs and losses and the negative goodwill that contains bargain purchase.
For Germany, a goodwill is calculated as the cost of the acquisition minus the value of the individual assets of the company acquired. Assets and liabilities are considered important at the date of take-over keeping in mind the intended use: profitability aspects or liquidation values. As a result of the general principle, the analysis should be conservative. The Goodwill was previously considered to be against the reserves in the consolidated financial statements. However, it is needed to be included in the calculation of the net gain or loss on disposal which has recognition in the profit or loss account (By adrian crampton et al, 2011).