A comparison between US GAAP and German HGB

A comparison between US generally accepted accounting principles and German HGBA comparison between US generally accepted accounting principles and German HGBByJanuary 2014Supervisor PERMISSION TO STORE RESEARCH PAPER IN LIBRARY AND MAKE open FOR USEI, Claudiu Ghiuzan, do hereby irrevocably consent to and authorize the Library of University of Applied watchfulness Studies, Mannheim, to file the attached Research Paper entitled A comparison between US GAAP and German HGB, and make such paper in stock(predicate) for use, circulation, and reproduction by Library users at the University of Applied Management Studies, Mannheim.I state at this time that the contents of this paper atomic number 18 my own work and completely original.____________________________________________ (Signature)_______________________________________________ (Date)Chapter 11. IntroductionWhen the multinational enterprises work with unalike accounting systems it might be possible to come with different results at the end of the year. This is the case of Siemens AG with the annual report from 2000. The German skunks stock has been traded on the NYSE (New York Stock Exchange) and according to their report from US GAAP (General Accepted Accounting Principles) their net income was 8,860 million while on German GAAP based on the same calculations their net income was report as 7,901 million. This means practically 14% more net income (Bruetsch 2003).HGB and US GAAP atomic number 18 different accounting systems that companies use to organize their monetary statements. HGB is primary used for companies in Ger legion(predicate) and US GAAP in joined States. Basically the financial reports of the multinationals atomic number 18 written according to the financial standards from the country they operate.This research paper will give you an overview of the main differences between the both systems and will help you to split up understand the practices used by the two important market leaders i n the world.Chapter 22.1 Literature review2.2 U.S. GAAPThe accounting standards in United States have been first set by the AICPA (American Institute of Certified Public Accountants). In 1939 AICPA created also the Committee on Accounting Procedure and after this in 1959 it was replaced by Accounting Principles Board. In 1984 the Public Company Accounting Oversight Board (PCAOB) and the Governmental Accounting Standards Board (GASB) determined the accounting standards in U.S (PWC.com, 2012). The US GAAP is influenced basically by the Common Law of United states.2.3 German GAAP different from US GAAP is the German HGB or Handelsgesetzbuch, a commercialised code established first in 1897 and replaced in 1938 conform the European standards. The German accounting system was used also in Austria since 1938 (Investopedia.com). There atomic number 18 many differences between the German and U.S. accounting standards and it seems quite important for the financial employees to know them, mo stly when they work in a multinational company. Some of the major differences consist in value-added task, capitalization of software be, personnel restructuring, employee share purchase plans, deferred income including derivatives, maintenance accruals, unrealized gains on saleable securities and share offering costs. The next division will analyse this differences and will offer a fail understanding of the terms used in German GAAP and U.S. GAAP.Chapter 33.1 General Analyses3.2 Value-added taxIn the German GAAP the value-added tax or VAT needs to be depreciated and the VAT recoveries recorded as other operating income. infra U.S. GAAP the capitalized VAT is considered a long-term receivable rather than plant and equipment or property. For that reason the depreciation and operating income are not recognized (Alexander et al. 2004).3.3 Personnel restructuring under U.S. GAAP, the estimated cost of employee separation are accrued in the period that the employee accepts the of fer of termination while under German GAAP these costs are a great deal financial on the basis of the Company when it announced the intention to reduce its workforce (Alexander et al. 2004).3.4 Deferred income including derivatives jibe to U.S. GAAP the income of a company from a basic arranging is to be distributed over the duration of the agreement while under German GAAP this income is to be considered in accordance with the economic useful life (Alexander et al. 2004). below German GAAP, gains and losses resulting from the termination of please rate swaps are recognized in the year of termination while according to U.S. GAAP, gains and losses on interest rate swaps accounted for as hedges are amortized over the remaining outstanding period of the interest rate swap or the remaining life of the hedged position, whichever is shorter (Alexander et al. 2004).Under German GAAP, the foreign currency forward contracts and options used to hedge against the currency risk involved wit h a planned acquisition are accounted as a hedge without affecting net income as an offset against the acquisition cost of the investment while under U.S. GAAP may not be accounted for as a hedge (Alexander et al 2004).3.5 Maintenance accrualsThe German GAAP requires that the cost of maintenance associated to the financial year and only the ones incurred within the first three months of the following year have been accrued at every end of the period while under U.S. GAAP, the cost of maintenance is considered in the periods incurred (Alexander et al. 2004).3.6 Unrealized gains on marketable securitiesUnder U.S. GAAP the marketable equity securities other than investments accounted for by equity method or marketable debt, are classified as either available for sale, or as merchandise, or held to maturity while under German GAAP they are generally carried at historical cost. Securities classified as trading or available for sale are reported at fair value at the balance sheet data an d held to maturity securities are reported at historical cost. Unrealized gains and losses on trading securities are recorded in net income while unrealized