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

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  1. Introduction.
  2. Brief description of the traditional French system.
    1. Description of the French business community.
    2. Presentation of the French institutions influencing on reporting.
    3. Traditional treatment of statutory and consolidated accounts.
  3. Reasons for a phenomenon that started in the early 1970s.
    1. Eased regulations.
    2. Voluntary adoption of International standards by French groups.
    3. Pressures from the environment.
  4. Divergence in the presentation of financial statements.
    1. Order of documents.
    2. Cash-flow statement.
    3. Statement of change in equity.
    4. Balance sheet classification.
    5. Other divergences.
  5. Main differences in the two reporting methods.
  6. An accommodating interpretation of international standards.
  7. Conclusion.
  8. References.

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.

[...] As a result, the financial statements of many large French corporations were made directly comparable to those of similar American companies, and hence favoured foreign investments (Barrett, Roy, 1976) Voluntary adoption of International standards by French groups The first examples of French companies adopting alternative practices can be traced back to the early 1970s: Saint-Gobain-Pont-à-Mousson first published consolidated financial statements according to the international accounting principles in 1971, following the merger between Saint-Gobain and Pont-à-Mousson (Cairns, 2006). This change in the presentation of financial statement was justified as follows: decision to produce and publish consolidated financial statements according to international, i.e. [...]

[...] On the other hand, for Saint-Gobain, which is quoted only in Paris and went back to French GAAP in the late the adoption of IAS regularised some loopholes in the interpretation of accounting standards (Appendix 1). For instance, in the balance sheet, the main differences stemming from actuarial gains in pensions and other post-retirement benefits correspond to a reduction in shareholders' equity. Consequently, all pension obligations are now accrued for in the balance sheet. Secondly, property, plant and equipment are valued using the IAS 16, which leads to longer average useful lives for items compared to the accelerated depreciation system. [...]

[...] This, in turn, inspired some firms, and particularly French banks with large holdings of financial instruments such as demand deposits, to strongly oppose and lobby against the changes proposed in IAS 39. Hence, French bankers expressed their worries to M. Chirac who whole-heartedly took an active role in voicing concern regarding the adoption of International Financial Reporting Standards (IFRS) by publicly traded firms. In July 2003, Chirac wrote a letter to Romano Prodi, President of the European Commission, to express his concerns on the fact that the adoption of the IFRS?and particularly IAS 39?would have ?nefarious consequences? on the financial stability of firms throughout Europe (Armstrong et al., 2006). [...]

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