nm1112: let's make a start 
su1113: 
nm1112: if there's any [0.9] please look at them later all right and we will go 
through them [0.8] okay well welcome to the second term of this course [1.6] er 
[1.4] this cour-, this part of the course as i mentioned to you last term [0.3] 
is concerned mainly with [0.2] con-, convergence last last term we looked at [0.
8] how [0.2] accounting systems were different [1.1] we looked at France and 
Germany and the Netherlands and so forth to see how the financial reports are 
different [0.2] this term we're looking particularly at [0.5] what pressures 
there are or have been in the world [0.7] to make [0.4] accounting comparable 
between different countries [1.1] and we're going to do this in two stages 
first of all we're going to look at [0.9] the process of trying to harmonize 
accounting [0.2] within Europe [1.3] and that process has effectively ended so 
we're really dealing with history [1.4] and then namex is going to talk to you 
about current issues in [0.5] s-, bringing accounting systems together which is 
[0.2] through the work of the I-F-C [0.3] and you'll have that in 
two weeks time [0.5] and you've already had a lecture with him [0.8] so [0.2] 
i'm going to spend this week and next week [0.2] looking at the European Union 
[0.2] harmonization process [1.4] because it has [0.9] many er [0.2] points i 
think that are important for the future about relative success and failure [1.
7] er [0.8] and what we're going to do is it's going to be excruciatingly 
boring [0.7] is we're going to come in we're going to look [0.7] at [1.5] two 
of the main instruments of harmonization [0.7] within Europe [0.9] the first is 
something called the Fourth Directive which i'm going to look at this week [0.
7] and the second is the Seventh Directive that i'll look at next week and then 
we shall look at some developments in the European Commission [0.8] er [0.4] 
that [0.9] tie pieces together [1.0] right [0.2] so it's not i better warn you 
it's not going to be a terribly exciting [0.6] area but i think it's good for 
the soul [0.7] you may find it quite interesting [0.4] to see why these things 
[0.5] have had relative success or failure [1.1] right well what i want to do 
first is just to because i know [0.2] some of some of you are not from the 
European Union at all [0.6] some of you are [0.6] from the European Union 
countries [0.6] er i just want to take a very simple view [0.5] of what the 
European Union consists of [0.9] and [cough] [0.3] the first point is that [1.
3] it's been called various names in its history [0.9] the European Communities 
Common Market the European Community the single market and we're now called the 
European Union [0.9] but in its origin [1.0] it started [0.7] with a treaty [0.
4] signed by [0.8] a small number of continental countries [0.2] basically the 
Benelux countries [0.4] France Italy [0.2] and Germany [1.4] who signed a 
Treaty of Rome [1.8] and the political aspect to it was [0.2] that of course it 
was [0.7] the idea that there should be no more war in Europe [0.2] after the 
Second World War but we're going back to nineteen-fifty-seven for that [0.2] 
we're going some way [1.2] and the original Treaty of Rome had three [0.3] 
central economic objectives [1.5] there was a political dimension but it had 
three [0.3] basic objectives now [0.3] do you know what they are [0.3] what was 
the original idea [0.4] come on you're you're from European [0.5] Union 
countries what's the 
sm1116: energy i think [0.3] someth-, something about energy [0.7] 
nm1112: well there was 
sm1116: steel 
nm1112: yeah you're right in fact there were t-, that's why it's called 
communities 
sm1116: yeah 
nm1112: 
there was European Economic Community and the European Coal and Steel Community 
[0.8] but if i take the European Economic Community what was the aim what were 
the three central points [0.3] shh [1.6] what was the three central points 
sm1117: is that the com-, [0.2] common policy er [0.4] [4.8] 
nm1112: er very easy to remember honestly they all begin the word free [2.0] 
free something [0.3] free something [0.4] free something [1.6] come on [2.7] 
su1115: free [0.7] 
nm1112: free [0.5] 
sf1118: [0.7] 
nm1112: you're on the right lines the word is free trade [0.6] it was the 
removal [0.8] of [0.4] tariff barriers [0.5] and quotas between the member 
states that would allow free trade without restriction [1.0] so that was one [1.
3] the second one was [2.3] right i'll give you a clue [1.3] what is it that 
underpins [0.3] the fact that you are soc-, the Socrates scheme [0.5] you're 
here studying in the U-K [0.4] 
sm1116: [0.8] movement of 
nm1112: good free movement of labour [6.4] good [1.3] and there was a third one 
[0.6] 
sm1116: free transportation of goods [0.5] 
nm1112: no i don't know 
ss: 
nm1112: well i think that comes under free trade doesn't it [1.2] free [0.6] 
movement of [2.0] 
sm1116: money [1.1] 
nm1112: i like it [0.2] yeah [0.2] free movement [1.1] of [0.2] capital [1.0] 
so these were the three central [0.7] ideas in ter-, economic terms before we 
ever had the idea of a single market 
before we had the idea of a euro [0.7] this was the starting point [0.7] of the 
European Economic Community [0.5] right now i want to ask you this question i 
want to think [1.4] the European Communities later Union [0.9] embarked upon a 
process [0.2] of the harmonization of company law [0.7] in the member states [2.
7] why [0.9] how [0.6] how did that they started right from the beginning [1.9] 
what had that got to do with this [1.0] why would the European Economic 
Community [0.3] be interested in trying to bring accounting systems company law 
in each of the member states why would it think about [0.9] bringing them 
together harmonizing them [1.7] can you construct a rationale [0.4] looking at 
these [0.6] 
sm1117: [0.9] 
nm1112: a bit more 
sm1117: in order to [0.4] come free movement of capital [0.4] only for someone 
from England or [0.4] France and [0.5] invest in France [0.5] 
nm1112: abs-, 
sm1117: and share a common [0.5] government system [0.3] 
nm1112: absolutely right [0.5] the idea was this the free movement of capital 
was originally about [0.4] s-, [0.2] you know getting rid of th-, exchange 
control so the money flows would be free within the European Community [0.7] 
but then it led on to the the following idea [0.8] if i am somebody with some 
funds in the U-K [1.1] 
and i am thinking of investing in a company [2.0] this principle [0.2] should 
mean that there should be no barriers to my investing in a British company or 
French company or an Italian company [2.3] however the decision about where i'm 
going to invest my funds is critically dependent [0.5] upon the fact that the 
companies are comparable [1.8] and that the financial information that those 
companies provide to me [0.7] are [0.3] of a kind and a nature that i can make 
a comparison between them [0.7] to find the best investment opportunity [2.0] 
so this argued therefore for harmonizing company law [0.9] and for getting 
equivalent kinds of financial information for me to be able to make a decision 
[0.9] that [0.2] was in a sense a consequence of this central principle [1.2] 
and indeed we find this idea of harmonizing company law [0.5] in the Treaty of 
Rome [0.3] in a very obscure section [0.6] article [0.5] fifty-four section 
three subsection G [0.6] forever engraved on your hearts [0.7] this is the 
origin [0.4] of [0.3] the company law harmonization 
programme [0.8] now [0.9] again just by way of introduction [2.2] i don't know 
how familiar you are with the [0.2] institutions of the European [0.4] 
Communities or or [0.3] European Union [0.3] are you [1.8] isn't it i mean 
isn't it shameful you should say that they should be ashamed here they are 
parts of a European Union [0.5] with all kinds of political institutions and 
they haven't the faintest idea what the what these institutions are [0.5] well 
let's do it very quickly i'm not here to give you a course on Europe [0.6] but 
i think it's important to understand the institutional background if we're to 
get into the [0.8] to the actual things that govern [0.8] accounting or the 
accounting harmonization [0.8] [cough] okay well s-, [0.5] let me [0.6] lead 
you a little [1.1] centrally within the European Union [0.5] there are four [0.
