Faculty of Economics and Business Administration Publications Database

Compliance with German and International Accounting Standards in Germany: Evidence from Cash Flow Statements

Heilmann, Aaron A.
Pages: 218 - 238
Month: March
Link External Source: Online Version
Year: 2004
Keywords: Accounting; Accounting standards; American Financial Accounting Standards; Cash flow statements; Compliance; Disclosure; Enforcement; Financial statements; German Accounting Standards; German companies; German GAAP; Germany; Non-compliance; Standards; US
Abstract: Accounting scandals such as Enron and Worldcom have focused the attention of the broader public on issues of the quality of accounting standards and the enforcement of accounting standards. The literature on enforcement predominantly describes or discusses the design of enforcement institutions, with few empirical studies trying to document and analyse the degree of compliance with accounting standards. This chapter presents results on compliance with German GAAP (Generally Accepted Accounting Principles), IAS (International Accounting Standards), or US GAAP of German companies listed in the DAX, MDAX, SDAX, New Market, and other market segments, concentrating on an analysis of compliance with the rules for cash flow statements, because these rules do not differ much across the systems of accounting regulation and are specific enough to allow statements on the existence of non-compliance without access to internal data. The study reveals that many German companies do not comply with the rules for cash flow statements, and that the extent of non-compliance is high not only for GAS (German Accounting Standard) 2 preparers, but also for IAS7 and FAS ((American) Financial Accounting Standards) 95 preparers. The major problem areas identified are the definition of cash and cash equivalents, the presentation of cash inflows and outflows from investing and financing activities where the direct method should be used, and the additional disclosures of interest paid and taxes paid; not a single audit opinion on the financial statements of the sample companies included a qualification pointing to non-compliance with the standards on cash flow statements. In the light of these results, the current discussions aimed at strengthening the institutions for the enforcement of accounting rules appear to be timely and necessary.