Accounting policy

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Under accounting policy covers all measures in the accounting , during the financial year and in the preparation of financial statements under the Accounting Law for conscious design are made of the financial statements, the financial statements to the purposes of the reporting company to influence.

General

Addressees of a published annual financial statements are, in particular creditors ( banks , suppliers ), equity investors ( shareholders , shareholders , profit participating Manager ), credit insurance , credit rating agencies , credit bureaus , corporate management ( management , Board ), employees , customers , tax authorities , public ( municipal or city council , press , Population ) and competitors . Even if these interest groups apply very different assessment criteria, the balance sheet policy is geared towards doing justice to all interest groups as far as possible, because uniform annual financial statements are published for all addressees. The only exception is the tax balance sheet , which - in the event of a deviation from the commercial balance sheet - represents a target-oriented accounting for the tax office.

species

Accounting policy is only possible in Germany and internationally because accounting law deliberately creates room for maneuver and grants the accounting company options within the framework of a reasonable commercial assessment . A general distinction is made between formal and material accounting policy. While the use of disclosure , structuring and explanation options is part of the formal accounting policy , the use of valuation options , discretion and the structuring of facts is part of the material accounting policy .

A balance sheet policy that tends to present the company's earnings and assets position too poorly in comparison to the actual circumstances is called conservative . With a progressive balance sheet policy, however, the asset situation tends to be presented too well.

Possibilities and motives for accounting policy measures

However, only the inventory values ​​of the annual financial statements , i.e. H. the assets and liabilities , and thus, for example, also the balance sheet equity of the company, are influenced. The changes in the annual financial statements, d. H. In contrast, income and expenses cannot be permanently and systematically influenced by accounting policy measures. Accounting policy measures can therefore "only" influence the point in time when the relevant income and expenses arise . Tax point of accounting policy can be used, however, so that the company's profits, which the tax base of the income tax and income tax form as late as possible or incurred over time as evenly as possible ( earnings smoothing ). The later accumulation of profits results in an interest-free deferral of tax payments by the company, and earnings smoothing result in a reduction in the tax burden in the case of progressive tax rates .

In addition to the state , however, other interest groups are also addressees of accounting policy measures, for example credit institutions . While companies usually have incentives with regard to government agencies to pursue the most conservative balance sheet policy possible, this does not apply to banks. Here, companies have incentives to present their earnings and asset situation as well as possible in order to influence the risk-dependent credit conditions (amount of credit lines , interest rates , loan collateral to be provided , external guarantees ) and the rating in their favor.

In turn, banks or trying rating agencies therefore in credit risk analysis ( rating ) to recognize the accounting policy of the company and to counteract, by recycling the financial data of the company so (clean) that certain accounting policy are neutralized, for example by the activation and passivation of off-balance sheet leasing assets and liabilities and the breakdown of leasing fees into fictitious interest and depreciation components. The rating agencies use different methods to determine the amounts to be recognized for the leased assets. a. a factor approach in which all of the company's current rental payments are multiplied by a factor of 8. The implicit assumptions of this "factor 8 approach" are based on an interest rate of 6% p. a. Assumes a useful life of the leased property of 15 years. The “factor 8 approach” is also used by the rating agencies if the underlying assumptions (interest rate level, useful life) are not met. For the analysis of the profit and loss account , either the use of operating profit figures before consideration of rent payments ( English rents ), " EBITDAR ", is recommended or a breakdown and reassignment of the rent payments into interest and depreciation components . Since it is not possible to precisely quantify the distortions of assets and earnings motivated by balance sheet policy, all that remains is essentially a checklist-like check of whether and how (potentially problematic) valuation options have been used, how the company has exhausted its discretion or which measures it has taken to shape the facts.

Starting points for accounting policy measures

Identification and explanation options

If there is a disclosure or explanation option, it is up to the balancing party to disclose certain quantitative or qualitative information, for example on the precise composition of "other operating income", in the notes to the annual financial statements or not. The use of identification and explanation options can be determined objectively. Companies have incentives to withhold such detailed information, for example, if it could otherwise be seen that a significant part of the income generated in the past came from sources of income that are likely to be non-recurring, such as income from the disposal of assets or the reduction in value adjustments .

Outline options

Classification options give the person making the balance sheet the possibility of entering certain assets and liabilities either separately on the assets and liabilities side of the balance sheet or openly deducting them from certain liabilities and assets. In the case of an "open deduction", not only the balances but also the subtrahends and minuends must be specified. The open deduction leads to a reduction in the balance sheet total - compared to the recording on the assets and liabilities side - and thus, with a constant equity base , to an (apparent) improvement in the capital structure . For example, companies have the option of either listing down payments received on the liabilities side of the balance sheet under liabilities - or openly deducting them from inventories (see Section 268 (5 ) HGB ). The use of structuring options can be determined objectively . In the course of creating a structural balance sheet or when defining balance sheet key figures, deviations can be made from the structure specified by the person making the balance sheet .

