The basics of French accounting
Since 1947, the central pivot of French accounting has been the National Accounting
Code. The PCG is a standardised chart of accounts that defines the accounting
classifications for recorded transactions – there are approximately 1,000 accounts. It
provides a model annual accounts format together with a manual of instructions and
recommendations to enterprises for financial accounting, including drawing-up and
presenting the annual accounts.
During the 1980s, two specific reforms affected the PCG:
Tax Law Amendment (1984). The Code Général des Impôts (CGI) recognised the
parallel nature of reporting for accounting and tax purposes. Companies were now
obliged to follow the definitions and instructions the general accounting code specified
for preparing their annual tax returns. The accounting law would be applicable for tax
purposes except in specific instances defined by tax law – the latter enactments
designed for chosen policy outcomes. Where such differences exist (full provisions for
pension obligations, foreign exchange conversion differences) they are disclosed in the
notes to the accounts. The differences are also recorded in the annual tax return,
including a reconciliation of ‘accounting’ and ‘taxable’ results, derived from applying the
two sets of rules. This reconciliation does not normally extend to the calculation of
deferred taxation – in the entity’s (i.e., individual company’s) accounts; deferred taxation
is, however, calculated for consolidated accounts.
Amendments to the PCG (1986). These amendments – for matters relating to
consolidations – had three important elements. First, they addressed the criticisms of the
requirement that individual companies should classify charges by their ‘nature‘ or ‘origin’
– by permitting the presentation of an alternative p&l account showing the classifications
by ‘objective’ or ‘destination’. Second, the amendments brought in a new section of the
PCG to deal with the mechanics of consolidations – in particular, the consolidation
methods, the treatment and elimination of inter-group transactions and the recording of
goodwill. Third, the amendments recognised the need for specified accounting policies,
additional to those used for entity reporting purposes (i.e., foreign exchange conversion
differences, pensions, long-term contracts).
Hence, the dual nature of French accounting: a common ‘database’ in the form of the
PCG that provides the basis for producing an entity’s annual accounts and its tax return,
and – when alternative accounting policies are applied – the basis of the consolidated
accounts.
Recent reforms
By the early 1990s, it was generally recognised that reforms and updating were needed
to respond to financial market requirements and to French groups reporting in an
international environment. Reformers saw the need for:
• a more effective and quicker process for the ongoing development of accounting
doctrine;
• more coordination among the different bodies for developing doctrine;
• more transparency of financial information;
• the acceptance of international accounting rules for listed companies.
By 1999, the main reforms relating to the standard-setters had been implemented and a
vast programme of accounting doctrine reform had commenced, the main elements
being: the creation of a sole authority for the regulation of accounting standards;
the introduction of procedures for dealing with urgent issues of accounting doctrine ; the
updating and improvement of certain accounting rules for application at both company
and group reporting levels.; and the option for listed companies to apply international
accounting rules.
International impact
Since the 1985/86 amendments in company law and the PCG (to give effect to the
Seventh Directive), French-listed companies have been able to draw up consolidated
accounts using optionally permitted accounting methods available for individual entity
accounts. Not surprisingly, this led to a wide variety of practices in consolidated
accounts, including: conformity with the PCG requirements applicable to individual entity
accounts;
• selection of alternative accounting methods to arrive at consolidated accounts in
conformity with IAS;
• selection of alternative accounting methods to arrive at consolidated accounts in
conformity with US GAAP; and
• selection of alternative accounting methods that, in total, respect none of the
above.
Accordingly, the objective of the 1996-98 reforms was to move consolidated accounts of
listed French companies on to an IAS-compliant basis. To this end, the recent reforms