5] main institutions [1.4] can you guess what they might be [0.3] three main [0.
5] institutions of the Union [0.5] or a-, of the European Communities as they 
then was [0.3] [2.9] come on come on [1.7] 
name anything that you remember from Europe [1.2] the cover 
sf1119: parliament [0.3] 
nm1112: good there you are it's not so difficult [0.5] directly elected 
parliament [1.7] right [0.7] three more [1.2] 
sf1120: justice court
nm1112: yes a European Court of Justice [2.3] which was [0.3] is a court of law 
[0.3] to deal with issues of European law [0.6] two more [3.7] if i say to you 
Brussels [1.9] duh [1.9] big building [1.6] bureaucrats [1.4] what does that 
tell you [0.9] 
sm1116: commission
nm1112: yes the European Commission [0.7] which is [0.2] a kind of [0.4] civil 
service fonc-, the fonction publique [1.2] and [cough] [0.3] one more [1.2] in 
fact the most por-, important one [1.5] but not one that most people know [1.3] 
well it's called the Council [0.2] of Ministers [4.2] so [0.8] [cough] [0.6] 
these are the four main institutions directly elected [0.6] court of law [0.2] 
a civil service [0.8] and the Council of Ministers now the Council of Ministers 
[0.7] is a body [0.3] that consists of the [0.8] national ministers 
from each of the member states [0.2] and the council [0.2] then will reflect 
the topic under discussion so if it's [0.4] if there is an agricultural issue 
[0.9] that is to be decided like the common agricultural policy [0.5] the 
council will consist of the Minister of Agriculture from Britain the Minister 
of Agriculture from Belgium the Minister of Agriculture from [1.1] er Italy and 
so forth [1.9] now [cough] these [0.8] are the four institutions [1.4] and 
under the Treaty of Rome and everything subsequent to it [0.7] the European 
Communities or as it's now called European Union [0.5] can produce law [1.2] 
which [0.9] affects all of the member states of the Union [0.7] and [0.2] very 
simply and i am oversimplifying here [0.5] there are two kinds of law [0.4] 
that can be produced [1.6] and this law of course can be tested [0.5] in the 
European Court of Justice [0.9] which is not the European Court of Human Rights 
let me tell you [1.1] the first type of law [0.5] are something called 
regulations [0.8] and the second type of law [2.1] is called directives so we 
have [0.5] European Regulations and European Directives [0.5] does 
anyone know what the difference is [0.6] you come across these phrases [3.6] 
sm1121: [0.4] i see the directive's not as a obligation [0.7] it's just 
nm1112: it's an interesting yeah
sm1121: dire-, direction of [1.6] 
nm1112: well it certainly it sounds right doesn't it for [0.8] i-, [0.3] 
actually you there's something in what you say is right but something that's 
quite wrong [0.2] but you so you've got it half right [0.9] well let me [0.3] 
say [0.5] that [0.8] the first [0.5] deal with the the regulations these deal 
with [0.6] minor [1.0] technical matters [4.8] and once they are decided [0.2] 
once they are published in something called the Official Journal [2.0] they are 
[0.3] immediately binding [3.4] they may go out for consultation [2.1] to [0.7] 
the member states but once the u-, the European Union decides on a regulation 
[0.2] by publishing it in the Official Journal [0.4] it has immediate legal 
effect [1.6] 
and the sources of regulations can either be the Commission [0.2] can issue one 
[0.9] on its own [0.9] or [0.2] a Council of Ministers can issue one [0.3] on 
its own [1.6] and once they are published in the Official Journal [0.8] they 
have legal effect [0.9] and they tend to be [0.6] used for let's say minor 
matters like [0.3] let's think of a silly example of one recently [0.2] the 
amount of real cream [1.0] in the ice cream that you buy [1.1] the amount of 
pig meat [0.2] in a sausage [1.1] all right [0.2] these are technical minor 
things that come [0.5] and once the regulation has been issued that's it [0.2] 
has effect in the U-K in Belgium and in Spain or wherever [1.7] so these are 
minor matters [0.5] but for important issues [0.6] the legal instrument is a 
directive [1.7] right [7.9] and these are only binding [0.4] i'll write it so 
it's clear for you [3.2] and this is half your point actually [0.8] oh binding 
only when [1.5] [cough] [1.2] they are [1.2] enacted [2.8] by [0.7] the 
parliaments [5.1] of the 
member states [1.4] i'm running out of [0.2] pens here [7.8] right [0.7] in 
other words once a directive [1.2] is published in the Official Journal [0.5] 
of the European Union [0.3] it has no legal effect [1.0] what has to happen is 
that the [0.2] individual parliaments have to cr-, [0.4] put it into national 
law [0.8] and they normally have a delay [0.9] in which to do it they must do 
it [1.3] but they have time [0.4] to put it into national law using national 
phrasing [1.2] right [0.7] now these are for important issues and the 
procedures for [0.3] for actually [0.3] these directives being published or the 
word is adopted [0.5] by the European Union [0.8] are quite complicated [0.3] 
and [0.3] normally what happens is this [1.7] the commission the civil service 
has an idea [0.4] for a directive [0.9] right [0.6] it publishes a draft [1.1] 
first draft [0.6] the draft [0.4] goes to the parliament for consultation [0.8] 
goes back to the commission [2.0] and then it may go backwards and forwards 
several times [1.1] and then the commission [0.4] puts a draft to the Council 
of Ministers and it goes [0.2] back [0.7] and it goes back again [1.8] and it 
is a vote of the Council of Ministers [0.9] not the commiss-, the commission 
can't do it on its own the parliament can't 
do it on its own it's only the Council of Ministers [1.0] that [0.4] adopts 
notice the verb [0.5] adopts the directive [1.0] once they adopt the directive 
[0.2] it's published in the Official Journal of the European Communities [0.8] 
or the European Union as it now is [0.5] and then there is an obligation on the 
governments of the member states to put it into national law [0.5] into their 
own national law [2.2] so very [0.2] are there any questions on that [0.4] 
anyone i i'm sketching and oversimplifying [0.3] but i want you to understand 
[0.5] what a directive is how roughly how it happens particularly the notion of 
a draft [1.0] the notion of adoption [0.6] and then the requirement for 
national legislates [0.4] to [0.2] enact it or put it into national law [2.0] 
[cough] okay [0.5] no questions [0.9] it's a lot of fun isn't it [1.9] right [0.
4] well let's look at what this [1.0] harmonization programme on company law [0.
5] and the direct-, [0.2] under de-, the directive system has been [0.7] for [0.