gains and losses on securities categorised as available for sale are recorded, net of income tax, in shareholders equity (Alexander et al. 2004).3.7 Share offering costThe share offering costs are written as extraordinary expenses in the income statement according to German GAAP while under U.S. GAAP are charged against the proceeds of the offering (Alexander et al. 2004).Jrgen Kirsch, a professor of Finance at the University of Munster explain that the essential differences between German GAAP and U.S. GAAP are seen better at the capital markets and at investors. According to his paper in the financial structure of Germany the capital markets are less important than bank loans while in USA the capital markets are more important than banks. Furthermore the shareholder structure in USA is based on broad dissemination of shares while in Germany the private investors are less important (Kirsch 2012). Looking at the basis for tax calculation and distributions we can see that USA has no influence on tax truth and in Germany tax dictates financial accounting was abolished.The distribution rules are also different under German GAAP and U.S. GAAP. In Germany building of reserves and distribution constraints are controlled by law, and there are minimum distribution rules based on single accounts. However in USA there are or so no regulations to build reserves. The board determines the distribution and it is based on group accounts (Kirsch 2012).Another significant differences between HGB and US GAAP according to KPMG, one of the biggest sea captain service companies in the world, are the provisions. The provisions have different recognition criteria, different measurement criteria and different selected specific areas.3.8 ProvisionsRecognition criteriaUnder German GAAP the provisions are based more on the prin ciple of prudent accounting while under U.S. GAAP are recorded for efficacious/contractual obligations or constructive obligations. The German HGB allows also provisions where no third-party liability exist for example expense accruals, planned repairs or internal costs of the year-end closing. Under U.S. GAAP a liability must exist to a third party at the balance sheet date (KPMG, 2005).Different measurementThe measurement criteria are also different. Under U.S. GAAP the amount of provision is based on best estimate while HGB allows greater flexibleness and accruals could be substantially higher than under U.S. GAAP (KPMG, 2005).3.9 Foreign currency translationThe German GAAP requires that the financial statements must be recorded in the Euro currency and no other currencies are allowed. Under U.S. GAAP there is no specific currency underlined (KPMG, 2003).4.0 Tax influences on the Balance sheetAccording to Grabowskis paper under the German GAAP the tax balance sheet and commercia l balance sheet are closely connected to apiece other while under the U.S. GAAP there are no tax influences on the financial statement because the commercial balance sheet is degage from the tax balance sheet (Grabowski, 2012).Chapter 45.1 ConclusionThis paper provided abroad understanding of the key differences between U.S. GAAP and German GAAP and offered a better analyse of the concepts. Even though both financial systems have some differences in the structure, the basic principles do not differ so much.We can in all likelihood say that this differences are influenced by the different laws systems of the countries. Germany for example is based on civil code which has an extensive number of regulations that should be applied to as many special cases as possible and transferred to similar cases while USA is based on common law which implies a limited number of regulations. Here the rules are applied to special cases they were invented for and are decided for individual cases by j urisdiction.After all we can say that U.S. GAAP and German GAAP are evidently a combination of dependable standards and due to globalization it become necessary for multinational to understand the both systems in order to operate in this respectable economies. However in the future it might be possible that companies from both countries to report their financial data just according to one financial system.ReferencesAlexander, D., Noble, C. (2004), fiscal Accounting An International Introduction Second Edition, Pearson Educational Limited 2004. Available at http//books.google.de/books?id=_oe7rGbzdBsCpg=PA406lpg=PA406dq=differences+between+hgb+and+us+gaapsource=blots=iKY7Xicu3asig=3jlQYyYW0OxDFP8HJqSepxbhPGghl=rosa=Xei=-SbgUv6gHcLcswagr4HgBQved=0CF8Q6AEwBjgKv=onepageq=differences%20between%20hgb%20and%20us%20gaapf=true Accessed at 23 Jan. 2014.Bruetsch, M. (2003), U.S. GAAP and German HGB A comparative Approach, Oxford Brookes University, online. Available at http//www.grin.com/en/ e-book/14850/u-s-gaap-and-german-hgb-a-comparative-approach Accessed at 22 Jan. 2014.Grabowski, P. (2012), Die wichtigsten Unterschiede zwischen HGB, IAS US-GAAP online. Available at http//www.petra-grabowski.de/Schulungen/Diploma_Bilanzierung/Bilanzierung-8_Unterschiede_IAS_HGB_US-GAAP.pdf Accessed at 23 Jan. 2014. Kirsch, H., J., International Financial Reporting, Institut fr Rechnungslegung und Wirtschaftsprfung Westflische Wihelms-Universitt Mnster 2012, online. Available at http//www.wiwi.uni-muenster.de/25/content/html_de/studieren/material/11wise_IRL_Kap1.pdf Accessed at 22 Jan. 2014.KPMG (2003) Implementing IFRS Extract from IFRS compared with US GAAP and German GAAP online. Available at http//www.kpmg.com/CN/en/IssuesAndInsights/ArticlesPublications/Documents/IFRS-German-GAAP-O-200303.pdf Accessed at 23 Jan 2014.KPMG (2005) Provisions-Significant differences between IFRS/HGB/US-GAAP online. Available at http//www.agig.de/53-2.pdf Accessed at 23 Jan. 2014.Investopedia (no date available), Handelsgesetzbuch-HGB online. Available at http//www.investopedia.com/terms/h/hgb.asp Accessed at 23 Jan. 2014.PWC (2012), AP similarities and differences- 2012, online. Available at http//www.pwc.com/us/en/cfodirect/issues/ifrs-adoption-convergence/ifrs-and-us-gaap-similaries-differences-2012.jhtml Accessed at 23 Jan. 2014.1