Approach and valuation options

If there are valuation options, the balancing party may choose between different valuation methods , for example, when valuing the manufacturing costs for finished and unfinished products ( Section 255 , Paragraphs 2 and 3 HGB), the valuation of material consumption or inventory assets by choosing the assumed follow-up method ( FIFO , LIFO etc.). When valuing fixed assets, there are often options regarding the use of linear or geometric-degressive depreciation or there are special tax depreciation options. A special case of the valuation options are the approach options - here the company has the option to set certain items at a value of zero euros, for example active deferred taxes or low-value assets .

Extraordinarily large options (and discretion) also exist in the valuation of goodwill that arises when a company acquires shares in another company and the purchase price exceeds the (pro-rata) net assets of the company acquired. The corresponding regulations not only differ significantly between the various accounting standards , but are also subject to considerable changes over time (which is an indication of the fundamental theoretical problems in determining the correct value of this asset). The depreciation rules range from an immediate and complete depreciation, a scheduled depreciation spread over a maximum of 10, 15, 20 or 40 years to a complete waiver of scheduled depreciation, but then with annual impairment tests (also called "future income cosmetic enhancement ") and then any unscheduled depreciation to be carried out. The use of valuation options is to be documented in the appendix to the annual financial statements and can thus be objectively determined. A precise and period-based quantification of the effects on earnings and assets is usually not possible for an outsider with a reasonable amount of effort.

Discretion

Since the legal requirements are often not regulated down to the last detail, companies often have a margin of appreciation . This concerns, for example, the determination of whether a property is "likely to be permanently impaired" , how many years the "expected useful life " of a building is, whether "appropriate provisions " have been set up or whether "non-recoverable receivables " have been written off. The assessment of discretion is very subjective .

Factual arrangements

Balance sheet politically motivated circumstances in turn denote economically neutral to harmful actions of the company, which are chosen by the management of the company in order to specifically influence the balance sheet appearance of the company. Examples of this are the postponement or bringing forward of repair or marketing measures, research or investment projects in order to show the expenses of the current period as low or high as possible to the detriment or in favor of future periods. The factual structure also includes the sale and lease back of fixed assets ( English sale-and-lease-back ), especially if hidden reserves are raised during the sale . For an outsider, however, it should only be possible in exceptional cases to classify certain measures of the company as purely motivated by accounting policy.

Accounting policy options in detail

If the annual surplus to be reported is to be increased (or the loss reduced), the following measures are possible.

These measures can be carried out in combination or in isolation.

literature

Individual evidence

  1. ^ Karlheinz Küting / Claus P Weber, The balance sheet analysis - textbook for assessing individual and consolidated financial statements. 2004, p. 411 ff.
  2. ↑ Jörg Baetge / Hans-Jürgen Kirsch / Stefan Thiele, balance sheet analysis , 2004, p. 161 f. and p. 172
  3. ↑ See Standard & Poor's, Standard and Poor's Corporate Ratings Criteria , 2008, pp. 69 ff .; Barbara Havlicek, The Analysis of Off-Balance Sheet Exposures, A Global Perspective , in: Rating Methodology, Moody's Investors Service, Report # 87408, 2004, p. 3 ff.
  4. ^ Brian Oak, Balance Sheet Leases: Capitalization and Ratings Implications, Out of Sight but not Out of Mind , Rating Methodology, in: Moody's Investors Service, Report # 4859, 1999, pp. 30 ff.
  5. ^ Brian Oak, Balance Sheet Leases: Capitalization and Ratings Implications, Out of Sight but not Out of Mind , Rating Methodology, in: Moody's Investors Service, Report # 4859, 1999, p. 5
  6. ^ Albert Metz / Richard Cantor / Pamela Stumpp, The Effectiveness of Credit Ratings as Indicators of Relative Industry Default Risk , in: Moody's Investors Service, Report # 88.8682004, p. 30
  7. ↑ For examples of such checklists, see Judith Eigermann, Quantitative Credit Rating Procedure in Practice , in: Finanz Betrieb, 2001, p. 523; Karlheinz Küting / Claus P Weber, Die Bilanzanalyse, textbook for assessing individual and consolidated financial statements , 2004, p. 423 ff.
  8. ↑ See DVFA, 2003, pp. 1913 ff. For suggestions for correcting the companies' past data with the stated aim of determining “predictable results”.
  9. ↑ Karlheinz Küting / Claus P Weber, Die Bilanzanalyse, textbook for assessing individual and group financial statements , 2004, p. 205
  10. ^ Marc F. Massoud / Cecily A. Raiborn, Accounting for Goodwill. Are we better off? , in: Review of Business, 2003, p. 26 ff.
  11. ^ Marc F. Massoud / Cecily A. Raiborn, Accounting for Goodwill. Are we better off? , in: Review of Business, 2003, p. 30
  12. ↑ Henner Schierenbeck : Fundamentals of business administration. 2003, p. 614.