2] [cough] the European Communities [0.7] and if you look at the first page of 
the handout 
you'll see a list [0.6] of [0.2] the principal directives that [0.6] ac-, been 
emitted [0.2] from or adopted and enacted [0.8] from er the European 
Communities [0.3] and you'll see that they cover quite a long time period [0.7] 
each directive the first one in sixty-eight the last one ten just over ten 
years ago [0.8] and you'll see they're each given a number [1.4] you'll also 
see that some of them [0.3] have never been adopted [0.6] in other words the 
Council of Ministers has never said yes [0.9] they only exist in draft [1.0] so 
for example the Fifth Directive [0.6] which would have brought [0.4] employees 
[0.3] onto company boards of directors if they were public companies [0.8] has 
never been agreed the Council of Ministers [1.6] actually that's Mrs Thatcher 
[0.5] she wouldn't allow it to be a directive [0.5] to be adopted [0.8] and the 
Ninth and the Tenth equally [1.6] well what i want to do is just to go through 
and pick out the important ones [0.2] [cough] [0.8] first of all let me talk 
about the First Directive very early on [1.2] it did three things two of which 
are mentioned here and the third which isn't [1.5] first of all it defined what 
companies could do [0.3] whether they were Italian [0.7] or French or 
German or British or any of them [1.1] their powers [0.2] that defined also [0.
3] the powers and duties of directors of [0.2] companies [0.9] those two points 
are mentioned [1.4] the third point which is not mentioned is an accounting 
point [1.6] the First Directive made it an obligation [0.8] on national 
governments [0.5] to establish [0.2] a company registry [0.2] or registries [0.
8] into which companies would file their accounts [0.7] for public disclosure 
[2.3] now for some countries like [0.3] although the U-K wasn't a member of the 
er the European Communities of that date [0.5] some countries there has always 
been a company registry [1.2] there has co-, there's Companies House in the U-K 
where companies must deposit their accounts [1.7] in France [cough] you've 
always had some [0.8] but you know that that they are local [0.9] les Tribunaux 
de Commerce [0.6] okay [0.7] in other countries like Greece [0.4] before this 
was enacted in Greece [0.2] there there were never any company registries but 
this was the first point [0.6] you know how could you ensure [0.3] to get 
free movement of capital [0.8] then an investor could actually get hold of 
accounts if there wasn't some place where they were deposited [0.4] the 
accounts were deposited [0.7] and you know this is not common [0.5] well it is 
common in some countries but there's plenty countries in the world [0.2] don't 
have them [0.6] so for example if you wanted to look up the accounts of a 
Vietnamese company [0.6] forget it [0.4] you're not going to be able to find it 
[2.1] the Second Directive is one we've already come across [0.6] and it sets 
minimum capital requirements on the formation of a company [0.7] it also 
defined distributable profit although that's not mentioned here but more 
importantly [1.0] it gave a common constitution throughout all the member 
states [0.9] between a private company and a public company between a P-L-C 
limited S-A S-R-L [0.3] A-G G-M-B-H [1.3] all similar [1.1] right [0.4] and 
that's useful so that any investor now [0.3] will know what kind of company [0.
4] he or she is dealing with [1.4] okay [1.2] the Third Directive was a one 
that only affected 
Benelux and France it's deals with something well you'll know about that [0.8] 
er [0.2] in France it deals with something called fusion [1.0] and mergers [1.
2] the Fourth Directive is the big one [1.1] dealing with [0.7] when the 
accounts are published [0.4] what [1.0] financial information must be [0.3] 
disclosed what the content of the annual accounts is going to be [0.7] and 
that's where we'll be looking at a little later [1.1] but at the bottom of the 
page you'll see [0.5] although the Fourth Directive was [0.3] adopted [0.7] by 
the Council of Ministers in nineteen-seventy-eight [0.8] it was given a delay 
was given [0.2] for [0.4] countries to put it into national law so [0.3] 
Denmark and the U-K were the first countries [0.7] Sweden Austria and Finland 
who joined quite recently [0.3] European Union of er just [0.8] recently [0.7] 
and you may notice Italy [0.5] Italy [0.5] took [0.5] thirteen years [0.5] to 
put this er directive into national law they were even going to be taken to the 
Court of Justice [0.5] 'cause they were so late [1.4] [cough] so we're going to 
look at the Fourth Directive today [0.4] the Fifth 
hasn't been er adopted [0.2] the Sixth is a minor one that deals with something 
called [0.3] again i just speak to the French scission [0.4] de-, de-mergers if 
you've done scission [1.2] the Seventh Directive is the other great one it 
deals with consolidated accounts [0.8] group accounts and we shall look at that 
next week [1.1] and again if you look at the bottom of the page [0.6] you'll 
see the dates of enactment there the Seventh was adopted in nineteen-eighty-
three [0.9] and you'll see the dates [0.2] when it was put into national law [1.
0] er [0.2] and you'll notice that some countries that you've dealt with [0.5] 
actually put them in together [0.5] so if you look at the case of Germany [0.7] 
Germany waited [0.3] to put [0.2] the Fourth Directive into national law [0.6] 
into their national law [1.0] until the Seventh had come out [0.4] and then 
they did the two together [1.0] and that you may remember when namex did 
Germany [0.5] you came across the Bilanzrichtlinie-Gesetz of nineteen-eighty-
five [0.5] that's the one [0.9] that [0.3] er puts in both [1.8] the Eighth 
Directive is the third 
is the third big one [0.6] Fourth the Seventh and the Eighth [0.2] and this 
deals with [0.6] common qualifications for auditors [0.3] and their appointment 
[0.3] procedures for appointment and procedures for their dismissal [2.0] Ninth 
and Tenth [0.8] er aren't haven't been introduced [0.4] the Eleventh is very 
minor [0.2] [cough] the Twelfth [0.6] is a minor one although it's had quite an 
impact in some countries [0.9] er [1.0] the idea of a company is that you have 
two [0.2] shareholders minimum of two [1.5] the Twelfth Directive introduced 
the idea that [1.1] you can have a one-person company where there's only one 
shareholder [0.4] and create company as a shell [1.0] er [0.6] in some 
countries in the European Union there's a name for this i'm going to ask the 
French [0.7] what's it called in France [1.4] E-U-R-L [0.8] Entreprise 
unipersonnelle à responsabilité limitée [0.9] the U-E er E-U-R-L [1.1] you 
can spot one of these if you see a French business and it's got the name and 
it's got this behind the name [0.8] then it's a one-person company [2.1] right 
[cough] so i mean that's the background now we're going to go 
in [0.5] to the Fourth Directive 'cause that's the big one [0.7] and what i'm 
going to do with you [0.2] and you're going to hate this [0.6] you really are 
going to hate this [0.7] is i'm going to we are going to read [0.2] the 
directive [0.2] together [1.4] we're going to go through a certain number of 
articles and i'm going to ask questions and think i want you to think back [0.
