Anglo-American accounting biases in the rush towards convergence: the case of Germany

This paper evaluates the development of accounting in Germany from its early beginning in the 14th century and shows how a distinct continental European accounting model has evolved. The focus is on establishing that there are strong Anglo-American biases in describing continental European accounting models and in particular Germany’s accounting model. This discussion of Anglo-American biases employs Gray’s (1988) theoretical framework of accounting values. An examination of Germany’s historical, economic, political, cultural and legal factors establishes how the conservative and legalistic approaches have dominated German accounting. Historical developments from the 14th to the 21st century are analysed to highlight relationships between different periods as well as the significance of international influences. While the first accounting records of trading houses were mainly written for internal purposes or as evidence against third parties, the objective of accounting changed with the introduction of the first legal accounting regulations (Prussian Civil Code of 1794; Preußisches Allgemeines Landrecht and General German Commercial Code of 1861; Allgemeines Deutsches Handelsgesetzbuch, ADHGB). These regulations exhibit a progression towards including external requirements to the formerly only internally orientated accounting approach. The analysis further highlights that the civil and commercial codes mark the first step towards an ongoing consideration of creditor protection and are the first stages of the close interrelation between the German state and the accounting profession. Particular political, economic and social changes during World War I and II are examined as well as more general influences such as the role of bank financing, taxation, European Union requirements and the current focus on convergence. Finally, this paper evaluates not only the approach of conservatism such as creditor protection and legalism in the German accounting tradition, but also provides insight into some of the current problems facing the accounting profession. In the light of ongoing convergence and the current introduction of IAS/IFRS in 2005 for capital market orientated companies in Germany, the paper provides a deeper insight into the emerging accounting challenges of the 21st century. Applying Gray’s (1988) theoretical framework of accounting values, we reveal the presence of strong Anglo-American biases. Importantly, the conflict between the Anglo-American accounting model and the German focus on legalistic approaches is highlighted as well as the potential problems associated with convergence.