The Fourth Directive Essay

The Fourth Directive

——Group presentation study

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The chief subject of our group presentation is the Fourth Directive. Thus, the background of this study is the Fourth Directive. The Fourth Directive, as the most of import prominent of a series of European Union directives, is taking to the harmonisation of company jurisprudence. The Fourth Directive introduced elaborate agendas for the signifier and content of company histories and was implemented in the UK in the 1981 Companies Act. Sing to the European Economic Community pact, particularly Article 54, the 4th directive established a pact on several types companies ‘ one-year histories in 25 July 1978. The purpose of this study is to make a list of subject countries in fiscal coverage for which differences could. And discourse whether the differences in fiscal coverage are covered in the Fourth Directive, and whether the Directive’s demand could be expected to take to harmonization. The chief organic structure of study is chiefly divided into two parts. The first portion is to supply a list of subjects in fiscal coverage for which differences could be found. The 2nd and even the most of import portion is to exam the Fourth Directive to see whether the subjects are covered and whether the Directive’s demands could be expected to take to harmonisation. That is to state, this study will discourse the relationship between the 4th directive and the harmonisation.


The thrust for harmonisation of accounting and fiscal coverage derived from the Treaty of Rome ab initio. Different studiers have different sentiments on harmonisation. Such as Nobes and Parker ( 2012 ) have point out that Harmonization is a procedure of increasing the compatibility of accounting patterns by puting bounds to their grade of fluctuation? Tay and Parker ( 1990 ) besides have their sentiment that harmonisation is a procedure which entails a motion off from entire diverseness of pattern. Harmonization is a word that trends to be associated with the multinational statute law emanating from the European Union. Harmonization means that different criterions might predominate in single states, so long as they are “ in harmoniousness ” with each other. As for the importance of harmonisation, the subject of international accounting harmonisation has continued to bring forth involvement among accounting practicians, faculty members, investors and other users of corporate fiscal studies. ( Emmanuel and Sidney, 1992 ) And in the European Union, authoritiess through Directives, and the accounting profession through the International Accounting Standards Committee ( IASC ) , both claim to be seeking to harmonise accounting patterns. ( Blake and Amat, 1994 )

Investors and fiscal analysts have the responsibility to analysis the fiscal statements of foreign companies because they want to purchase their portions. In add-on, companies, which need to publish more portions, will see the benefits of harmonization. For multinationals, the advantages of harmonisation are much more of import.

Subjects list

Balance sheet and Format

In the Fourth Directive, we can see in harmonizing to Article 3, the company should non alter the manner of showing their net income & A ; loss and balance sheet history from one twelvemonth to another. However, some exceptional is allowed, as the grounds for this alteration must be included in the notes. In Article 4, it says that the Numberss shown in net income & A ; loss and balance sheet history points are non of import to article 2. The members of province might claim that they can non compare these Numberss, which should be adjusted in the old twelvemonth. ( The Fourth Directive, 1978 ) This shows that there is information given in the Fourth Directive that covers formats, there are many options given across articles 9-10 and 23-26, intending that this does non harmonise across states, as states and companies can utilize different formats.

In France, income statement formats and the Balance sheet for single companies are set out in the PCG. Several points in these formats are the merchandise of creditor and revenue enhancement oriented accounting. All fiscal statements must give a true and just position but this mostly affects the Notes, non the balance sheet and income statement. ( Nobe, 2012 ) In Germany the Income statements and formats for balance sheets are laid down in the HGB. These points must be disclosed no affair they are material. Despite the debut of a true and just position demand, the fiscal statements of single companies are mostly determined by revenue enhancement regulations. In UK companies, they choose UK GAAP or IFRS utilizing in the unconsolidated fiscal statements. Fiscal statement formats have been kept every bit flexible as possible with the restraints of EU directives.


It can be found that in the Fourth Directive Article 33, member provinces are permitted to utilize the replacing value, methods of rating that consider reappraisal and rising prices. ( The Fourth Directive, 1978 ) Emmanuel, Emenyonu and Gray ( 1992 ) point out that in Germany, assorted methods which reflecting altering monetary value degrees are non authorized. The usage of the historical cost convention is obligatory. And in France, the authorities and stock exchange organic structures, holding appreciated the effects of rising prices on historical cost accounting, required index-based reappraisal and therefore some alteration of the rigorous historical cost convention. As for the UK, the ordinances in the UK license reappraisals by houses. The usage of current cost accounting is besides permitted in fiscal statements. Overall, the ways of rating used in the Fourth Directive is assorted, such as just value and historical cost, which the member provinces use hence intending that plus rating is non harmonized across states.

As in the country of good will, the Fourth Directive is more flexible. In the Fourth Directive, Article 9 said some regulations of good will, which is need to value consideration. ( The Fourth Directive, 1978 ) In Article 37 refers to goodwill, single concern houses have the right to utilize good will during a period of five old ages. ( Emmanuel, Emenyonu and Gray, 1992 ) In single states, in the bulk of Germany and UK’s companies, they will hold non capitalized good will. They concluded that the methods of handling good will adopted by big Gallic, German and UK companies are significantly otherwise. Therefore, the difference in the methods of handling good will used by big Gallic, German and UK companies is significantly.