5] to France and to Germany [0.8] and to the Netherlands [0.4] 
we did those countries [0.9] because it's by going through it [0.9] that you 
can see [0.2] the potential for success and the potential for failure [0.7] in 
terms of bringing accounting systems together [0.8] now what you have in front 
of you is a copy of the Fourth Directive [0.8] i don't propose to go through it 
all [1.5] i'm going to go through depending on the time we have [0.2] up to 
about article forty-two i'm not going to consider each article [0.6] i'm just 
going to pick out and ask you to think [1.1] about the consequences the 
implications [0.4] of [0.4] the basic [0.8] [cough] [0.2] things that are 
contained [0.8] right [laugh] how are 
you feeling [1.3] happy [1.0] pleased [0.3] content it's a lovely new year and 
we're going to enjoy ourselves [1.1] right [cough] let's just [0.8] start [0.3] 
by looking just the words coming out Fourth Council Directive [0.5] 'cause it's 
the Council of Ministers [1.1] based on article fifty-four-three-G of the 
Treaty [1.6] and then this wonderfully pompous phrasing [0.3] the Council [0.7] 
having regard to the Treaty [0.6] having regard to a draft from the Commission 
having regard to an opinion of the parliament [0.3] all of this preliminary 
stuff [0.9] then says [1.7] whereas the coordination of national provisions 
concerning watch the words [0.7] presentation [2.1] content of annual accounts 
and annual reports [0.7] valuation methods [0.6] and publication [0.4] is of 
special importance [0.4] three [0.2] four key words there [0.7] the directive 
is going to deal with the way the accounts are presented [1.5] what their 
content is [0.7] what rules are going to be used for the valuation of assets 
and liabilities [0.8] and [0.2] the details of publication [0.9] so in the very 
first introduction you know what this is about [3.4] the next paragraph [0.3] 
says [1.2] whereas [0.3] simultaneous coordination is necessary well try 
telling 
that to the Italians [0.7] they took thirteen years to put this in as i 
mentioned [0.9] and then it goes dum-de-dum-de-dum-de-dum and then the last 
part says [0.5] whereas moreover the necessity and the urgency of cu-, such 
coordination has been recognized and confirmed [0.6] by article two of 
Directive sixty-eight-one-five-one [0.9] what is Directive sixty-eight [0.3] -
one-five-one [0.2] what would you guess [1.6] 
sm1117: [0.3] 
nm1112: yeah which which directive is it [3.8] 
sm1117: first [0.3] 
nm1112: it's the first now that's telling you something interesting it's 
telling you that the European Communities as they we-, then were [0.9] were 
trying to [0.3] they had in mind the Commission at least had in mind a whole 
series of interconnected directives [0.8] they weren't just [0.5] oh that's a 
good idea and now here's another good idea [0.6] they were thinking them 
through [0.3] as they were [1.2] working on one they were thinking of the next 
[1.3] right the next paragraph [0.7] whereas it is necessary moreover [0.5] to 
establish in the community [0.3] now watch [0.3] 
three [0.2] words [0.7] minimum [0.9] equivalent [0.7] legal [0.5] requirements 
[0.8] as regards the extent of the financial information [1.3] right [0.7] 
again this gives you a clue to the harmonization process first of all [1.4] 
it's going to concentrate on basic things [0.2] minima [2.8] it's not intending 
[0.2] to go through and lo-, cover all the accounting issues that are involved 
[0.5] in the balance sheet P and L notes [0.7] it's minima [1.1] right [1.0] 
second the second word is equivalent [0.3] it's not trying to make [0.4] the 
requirements the same in each of the member states it's trying to make them 
equivalent one to another [1.1] so that's actually quite a limited process [1.
8] it's not saying that in France [0.5] you must depreciate buildings over 
twenty years and also in England you must be-, depreciate buildings over twenty 
years it's just trying to make things equivalent [1.4] and then the third thing 
[0.3] is legal [0.9] the harmonization process is through the amendment of 
company law [0.9] now [2.2] can you see a problem [2.9] with that word legal [0.
6] can you see a problem [0.8] with 
this [0.2] approach to bringing accounting systems together [0.8] making them 
converge [0.6] using [0.6] a requirement of chan-, using legal requirements [1.
4] come on [1.9] 
sm1117: i think the problem is er who is er [2.0] er [0.2] who is giving the 
law for accounting in this country [0.3] some in France come from [1.0] the [2.
1] government [0.9] the government issues [0.5] er and from something in the U-
K is coming from er they look at the [0.8] the boards of accountants [0.4] 
nm1112: well not the boards of accountants come on what's it coming from [0.4] 
[sniff] [0.4] you're right you're exactly on the right track [1.9] what's the 
point y-, y-, you're absolutely right i just want i want the words
sm1117: [0.6] er [1.4] the [0.5] 
nm1112: [laughter] it's the Christmas holidays being too long [1.0] [laughter] 
all right there you got the point i mean the 
sm1117: SAPs and [0.5] 
nm1112: yeah SAPs are a bit old 
sm1117: yeah
nm1112: we don't talk SAPs now [0.7] yeah the point is this in [0.6] in many 
member states in the European [0.7] Communities as they then were [1.1] er [0.
5] accounting regulation is entirely by law [0.9] in Germany [0.3] in Italy [0.
2] in Spain [0.2] in France [0.4] 
sm1117: Greece 
nm1112: and the point about and in Greece thank you [0.8] and you you know in 
France there's a Code de Commerce there's the Plan Comptable Général there's 
the Comité de Reglementation Comptable all these things we've talked about 
it's all government driven [1.1] but in the U-K and Ireland [0.3] and to a 
lesser 
extent in the Netherlands [0.3] the principal detail governing accounting [0.4] 
doesn't come from law it comes from accounting standards [0.5] generated in the 
U-K by the Accounting Standards Board [2.0] and that's the problem [0.9] 
there's only a certain amount that's covered by company law [0.3] in the in in 
the Anglo-Saxon element [0.2] of the European Community [0.7] so [0.3] it tells 
you [0.2] [laugh] [0.3] you're not going to get harmonization [0.2] how can you 
require how can you re-, [0.4] require U-K accounting to change by changing its 
law [0.6] when for the actual thing that governs accounting in the U-K is not 
law [1.4] and it changes very quickly we get more and more standards coming out 
[1.8] it tells you in a sense that inherently in this process [0.6] the success 
if any is going to be very limited [0.3] and it also re-emphasizes the point 
about minima [0.2] you couldn't capture [0.6] accounting regulation by simply 
changing the law [0.2] in the U-K [0.3] so i think that's a very significant 
phrasing [1.4] right the next paragraph tells you a little bit 
more about the content and it says whereas annual accounts must give a true and 
fair view [1.1] right [1.1] so we got that's [0.2] that's Anglo-Saxon in origin 
isn't it this notion of a true and fair view [1.2] next part whereas to this 
end a mandatory layout a prescribed format [1.0] that's German [0.8] and French 
[1.2] so there's an element of a compromise [0.2] coming and you see there's 
both [0.7] Anglo-Saxon and continental inputs into this [1.3] whereas there is 
a minimum content of the notes [0.2] and whereas [0.2] de-, derogations may be 
granted and derogations means exemptions in English [0.7] er for certain 
companies of minor e-, economic and so-, [0.2] social importance [1.7] and then 
the next paragraph says [1.3] whereas the different methods I-E rules [0.3] for 
the valuation of assets and liabilities must be coordinated [0.6] dum-de-dum-de-
dum-de-dum [0.3] disclose [0.3] comparable [0.4] and equivalent [0.2] 
information [2.4] comparable and equivalent [0.7] it does not say [0.9] 
disclose the same information [1.2] it just means 
that they should be comparable [0.4] one to another [0.6] and equivalent [0.5] 
so again very limited objectives [0.6] so have to give it [1.5] and the next 
paragraph [0.2] is well yes [1.4] whereas the annual accounts must be published 
in accordance with the First Directive yes [0.4] whereas however certain 
derogations [0.2] exemptions [1.1] can be given for small and medium-size 
companies [0.5] now what's that telling us [1.7] what do you think that's 
telling us [2.4] i know is this wording is strange and a little [0.2] official 
but what's it telling us then [3.3] whereas the annual accounts of all 
companies to which this directive applies must be pub-, must be published [0.2] 
in accordance with [0.3] the First Directive [0.3] whereas however certain 
derogations [0.6] may likewise be granted in this area for small and medium-
size companies [0.5] what's that telling us [5.6] go on have a go [1.3] 
sm1117: it's not very important so [0.5] er [0.8] because [1.5] maybe they'll 
all think of cost so is one a medium-size company [0.2] matter four of clause 
four [0.3] what 
nm1112: well we haven't got to au-, you're right actually haven't got to audit 
yet [0.4] but you're right [0.5] it is about costs [1.5] what it's basically 
saying First Directive says if you are a company you 
must file your accounts in the registry [0.9] what this is saying effectively 
[0.2] is that if you are [1.0] under the criteria of size small or medium-size 
you don't have to give so much detail [1.4] that's what it means all of the 
detail [0.6] that you would normally publish [0.3] if you're small [0.6] er [0.
