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To put it simple, accounting is a way to organize financial figures. The goals of a nation and the aspiration of a people influence the structure of an accounting system. There is divergence and variety in the world's accounting systems because there is divergence and variety in the world's cultures. Without appreciating these differences it is very easy to misinterpret the financial statements, and in so doing, we may distort our evaluation of an overseas operation.The principal accounting system found in France is surveyed here in terms of historic development of companies and accounting systems, qualifications of practitioners, professional societies, procedures for changing accounting standards, publishing financial reports including public attitudes on the role of business in society, political systems economic conditions, types of industry, the level of government control and intervention, tax system.
- French business system
France is a nation of many small companies. The two ways for a business to incorporate itself are SA (Société Anonyme) or SARL (Société à Responsabilité Limitée), which define attitudes toward the nature and purpose of corporate entities. However, small companies do not have the depth of operations to support large industrial endeavours that transcend national borders. To compete globally, the French government selects what amounts to a national champion in various industries. These relatively few large companies are given monopolistic rights to certain market segments within France. They may also be subsidized by the government to the extent necessary to ensure their competitiveness in the global market.
Accounting practices are uniform throughout the country. The Plan Comptable is essentially a national cookbook for accounting, with detailed instructions on such matters as valuation methods and procedures, disclosure rules, and the standard forms to be used by accountants. This follows, conceptually, the French practice of codifying its laws (the Napoleonic Code). In France, tax laws have precedence over the concept of a true and fair presentation of financial results. In fact, financial reports are usually the tax returns for a company.
- Historical perspective
France experienced rampant inflation after World War II. This necessitated a departure from historic cost accounting, which was restored in 1959 with the issuance of a new currency. Changes in the Finance Acts in the 1970s mandated the use of current cost accounting. The financial statements of publicly traded companies were to report all assets on a current replacement cost basis.
The prescribed methodology involved writing up the book value of the asset by an official coefficient. The applicable official coefficients, in turn, were based on price level changes of wholesale price indices of those commodities, including labor, which largely determine the cost of manufacturing fixed assets. This is a price-oriented adjustment system that does not take into account technological change
- Procedure of accounting
The detailed structure of French accounting goes beyond the needs of the government to collect taxes. The Chart of Accounts is prepared by the Economics Ministry and contains an elaborate internal coding system. A company's book-keeping must be in strict accordance with the coding system set forth in the Plan Compatible. The financial reports must be supported by substantial disclosures in footnotes that cover a variety of financial and nonfinancial items. Some of the nonfinancial items are the number of employees by type of work, a listing of marketable securities, and corporate activity on a geographic basis.
The corporate accounts, prepared in strict accordance with an accounting chart or plan set forth by a government directive, are submitted annually for incorporation into the national statistical data base. The advantage of such a system from the point of view of government planners is obvious. The annual accounts of every company in the nation follow the same format and numerical coding system. This permits easy recall from a computer data base system by government planners.
By referring to a code number, planners have access to the associated corporate accounting item for every major company in France, and for the entire nation by aggregating the data. They can also be confident that the determination of the value associated with each code number is the same because the procedure for determining the value associated with a code number has been standardized. This standardization ensures consistency of application with a minimum of interpretation
- Social aspect
The French also require that financial reports include information concerned with social consciousness. Accountants routinely prepare statements on the number of workers exposed to excessive noise, toxic substances, and other environmental and social matters for companies with over three hundred employees. Accountants are expected to prepare what amounts to environmental impact statements, which seems to be outside their area of expertise, yet is within their sphere of responsibility
- Accounting standardization
This extremely standardized approach to accounting does lend itself to national planning purposes. Other European nations, such as Belgium, Spain, Italy, and Greece, have adopted standard accounting plans to varying degrees. These accounting plans or charts generally originate from a government body such as the ministry of finance or economics. Germany also has a detailed accounting plan, but the plan originates from statute, not from the promulgation of rules by a government bureaucracy.
- Accounting education
There are two principal organizations in France serving the accounting profession. One is the Order des Experts Comptables et des Comptables Agrees, which has rigorous entry requirement standards. This organization serves more as business advisors than as accountants. The other organization is the Compagnie Nationale des Commissaires aux Comptes. It is less demanding to qualify for this organization, whose members are responsible for the conduct of the statutory audits.
The educational requirements to enter the French accounting profession are among the highest in Europe, with regulations having been revised in 1981 and in 1988. Students are required to take at least seven years of study beyond the "baccalaureat," the final high school examination. In practice, it frequently takes an applicant ten years to fulfill all the requirements to join the ranks of professional accountants.
Contained within this ten-year period of becoming a professional accountant is a three-year professional training period. During this period, a trainee is expected to be employed by a professional accounting firm in public practice or in conducting statutory audits. A trainee may be employed in the accounting, finance, or control departments of a company for one of these three years.
French accounting system is characterized as a government-oriented accounting system. A political system that calls for a centrally planned economy is more apt to have a less flexible accounting system with little leeway on how various financial results are to be interpreted in the preparation of financial statements. France has a plan-based accounting system that is set up by government ministry for the purposes of collecting national statistics.
The statistics are then used as a source of information in establishing government policies with regard to both society and business, and in monitoring the success or failure of these policies. With such trading partners as Germany, Spain, UK, Italy, Belgium and US French accounting system constantly undergoes various influences and I believe that with the further globalization of European countries within the EU the accounting system of these countries and France in particular are likely to arrive to certain unified form that will allow simplifying international cooperation.
IMHOFF, Eugene A. 2003 Accounting Quality, Auditing and Corporate Governance. Accounting Horizons. 17: 117+.
Organisation for Economic Co-operation and Development, Available at http://www.oecd.org/document/53/0,2340,en_2649_34569_34994229_1_1_1_1,00.html
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