Litervitamin Ease

The Fourth Directive does non cover the intervention of rental, so it is hard to specify the rental differences in the EU, even if edifice and land or works and machinery can non be found. The rules about intervention of rental are different, such as fiscal rental, categorization and operation rental in Germany or the UK. Meanwhile, the diversenesss of rental intervention in member provinces will do the attempts of block of multinational economic system.


In the Fourth Directive, in the Article 35 ( 1 ) vitamin D present the status that if the fixed assets value are used as the accommodation for the intent of revenue enhancement, so this values and why doing such adjustment value should be revelation in the histories ‘ notes. This point besides mentioned in the Article 39 ( 1 ) vitamin E, it is defined how to utilize the current assets for revenue enhancement intent.

The rules of numbering nonexempt net income and the rules of numbering accounting net income are linked together in some states. For illustration, Germany is one of these states who has adopted this attack, in Germany accounting regulations, it says “ massageblich keitsprinzip ” , which means the “ bindingness ” , “ congruency ” or it besides could intend the “ authoritativeness ” . If there is a same sum of charge in published histories, so the generous revenue enhancement is allowed. This purpose to organize a specific preservation accounting system, it besides helps to implement a “ really conservative transmutation ” EC directives in Germany ( Hailer, 1992 ) . In contrast, a batch of states do non hold this binding nexus, such as the UK. However, even though the revenue enhancement rules are non linked with accounting rules, the states ‘ revenue enhancement jurisprudence still influences it accounting rules and patterns. Harmonizing to a study conducted in the UK, most people are agreed or even strongly agreed that revenue enhancement is one of the large factor when company take the accounting policies.

The Fourth Directive and Harmonization

It is said in Nobes’ research ( 1993 ) that the period of the Fourth Directive to be implemented is rather long. Mason ( 1978 ) refers to two chief benefits to recognizing harmonisation of accounting. First, it is good to companies cut down their cost in either in the accounting actions or in the figure of accommodations on consolidation. Then, Internal and external coverage systems and public presentation steps will advance the integrating development. When it comes to the grounds why the harmonisation is critical in the EU, the replies are differs. Seeking the harmonisation to demand the demand of international investors. Some international investors need advance the work of multinational investors. Nowadays, this is more convenient for companies to interchange accounting methods and footing. Actually, in the EU, authorities and concern houses are design to utilize Directives to recognize the harmonisation.

As it is mentioned in this study, harmonisation is a procedure. ( Nobes, 2012 ) Therefore, there can be some of harmoniousness non full harmoniousness being achieved. The relationship between The Fourth Directive and the harmonisation is hard to specify. As for how the 4th directing do a promote in the harmonisation, Turley ( 1983 ) one time present the differences in accounting patterns among different states to back up that harmonisation of accounting demands more accounting rules and understanding. The development and execution of the Fourth Directive should be addressed. And European comptrollers define the Fourth Directive could be defended on the evidences to try to travel toward accomplishing harmonisation of accounting. It is besides be defined that harmonisation of accounting is influenced by environment in different states. EU comptrollers indicate out that on the positive side, the Fourth Directive represents a end of accomplishing harmonisation of accounting. The Fourth Directive may do more part to the harmonisation in the hereafter. Even though there are still some restrictions and jobs in the Fourth Directive the Fourth Directive will non ensue in complete harmonisation, the part still can non be ignored. More regulations may be paid more attending within member provinces in the EU before full harmonisation can be achieved in the hereafter.

Tay and Parker ( 1990 ) researched harmonisation is a procedure and revealed the jobs and obstructions in harmonisation. Harmonization is regarded as a procedure taking to ‘a motion off from entire diverseness of practice’ and standardisation is considered as a procedure affecting ‘a motion towards uniformity’ . In this respect, the aims of harmonisation and standardisation are wholly different. The former one purpose at taking histories off from the whole assortment, while the ulterior one is to unite them as a whole. It may be non easy to happen out the certain point that accounting ordinance switch from harmonisation to standardization inside the continuum. However, the accounting patterns of corporates in single states inside the continuum, even the EC harmonisation coder, are possible to be moved from complete assortment toward uniformity. The elements that lead to the harmonisation is reviewed either. This research comes to the decision that a high degree of harmonisation can be achieved though the Fourth Directive for some cases. But it is besides should be seen the obstructions by the Directives. Two findings can be found in this study, the Fourth Directive has a important influence on the accounting’s harmonisation because of the deficiency development of accounting patterns.


To sum up, this study discusses the Fourth Directive. In this study, it lists some subjects in fiscal coverage for which differences could be found, such as format, balance sheet assets and so on. They may be covered in the Fourth Directive or non, and their differences in the EU states. For case, the difference in the methods of handling good will used by big Gallic, German and UK companies is significantly. So this difference will do some negative influence on harmonisation of accounting. However, some subjects can non be found in the Fourth Directive, such as the subject of rental it presents in the study. It is hard to specify the rental differences in the EU. Then it examines the Fourth Directive to see whether the subjects are covered and whether the Directive’s demands could be expected to take to harmonisation. Overall, the Fourth Directive did a small part to the Harmonization. In add-on, the deficiency of harmoniousness in the accounting differences, with the unequal disclosure and measuring methods utilizing in the stock rating development. The harmonisation is a procedure and it is still in the phase of geographic expedition. Some more actions and betterment must be taken in the hereafter to acquire more accomplishment.


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