2] not so much detail [1.5] and your audit point is the next point [0.6] 
whereas annual accounts must be audited by authorized persons [0.9] whose 
minimum qualifications shall be subject of [0.4] shall be the subject of 
subsequent coordination [1.5] 
which subsequent coordination [4.8] whereas annual accounts must be audited by 
authorized persons whose minimum qualifications [0.6] will be the subject of 
subsequent coordination [0.9] which [0.2] what are they looking forward to [1.
0] go to your list of directives [0.4] 
sm1117: er [0.9] 
nm1112: which one [0.5] 
sm1117: i think it's er [cough] [0.4] er 
nm1112: which one [8.7] the Eighth [0.7] can you see it [0.5] look [0.2] on the 
list of directives [0.4] so [0.3] this Fourth Directive is looking back to the 
First and looking forward to the Eighth it's saying that the programme [0.8] of 
harmonization is going to include the coordination between the member states of 
[0.4] the qualifications of auditors [0.4] the Eighth [1.2] okay [0.2] again 
emphasizing [0.4] that the programme is seen as a whole [1.3] so whereas the 
annual accounts must be audited by authorized persons whose minimum 
qualifications will be the subject of subsequent coordination whereas only 
small companies may be relieved of this audit obligation [0.2] so what it's 
saying is the Fourth Directive [1.1] is going to permit member states [0.8] to 
allow small companies [0.3] 
not to be audited [2.0] and that already is telling you there's going to be a 
difference [1.4] in the U-K [0.9] all companies no matter what size [0.9] have 
to have their accounts audited [1.5] and the Fourth Directive is going to al-, 
may [0.3] er [0.5] is going to allow member states to relieve [0.3] very small 
companies from having to be audited [0.5] can you give me an example of a 
country that does that [3.5] 
sm1117: [0.4] Greece [0.2] 
nm1112: Greece [0.2] can you give me an example of a country that does that [0.
6] 
sf1118: 
nm1112: France thank you [0.3] very good [0.4] come on a bit further [0.5] and 
then we'll take a break [0.7] er [1.6] the next para-, the next paragraph at 
the end [0.4] whereas when a company belongs to a group [1.2] right it's 
desirable that group accounts should be published [0.7] whereas however pending 
the entry into force of a Council Directive on [0.2] consolidated accounts 
which directive [5.9] the [1.2] 
sm1117: seventh
nm1112: seventh yeah so again it's looking forward okay [0.9] er they're making 
some transition arrangements [0.7] right well at that exciting point [0.9] 
we'll [0.3] 
take a break [0.3] for ten minutes and then we're going to dive in and as i 
said i don't want you to be frightened by the words but i think it's quite 
useful to do this because [0.4] at each stage you can stop and think okay now 
how's that going to work [0.6] or what problems is that going to throw up and 
in doing that [0.3] you actually see [0.7] as i say the [0.2] advantages and 
disadvantages of the process [1.0] so [0.4] we'll meet again at [1.2] twelve 
o'clock 
nm1112: 
clear what we're doing [1.6] okay leave the case studies we'll deal with them 
later [0.2] let's go back [0.4] to [0.6] right so we looked at the preamble 
we've already got some clues as to the way that this directive's going to shape 
up [1.1] and what i want to do first is to look at article one which looks very 
long [1.6] and it says [1.7] it's got two sections and it says the coordination 
measures notice the word coordination what the directive is doing is not making 
everything the same it's coordinating between the different member states [1.1] 
coordination members shall apply to the laws [0.3] et cetera et cetera [0.4] of 
the member states relating to the following types of [0.2] companies [1.2] and 
then you've got the companies that were m-, the countries that were members of 
the European Community then [1.6] and what do you notice about those companies 
[1.3] either in France or [0.4] Greece or Germany or Britain [0.7] what's the 
common characteristic [2.8] 
sm1117: a a limited liability company 
nm1112: yeah they're all limited liability companies [0.8] right [1.3] so it's 
only 
limited liability companies that are being captured by this directive as a 
requirement [1.0] so general partnerships [0.7] no [0.5] sole traders [0.4] no 
[1.6] unlimited liability companies no [0.3] they're not subject to this 
directive [1.3] okay [1.2] however [1.0] and this is a point of difference [0.
2] there's nothing in this dir-, in this article [0.2] that prevents member 
states [0.3] from applying the directive [0.8] to these c-, [0.2] other sorts 
of businesses [2.3] is there [1.2] all it says is that [0.4] this a-, must 
apply to these limited liability companies but there's nothing to stop [0.2] a 
country saying [0.3] oh well [0.3] we'll make it apply [1.1] to everybody [1.5] 
and that's what's happened some countries [0.2] have applied the directive [1.
0] aside from publication requirements [0.4] to every enterprise [0.9] that's 
the case in France and the case in Greece [4.3] yeah [0.7] Greek businesses 
even if [0.8] they [0.4] even if they're not limited liability companies [0.4] 
will have [0.3] the basic rules here applied [0.4] through your [0.6] Greek [0.
3] general accounting plan [0.5] the French [0.4] general accounting plan [1.3] 
is 
consistent with this [0.2] so the only difference is that that everybody uses 
it in France and Greece the directive [0.5] the only difference is that [0.3] 
if it's not a limited liability company [0.7] they don't have to publish their 
accounts [0.8] okay [0.9] you might like to think about [0.3] why does this 
directive only apply to limited liability companies [0.8] i'll leave you to 
think about that [3.9] 
sm1117: why [0.2] 
nm1112: why [0.2] why only limited liability companies [8.2] limited liability 
businesses [0.9] why doesn't it apply to everybody [2.0] why didn't why didn't 
the European Communities make it apply to everybody [0.9] partnerships sole 
traders unlimited liability companies nationalized industries [4.3] well it's 
okay i said i'll let you think about it it's basically because when an earner 
has limited liability [0.4] creditors need protection [1.7] because a 
shareholder is only limited up to a certain amount [1.6] it [0.3] it's po-, 
it's for the protection of creditors [1.4] that's why it's here [0.9] and 
you'll notice in section two [1.6] that there is [0.2] 
pending subsequent coordination the member states need not apply the provisions 
of this directive to banks [0.6] or to insurance companies [0.5] why [1.9] why 
do you think [0.9] that they w-, you know needn't apply to banks and insurance 
companies [0.5] 
sm1117: got special er [0.5] 
nm1112: they've got special accounting special legal requirements to [1.0] 
state-run banks [1.1] protection of depositors protection of policy holders the 
accounting issues are very very different [0.7] but what's happened is th-, [0.
