Listed France companies follow IFRS in their combined
financial statements, and non listed companies also have this option. However, all
French companies must follow the fixed rules of the plan at the individual company
level. Accounting for individual companies is the legal basis for distributing dividends
and for calculating taxable income. Exhibit 3-3 offers an example of financial
reporting through French listed firms. Saint-Gobain, the materials and construction items
company listed in Paris as well as on other European stock exchanges, describes its accounting
policies because of its consolidated and non consolidated financial statements.
Tangible assets are normally valued at historical cost. Although revaluations are
allowed, they are taxable and, therefore, are seldom found in exercise. Fixed assets are
depreciated according to tax provisions, usually on a straight-line or declining stability
basis. Extra tax depreciation is sometimes available, in which case the extra amount
taken is proven as an exceptional charge around the income statement and the related
credit as a tax-related provision within equity. Inventory must be valued at the lower of cost or even
realizable value using either Very first in, First Out (FIFO) or weighted-average methods.
Research and improvement costs are expensed as incurred, but may be capitalized
in restricted conditions. If capitalized, research and improvement costs must be
amortized over no more than five years. Leased assets aren't capitalized, and the rent
paid is actually expensed. Pension and other retirement advantages are normally expensed when
paid, and future commitments are rarely recognized as liabilities. Probable deficits
whose amounts can be determined with reasonable accuracy are accrued. Many other
risks and questions may be provided for, such as individuals relating to litigation, restructurings,
and self-insurance; these types of allow income-smoothing opportunities. Given the
link between book and tax earnings, companies do not account for deferred taxes in individual
company financial statements. Legal reserves must be created by appropriating
5 percent of income each year until the reserve equals 10 percent of legal capital.
With a few exceptions, French rules regarding consolidated financial statements
follow the fair presentation approach of reporting substance over form. 2 exceptions
are that liabilities for post-employment benefits do not have to be recognized and finance
rents do not have to be capitalized. (In both cases, the fair presentation treatment of
accrual and capitalization is recommended, but still optional.) Deferred taxes tend to be
accounted for using the liability technique, and are discounted when the turnaround of timing
differences can be dependably estimated. The purchase method is used to account
for business combinations, but the pooling method is allowed in some circumstances.
Goodwill normally is capitalized and amortized to income, but no maximum amortization
period is specific. Goodwill is not required to be impairments tested. Proportional
consolidation is used with regard to joint ventures and the equity method is used to account for
investments in non consolidated entities over which substantial influence is exercised.
Forex translation practice is consistent with IFRS, as previously described.
