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Accounting practices in Germany are undergoing a major change. A new regulation adopted by the European Commission requires that from 2005 all listed companies in the EU file at least their consolidated financial statements using International Accounting Standards (IAS). The adoption and implementation of this EU regulation are taking place at a time when events such as the collapse of US energy trader Enron have cast doubt on the reliability of accounting practices. All parties involved have come under fire: accountants, auditors, rating agencies and financial analysts. Even investors have drawn criticism for blithely accepting published corporate profit figures at face value. Against this background, it is important to carefully weigh the benefits and disadvantages of changing over from the tried and tested accounting rules of the German Commercial Code, with its emphasis on creditor protection and capital preservation, to IAS rules, which are oriented more towards investors and capital markets. It is necessary to develop solutions that contribute to financial market stability and ensure that reliable prudential risk limitation standards are applied in a manner that ensures a level playing field. At present, it would appear inappropriate to move too hastily towards abandoning the compilation of single-entity financial statements according to German accounting standards or abandoning the instrument of undisclosed reserves.
Change in the legislative framework
Accounting rules for credit institutions last changed in 1993
The last time the legislative framework for credit institutions' accounting practices changed in Germany was when the Bank Accounts Directive1 was translated into German law by means of the 1991 Bank Accounts Directive Act (Bankbilanzrichtfinie-Gesetz) and the 1992 Accounting Regulation for Banks (Verordnung Ober die Rechnungslegung der Kreditinstitute). At that time, uniform accounting rules for all credit institutions were incorporated into the Commercial Code and a matching statutory ordinance, although this did not fundamentally change accounting practices. In particular, the formation of undisclosed reserves through the corresponding exercising of national options, even if in limited form, remained a key aspect in banks' accounting practices.2 However, the fact that the Bank Accounts Directive permits numerous national options has thus far hampered the harmonisation of accounting rules in the European Union.
Annual accounts are an element of prudential supervision
To banking supervisors, the supervised institutions' annual accounts, drawn up in line...