3] the European Communities and then the European Union has published a Fourth 
Directive [0.7] for banks and a Fourth Directive for insurance companies 
separate [1.5] okay let's move to article [0.6] two which is section one 
general provisions [0.7] and article two is really the heart [0.4] of the 
directive [0.2] and it needs to be read very carefully i'm going to point out 
some words to you and then i'm going to ask you to think [0.8] of the 
implications and consequences [1.3] right [1.5] so the first one [0.2] the 
annual accounts shall comprise the balance sheet [0.5] P and L 
account [0.2] and notes [1.8] what's missing [1.6] 
sm1117: cash flow [0.6] 
nm1112: cash flow statement why is it missing [1.9] why do you think it's 
missing [3.8] why didn't they put cash flow statement [0.8] as a requirement [4.
2] well the answer is historical [0.8] the cash flow statement was really only 
developed in the nineteen-nineties [0.4] the first requirement in the world for 
a cash flow statement [0.5] was S-F-A-S-ninety-five in the U-S [0.3] they 
didn't have it then [1.6] but in fact y-, [0.2] a country very re-, last year 
[0.3] Norway which is not a country in the European Union [0.4] has actually [0.
2] because of trading and all the rest and making sure funds can flow [0.5] has 
enacted the into Norwegian law a Fourth Directive [0.2] but it's added [1.5] a 
legal requirement for the cash flow statement [0.5] but cash flow statements 
weren't around [1.1] and that's telling you something rather interesting [0.2] 
it's telling that this is essentially a one-off directive [0.3] it hasn't been 
amended [1.7] seventy-eight it was adopted [0.2] we're now two-thousand [1.0] 
i'm not very good at sums but [0.3] that's [0.2] twenty-two 
years isn't it [1.2] nothing's changed [3.1] telling you perhaps that the 
process of getting agreement on these things is actually very difficult [1.4] 
and then the second statement i'll just ask you to remember this these 
documents shall constitute a composite whole in other words [0.5] the annual 
accounts are not to be thought of individually as a balance sheet and P and L 
notes they're [0.6] all together [0.2] they're a whole [0.2] you'll see the 
importance of that in a minute [1.4] right article two says section two says 
they shall be drawn up clearly in accordance with the provisions of this 
directive that's German in origin [1.2] and now [0.4] look at this this is the 
key one [1.0] the annual accounts shall give a true and fair view [0.5] of the 
companies' assets comma liabilities comma [0.4] financial position and profit 
or loss [1.3] where is this come from [1.2] from the U-K [0.2] okay [1.0] so 
it's a true and fair view which comes from the U-K's Companies House [1.0] but 
there are several things to say about this [0.8] first of all [0.2] 
you're reading the English language version [2.1] of the Fourth Directive [0.8] 
but there is obviously [0.7] a French version and a Greek version and a Finnish 
version [1.8] and in the European Communities or European Union [0.2] they all 
have [0.2] equal authority [0.8] the Finnish version is exactly the same 
authority as the English version [1.3] it's exactly the same as the Greek or 
the French [0.7] can you see a problem [1.1] 
sm1117: translation of the true and fair view 
nm1112: translation of true and fair view [0.5] di pragmatiki eikona [0.4] une 
image fidèle [0.4] la [0.2] do you remember the Spanish case [0.5] la imagen 
fiel [0.8] the you don't remember this i talked about it last time [0.6] 
Spanish translated this phrase as [0.2] the [0.5] faithful picture [1.0] 
there's only one [0.2] the [1.8] and you get it by applying the rules [0.2] in 
the Spanish [0.4] law [0.9] whereas the English version says a true and fair 
view [0.7] so you're going to get differences [0.7] and each version [0.5] is 
equally authoritative [1.5] do you do you understand be-, because the the 
criterion [0.3] is expressed in a different way [0.4] it could lead to 
different numbers 
in the accounts different ways of doing things [0.8] yeah [1.3] what about [0.
2] i-, [0.5] you did a lecture with namex on the I-S-C [1.2] do different 
languages have equal authority for international accounting standards [3.1] can 
you remember [0.3] no they don't [1.0] they're published in English [2.5] so [0.
2] that's quite interesting [0.8] because there's always a base [0.2] in 
international accounting standards that you can refer to it's it's the English 
version that has authority [0.6] and everything must fit with it [0.7] but in 
the European Union the European Communities they're all of equal authority so 
they can be taken [0.4] the phraseology can be taken differently [0.6] 
and this is the first point [1.2] e-, despite despite it being of Anglo-Saxon 
origin [0.7] the second point [0.2] is the words er see if you can remember 
this [0.4] if i show this to British students [0.7] and i say [0.2] of the 
company's assets liabilities financial position [0.9] they look a bit odd they 
say to me [0.9] well [1.2] what's the difference assets and liabilities do 
represent financial position [0.9] so why is the words being repeated [2.7] but 
[0.3] in a lot of other language versions [0.2] assets comma liabilities are 
translated by a single word [0.5] can you remember what it is [2.9] i'm looking 
at the French [2.2] 
sf1120: actif passif [0.8] actif passif
nm1112: non [1.6] non that would be the straight translation actif passif [1.6] 
here's the word you should remember it [9.7] you told me this is the same word 
in Greek [0.8] i remember [1.6] the words assets comma liabilities translated 
by the word [0.2] a single word [0.2] 
patrimony now what's the significance of this patrimony idea [4.6] well it 
refers to things that are legally owned [0.2] or legally owed [1.5] right [2.2] 
take me a bit further [5.4] no you don't follow the point [0.6] what it means 
is that you can only put something on the balance sheet if it's legally owned 
it can only appear as an asset if it's legally owned [1.2] which is the reason 
why you can't capitalize finance leases [2.3] but we don't have that 
restrictive notion of patrimony [1.4] so we can put more things on the balance 
sheet [1.5] do you not underst-, do you not follow don't you remember this [1.
3] come on let me gi-, [0.3] you're sure [2.2] don't remember this [1.4] all 
right let me give you a better example to make you remember [0.3] are you do 
any do you know anything about co-, 
sm1117: it's about leases [0.7] leases [0.2] 
nm1112: lea-, finance leases absolutely right you can't capitalize finance 
leases [0.4] under the restrictive notion of patrimony [0.4] and that's that's 
what appears [0.4] in the French and Greek versions [0.8] and Spanish and 
Italian [0.8] so it's telling 
you that because of a for-, a lang-, a translation problem [0.7] you're not 
going to get harmonization [2.1] do you understand this point about patrimony 
[0.9] no all right well then i'll give you just just refresh-, i [0.3] i'm 
going to take a football example [0.6] right [0.7] this foot-, do you know 
anything about football [1.6] i [laughter] don't know i i don't know anythi-, 
you know anything about football [1.0] all right well look [cough] i'll tell 
you this 'cause this is what my son tells me [0.8] there is a famous football 
player in the U-K called Alan Shearer [0.6] he's cap-, you're nodding your head 
he's captain of the England football team [1.4] and [0.3] he [0.6] plays for [0.
