A comparison between US GAAP and German HGB

A comparison betwixt US generally accepted accountancy principles and German HGBA comparison between US generally accepted accounting principles and German HGBByJanuary 2014Supervisor PERMISSION TO STORE RESEARCH PAPER IN LIBRARY AND MAKE AVAILABLE FOR USEI, Claudiu Ghiuzan, do hereby irrevocably consent to and authorize the Library of University of Applied Management Studies, Mannheim, to file the aband iodind Research Paper entitled A comparison between US generally accepted accounting principles and German HGB, and make such paper available for use, circulation, and fosterage by Library users at the University of Applied Management Studies, Mannheim.I republic at this time that the contents of this paper ar my own convey and completely original.____________________________________________ (Signature)_______________________________________________ (Date)Chapter 11. IntroductionWhen the multinational enterprises work with diametrical accounting systems it might be possible t o come with different results at the annihilate of the year. This is the case of Siemens AG with the annual bill from 2000. The German mints stock has been traded on the NYSE (New York Stock Exchange) and harmonize to their report from US generally accepted accounting principles (General Accepted Accounting Principles) their interlock income was 8,860 million spot on German generally accepted accounting principles found on the same calculations their sort out income was reported as 7,901 million. This means practically 14% more than net income (Bruetsch 2003).HGB and US GAAP argon different accounting systems that companies use to shape their monetary statements. HGB is primary used for companies in Germany and US GAAP in United States. Basically the financial reports of the multinationals be pen according to the financial standards from the country they melt.This research paper volition give you an overview of the main differences between the both systems and will hel p you to better at a lower placestand the practices used by the two important market leaders in the world.Chapter 22.1 literature review2.2 U.S. GAAPThe accounting standards in United States have been foremost 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 age. 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 GAAPDifferent from US GAAP is the German HGB or Handelsgesetzbuch, a mercantile regulation 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 ar many differences between the German and U.S. accou nting standards and it seems quite an important for the financial employees to know them, mostly when they work in a multinational company. Some of the major differences consist in value-added revenue enhancement, capitalization of package represents, personnel restructuring, employee sh atomic number 18 purchase plans, deferred income including derivatives, maintenance accruals, unrealized gains on salable securities and sh are stick outing costs. The following section will analyse this differences and will offer a better understanding of the terms used in German GAAP and U.S. GAAP.Chapter 33.1 General Analyses3.2 Value-added valueIn the German GAAP the value-added tax or bathtub needs to be depreciated and the ad valorem tax recoveries recorded as early(a) operating income. to a lower place U.S. GAAP the capitalized VAT is considered a long-term receivable rather than plant and equipment or property. For that condition the depreciation and operating income are not reco gnized (Alexander et al. 2004).3.3 Personnel restructuringUnder U.S. GAAP, the estimated cost of employee separation are accrued in the period that the employee accepts the offer of termination piece of music under German GAAP these costs are often financial on the basis of the Company when it announced the invention to reduce its workforce (Alexander et al. 2004).3.4 Deferred income including derivativesAccording to U.S. GAAP the income of a company from a basic agreement is to be distributed over the duration of the agreement art object under German GAAP this income is to be considered in accordance with the scotch useful life (Alexander et al. 2004). Under German GAAP, gains and losses resulting from the termination of beguile rate switchs are recognized in the year of termination while according to U.S. GAAP, gains and losses on interest rate swaps accounted for as rings 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 strange currency forward contracts and options used to hedge against the currency risk snarled with a planned acquisition are accounted as a hedge without affecting net income as an offset against the acquisition cost of the enthronisation 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 iii months of the following year have been accrued at every decision of the period while under U.S. GAAP, the cost of maintenance is considered in the periods incurred (Alexander et al. 2004).3.6 unsuccessful gains on marketable securitiesUnder U.S. GAAP the marketable equity securities other than investments accounted for by equity method or marketable debt, are classified advertisement as either available for cut-rate sale, or as trading, or held to adulthood while under German GAAP they are generally carried at historic cost. Securities classified as trading or available for sale are reported at fair value at the equaliser shred data and 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 categorized as available for sale are recorded, net of income tax, in shareholders equity (Alexander et al. 2004).3.7 grant oblation costThe share offering costs are written as extraordinary spendings 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 prerequisite differences between German GAAP and U.S. GAAP are seen better at the capital markets and at investors. According to his paper in the fina ncial social system of Germany the capital markets are less important than bank loans while in ground forces the capital markets are more important than banks. Furthermore the shareholder structure in USA is based on broad scattering of shares while in Germany the private investors are less important (Kirsch 2012). aspect at the basis for tax calculation and distributions we can see that USA has no influence on tax law 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 thither are minimum distribution rules based on single accounts. However in USA there are about no regulations to build reserves. The board determines the distribution and it is based on free radical accounts (Kirsch 2012).Another significant differences between HGB and US GAAP according to KPMG, one of the biggest professional service com panies in the world, are the provisions. The provisions have different recognition criteria, different measure criteria and different selected specific areas.3.8 Provisions designation criteriaUnder German GAAP the provisions are based more on the principle of prudent accounting while under U.S. GAAP are recorded for legal/contractual obligations or constructive obligations. The German HGB allows also provisions where no third-company 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 flexibility and accruals could be substantially higher than under U.S. GAAP (KPMG, 2005).3.9 Foreign currency adaptationThe German GAAP requires that the financial statements must be recorded in the E uro 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 commercial balance sheet are intimately connected to each other while under the U.S. GAAP there are no tax influences on the financial statement because the commercial balance sheet is separated 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 probably 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 peculi ar(prenominal) 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 jurisdiction. aft(prenominal) all we can say that U.S. GAAP and German GAAP are simply a combination of dependable standards and due to globalization it pop off necessary for multinational to understand the both systems in order to operate in this powerful 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), Financial Accounting An internationalistic Introduction fleck Edition, Pearson Educational Limited 2004. addressable at http//books.google.de/books?id=_oe7rGbzdBsCpg=PA406lpg=PA406dq=differences+between+hgb+and+us+gaapsource=blots=iKY7Xicu3asig=3jlQYyYW0OxDFP8HJqSepxbhPGghl=rosa=X ei=-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 show 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