The Evolution of Consolidated Financial Statements published by Publicly Quoted French Companies: The Shift Away from local GAAP to the Adoption of International Standards

Résumé du document

Contrary to the Anglo-American approach, France offers, in terms of accounting, an environment representative of those of many countries in continental Europe. Nonetheless, France offers a typical system, where, because politicians and executives are part of a close and tight elite network, the Head of State can intervene in the setting of international accounting rules. France also differs from other major countries in Continental Europe, such as Germany, due to the interest of its large business groups in foreign capital markets, shown as early as the late 1960s. This paper serves the purpose of describing and analysing the historical development of the French reporting standards, with a political and economic stance rather than a technical one. This paper studies the evolution from the established French framework to the adoption of European and IAS standards, from the post war period until nowadays. Firstly, the traditional French system is described, with the presentation of the business community, the legal and political framework and the conventional accounting rules. Secondly, the paper presents the reasons for the shift away from traditional French accounting standards which dates back as far as the early 1970s. This phenomenon is all the more interesting since no official international accounting standards existed at that time.

Extraits

[...] These differences can be explained either by the American influence or the practice of French groups imitating other international standards. As Ding et al (2003, p63) underline, this move can be interpreted as an opportunistic approach to further capital raising and success on international financial markets Main differences in the two reporting methods The difference between the Anglo-American book accounting and the French tax-accounting is the major source of technical dissimilarities between generally accepted accounting principles in France and the United States (Barrett, Roy, 1976). [...]

[...] Mainly, the voluntary adoption of US GAAP for presenting the consolidated statement is justified by the size and the internationality of the company. Saint-Gobain was soon followed by other large French companies, such as the Rhône Poulenc Group. For the Rhône Poulenc Group, adoption took place in 1973. In consolidated accounts ended on December the 31st, the reference to US GAAP appeared in two places. First, it appeared in the section entitled “Preparation of consolidated financial statement. . [we adopt] main accounting principle, generally accepted at international level”. [...]

[...] This also resulted in no timing difference between book and tax reporting in France, which is often found in the US. A French company would not be permitted to use accelerated depreciation for tax reporting and straight-line depreciation for books accounts, unlike in the American system. Generally, it is advantageous for French companies to make extensive use of the accelerated depreciation (amortissement degressif) allowed by tax laws for plant, transportation and office equipment. The choice of reducing taxes in such a way is the major source of difference between the earnings reported under French and American accounting standards. [...]

[...] The importance of notes in financial statements in the Anglo- American style has been recognised through the implementation 4th and 7th directives. Other important differences appear between the French and American systems Cash-flow statement In addition to the balance sheet and the income statement, the former Accounting Principles Board (APB) required US firms to publish the statement of changes in financial position, which was replaced by the statement of cash-flow in 1987. On the other hand, and as previously said, the French system offers a limited availability of information, compared to its Anglo-American counterpart. [...]

[...] On the other hand, it is likely that French firms, given their history and own specific characteristics, will continue to have their say and influence on the standards they favour towards authorities, even after the end of term of M. Chirac in 2007. Finally, I assume that France offers a worthwhile case and could be an example to follow for emerging economies which are looking to attract foreign investors, such as Russia, Latin America countries or other developing countries. In particular, France provides a successful example of how a country traditionally closed to foreign capital managed to adopt, within a couple of decades, straightforward regulations which allow the liberalisation of the stock markets, and more widely speaking, its economy. [...]