2] Newcastle United [0.6] doesn't mean anything to me 
sm1117: 
nm1112: you yeah er you remember the story ah the story is this [1.3] could 
Newcastle United [0.8] put [0.3] Alan Shearer [0.2] as an asset [0.9] on 
Newcastle United's balance sheet [0.8] [laughter] [0.8] now if i ask the 
question to the French or Greeks [0.4] or to 
the Chinese [0.6] you say [0.6] of course not [1.4] and you would say [0.3] 
Newcastle United doesn't own [0.4] new-, [0.2] Alan Shearer he's not part of 
the patrimony [1.5] right [0.7] but in the U-K [0.6] our notion of an asset [0.
2] is far more flexible [0.3] to be an asset [1.0] 
sm1117: 
nm1112: you have to have a resource that you can control [1.1] and to which you 
can give a reliable monetary value [0.5] does Newcastle United controlled [1.5] 
Alan Shearer yeah he's under contract [0.7] can you give a reliable monetary 
value yes he was transferred to Newcastle United for fifteen-million pounds [0.
8] is he going to produce economic benefits for the club [0.2] yes [0.5] bang 
[0.3] put him on the balance sheet [laughter] [2.0] yes [0.3] but you can't do 
that when you have a notion of patrimony which is very restrictive [0.8] and 
the fact that [0.7] you got a la-, you got a translation issue here [0.2] 
assets comma liabilities is English patrimony [0.6] is French and Greek and 
Spanish and Italian and Belgian [0.4] and almost e-, and Greek and ev-, almost 
every other country in the 
European Union [0.3] so it's already telling you that there's going to be a 
problem [0.7] you're not going to get harmonization because of this conceptual 
difference [1.0] yeah [0.8] now the third point [0.3] about this statement is 
this i want you to connect [0.8] this section [0.7] the annual accounts shall 
give a true and fair view [0.6] with the first section [2.2] can you see a 
problem [2.3] the annual accounts shall give a true and fair view [0.2] 
sm1117: accounts [0.8] 
nm1112: a little more [0.3] yeah i like it [0.2] i like it
sm1117: [0.4] sections there doesn't say a true and fair view in the notes of 
the accounts [0.9] 
nm1112: well what it s-, the first section says [2.7] therefore [0.3] from 
section three [0.8] the accounts as a whole must give a true and fair view [2.
1] right [2.5] what does that allow [3.6] think France think Germany [4.5] well 
what it means is [0.3] it's possible [0.6] to have one part of the accounts [0.
2] that is not true and fair [1.4] provided that another part of the accounts 
[0.2] corrects it [0.7] so that overall [0.5] the accounts are true and fair [2.
0] do you follow that [0.2] can you think of anything where that might apply [4.
5] 
three letters [1.5] T [0.4] 
sf1118: tax [0.3] 
nm1112: thank you [0.4] tax [0.6] it's possible for something to be tax-
polluted in one part of the accounts provided [0.6] that the correction to that 
tax pollution is made in the notes [0.3] so that overall [0.7] you give a true 
and fair view [2.2] yeah [0.4] [laughter] [0.3] and it's only in close reading 
of this that you see the potential [0.5] for divergence if i didn't make you do 
this you wouldn't even think of it [0.2] so whereas you've got what seems to be 
harmonization the words [0.7] are expressed in such a way that the potential 
for divergence is there [2.7] okay [0.2] [cough] [0.3] let's [0.9] go on a bit 
er sections four five and six say four says well if it you don't get a true and 
fair view got to add additional information [0.7] that's [0.2] b-, [0.2] that's 
section four section five says [0.7] where in exceptional cases [0.3] you don't 
get a true and fair view by applying the provisions of the directive [0.6] you 
must depart from the directive [5.8] but national governments have said [1.4] 
in Germany [1.1] we don't have any 
exceptional cases [1.3] so [0.3] section five doesn't apply [1.8] difference is 
interpretation [0.9] we're getting [0.9] all right well that [0.5] is [0.2] 
just giving you a flavour of some of the areas [0.5] er let's go on we've got 
section two which is about some general provisions of the balance sheet [0.5] 
er we'll leave [0.2] most of those away [0.7] er [2.7] look at article six [0.
3] what does this remind you of [1.9] this is a potential for divergence [0.4] 
i wonder if you can think of a difference [11.1] what's that remind you of [6.
3] member states may authorize or require [1.6] adaptation of the layout of the 
balance sheet and P and L in order to include the appropriation of profit or 
treatment of loss [1.1] 
sm1117: [1.0] 
nm1112: yeah well a bit more you're right what you've just done the French case 
study [2.1] what kind of balance sheet is a French balance sheet [0.6] 
sm1117: tax [1.2] 
nm1112: it's before appropriation [0.7] in other words the net profit [1.1] is 
put straight into equity [0.2] without any appropriation 
of that profit [0.8] yeah [0.5] and you had to do that little exercise of 
finding the dividends do you remember [1.0] whereas in the U-K [0.5] which is a 
which has taken article six [0.6] from the net profit after tax we show 
proposed dividends we retain profits the retained profits slot into equity [0.
7] and the proposed dividends go into [1.5] 
sm1117: current liability [0.3] 
nm1112: current liabilities [1.0] so you've got [0.2] already [1.1] an 
exemption which is going to mean that the accounts are going to be different [2.
3] one country's done it another country hasn't [2.3] okay section three [0.9] 
says talks about the layout [0.7] of the balance sheet [0.4] right and 
basically there are two layouts possible [2.5] article nine is the two-sided 
balance sheet [0.2] assets on the left [0.4] capital and liabilities on the 
right [1.2] and article ten [0.7] is the vertical balance sheet [1.5] right [0.
3] so the [0.3] European Union [0.6] the European Communities as was are saying 
you can choose your layout [0.6] horizontal [0.4] or vertical [1.4] and [1.5] 
it's saying in article eight [2.0] that member states can say either one or 
both [1.5] well that's 
not going to make things very easy is it [4.4] i mean [1.0] you know in in [0.
2] most continental countries [0.7] it's [0.2] horizontal [0.4] only one layout 
[1.6] but in Denmark [0.2] and the Netherlands and Ireland and the U-K [1.2] 
both [0.4] layouts have been permitted [1.2] and what do most British companies 
choose [0.4] 
sm1117: vertical [0.4] 
nm1112: the vertical [0.6] so y-, you in practice then [0.3] you cry and 
compare a French balance sheet with a with a British one or sp-, [0.6] 
Portugese with a British one [0.5] we're going to be laid out in [0.2] in a 
slightly different way which is not going to make it easy [0.5] to understand 
the accounts [1.3] and even if you look at the detail of the ordering you'll 
see that there are lots of strange things [1.6] look at article nine number B 
[2.2] it says formation expenses [1.3] right start-up costs [1.3] as defined by 
national law [0.9] and in so far as national law permits their being shown as 
an asset [1.1] can you show it as an asset in Germany [1.3] 
sm1117: mm [0.4] 
nm1112: yes you can [0.2] 
sm1117: yes [0.3] mm 
nm1112: can you do it in France [2.9] yes you can can you do it in 
Greece [1.3] yes you can can you do it in Britain [0.3] 
sm1117: no 
nm1112: no you can't [1.3] so the 
sm1117: it's a tax [laughter] 
nm1112: well i know it's a tax issue for you [0.7] but it it's just saying okay 
here it's recognizing that there are going to be differences anyway [0.3] in so 
far as national law permits their being shown as an asset [0.6] national law 
may also provide for formation expenses to be shown somewhere else [0.7] well 
this is pretty weak stuff isn't it [2.4] and if you read down the order you'll 
see there are lots of alternative places [0.6] which doesn't actually help [0.
7] if you're making things comparable [1.0] so you may say ask yourself the 
question well look heavens if the European Community was trying to harmonize 
couldn't they just at least harmonize this [1.6] couldn't they have just done a 
common layout [1.0] why do you think it was so difficult [6.7] go on [1.9] 
here are all these voluntary members of the European Union subscribing to [0.7] 
nine years all of [0.2] signing up to the Treaty of Rome Treaty of Maastricht 
and later on er why are they having so much difficulty [8.5] well i think i i 
mean there are a number of reasons for it one the British didn't want to get 
involved in too much regulation by law [1.5] secondly [0.2] each [0.8] each 
country had a certain national pride in the way they had been doing accounts 
and didn't see why they should change [1.9] right [2.2] and thirdly and perhaps 
a very important point [2.4] well you've already se-, w-, w-, let me rephrase 
the question you've already seen that there are going to be divergences [2.2] 
and so [0.4] the effect has been that if i look at a set of French accounts or 
Greek accounts or British or German or Italian they look different they got 
different numbers in them [1.3] why [1.7] why do you think [0.9] you know at 
root [1.3] the thing has proved to be so difficult [2.9] i know there are 
different traditions i know that [0.7] i mean you have different regulatory 
systems for accounting but what [0.2] what [0.3] what would you suggest is [0.
2] er 
is another reason perhaps more fundamental reason [0.2] 
sm1117: tax [1.4] 
nm1112: y-, [0.3] y-, you're right it is related to tax but go a bit further [3.
1] you're you're you're right [0.5] 'cause we've seen that [0.5] several places 
[3.0] think back to some [0.6] lecture lecture that namex gave [0.2] right at 
the beginning of
sm1117: er [0.4] number [0.2] so it's [0.4] better for this country's [0.6] of 
this country's to [0.6] to begin a [1.3] something [2.4] 
nm1112: yeah 
sm1117: for example if the U-K has a go-, [0.2] very big er capital market and 
in 
nm1112: yes yes [0.2] it's th-, er [0.2] okay it's the capital market [0.6] tax 
creditor orientation issue [0.7] 'cause underlying the problems in pulling all 
this together [0.9] is the idea that [0.4] accounting serves [0.2] different [0.
2] purposes in different [0.2] countries [0.2] the primary purpose [0.5] 
historically [0.6] and currently [0.7] in France and Germany [0.9] and Greece 
[1.3] for individual company accounts is to ensure that the tax authorities [0.
6] have information [0.7] to make an assessment of taxable profit [1.9] and [0.
2] also [0.6] to provide some creditor protection [0.7] the primary purpose of 
accounts [0.3] in Anglo-Saxon countries [0.3] and the Netherlands [0.7] is to 
provide useful information to shareholders [1.5] and that's the problem [0.4] 
because no matter how much you try and regulate 
or harmonize [1.1] those fundamental objectives will only change very slowly [1.
1] and in accordance with [0.7] social and economic conditions that prevail so 
you can [0.3] legislate as much as you like [2.6] but you're going to get those 
interests being protected and particularly that orientation issue [0.6] and you 
can see it all the way through as we go through [0.4] let's pick up some more 
examples [1.1] er [1.8] if i [1.7] jump [0.2] to [0.4] let's see [3.2] if i [0.
3] yeah if i jump to article twenty-two here's the P and L accounts [11.6] 
[cough] [1.8] and what the Fourth Directive [3.7] says [1.7] if you look at 
article twenty-two twenty-three twenty-four twenty-five twenty-six [1.4] is it 
says [0.3] here are some layouts for P and L accounts [1.6] member states [0.6] 
and there are four [0.3] member states can put into their law just one [0.7] or 
two or three or all of them [1.4] and [0.7] here they are [8.4] vertical 
horizontal [23.8] tell me which is which [0.3] article twenty-three twenty-four 
twenty-five twenty-six [4.1] which one is article twenty-three [24.2] 
sm1117: spoken by nature 
nm1112: 
it's vertical [0.4] and it's is it by nature or by function [1.9] by [2.5] 
sf1118: nature [0.4] 
nm1112: it's by nature yes [6.2] there's no gross profit figure [0.4] the 
analysis of costs is by their nature [0.7] okay [0.8] which one is this one [1.
0] by function [1.2] 
sm1117: twenty-five [1.2] 
nm1112: sorry [0.8] 
sm1117: twenty-five [0.8] 
nm1112: twenty-five very good [4.5] and this one it starts getting easy now [2.
4] 
sm1117: was it twenty-four [0.2] 
nm1112: twenty-four [4.3] and [0.4] this one [0.3] is therefore by elimination 
[0.9] article [1.2] twenty-six [1.1] now the point [0.7] here is [0.7] the [1.
5] [cough] [2.4] the the Fourth Directive permits [0.4] countries to either say 
just one [1.2] or some or all [1.4] right [0.2] so you have a situation where 
[0.8] for example [0.5] if we take [0.3] opposites [0.6] er [0.8] Portugal [0.
5] has just said [0.2] that's the only one [1.5] Denmark [0.2] has said [0.5] 
companies can use any of them [2.6] and depending on whether you go for a by 
nature or by function format [0.2] 
you're not going to get a lot of comparability [0.7] because you you remember 
[0.5] you know in a by nature format you can work out the value added the gross 
operating profit [0.7] but because you don't have a g-, cost of sales you can't 
work out the gross profit which you can in a by function format [0.7] so again 
it's not being very helpful in making things comparable [0.9] and why did 
Portugal want to have by nature [0.7] simply because there are so many small 
and medium-sized companies [0.2] who couldn't afford the cost of running [0.6] 
a costing system [0.5] which is what you need if you have that kind of [0.6] 
structure of P and L [1.6] and it reflected if you like economic conditions it 
also in tax terms is more tax transparent [0.8] so it fits very much with the 
[0.8] particular economic conditions [3.1] right are you depressed [2.6] 
[laughter] fed up [1.6] this is heavy stuff you know this is good stuff [1.0] 
let's [1.0] let's just pick a [1.6] a few points [0.5] further on i'm just 
picking things [0.5] just to illustrate what this problem of [1.2] 
inherent or inherent problems in trying to get harmonization through law [0.7] 
to emphasize the minimum minimal qualities of this and to show why [0.7] you 
can look at a set of accounts from another European country and it's not [0.4] 
easily comparable with another [1.0] er [0.2] ah here's another one let's take 
[0.2] er [0.3] article twenty-nine [1.6] this concerns certain provisions 
relating to special provisions relating to certain items in the P and L [0.9] 
right [0.9] income and charges that arise otherwise than in the course of the 
companies ordinary activities [0.5] must be shown under [0.6] extraordinary 
income and extraordinary charges [1.2] unless the income and charges are 
immaterial [0.7] explanations of their amount and nature [0.4] must be given in 
the notes on the accounts [2.7] what's the problem [5.6] perhaps it's an unfair 
question because you haven't read the whole of the directive [2.8] but you know 
enough about for example you should know enough about U-K accounting and French 
accounting [1.4] to recognize [0.2] one