how to find the difference

Accounting Procedures in the United States, the United Kingdom, and France


Globalization has resulted not only in the unification of commerce but also in the effort to unify the laws regulating trade. The accounting industry, which is a critical component of foreign trading, has seen attempts at convergence aimed at promoting international company reporting. Despite GAAP unification efforts, there are still some gaps in accounting treatments in major world economies. Countries in the European Union had more relative policies than countries in the United States. However, due to differences in national laws and accounting traditions, countries in Europe still depict differences in practices. The paper intends to compare the accounting practices in real annual reports of companies that have prepared their financial reports under the guidance of three different accounting rules of their home countries. The differences in the accounting practices will be carried out on Caterpillar Inc. based in the U.S, L’Oréal which is France based, and the U.K based GlaxoSmithKline (GSK) Plc. The real annual reports will indicate actual existing differences in accounting practices of the three countries.

Naming of Financial Reports and Presentation of Income Statement


The accounts being differentiated are those of parent companies and are thus consolidated accounts. One key difference that arises is on the naming of the financial reports. L’Oréal uses the term “Compared” instead of “Consolidated” like Caterpillar and GSK. The accounts title is essentially from the French Laws and regulation and not from the International GAAPs which has been used by GSK and Caterpillar. The other notable difference is the type of financial statements prepared. All the companies have prepared an income statement, a cash flow statement, a statement of shareholder equity, and a balance sheet. The presentation of the Income Statement has, however, been unique in each of the company. GSK has prepared a different income statement and a different statement of comprehensive income. The uniqueness of Caterpillar is its reference to the income statement as a statement of operations. L’Oréal, on the other hand, has an income statement but makes no reference to comprehensive income. In the place of comprehensive income, the company uses the term “Exceptional items.”

Balance Sheet Presentation


In the balance sheet presentation, L’Oréal and Caterpillar have provided the total shareholder equity and liability as the closing amount in the statement. The two companies have to balance the total liabilities and equity with the total assets of the company in the presentation. The format by GSK has, however, used the total equity and the net assets of the company as the balancing figures of the statement. In the format, GSK and Caterpillar have identified intangible assets as parts of the total assets of the company. L’Oréal, on the other hand, has chosen to have a double representation of items. The company has a segment that indicates the tangible assets, intangible assets, and financial assets. The other assets segment displays the current assets and the non-current assets of L’Oréal.

Treatment of Research and Development Costs and Inventory Valuation


There is a difference in the treatment of research and development costs. GSK has a practice of capitalizing some of its research and development costs which are then depreciated in line with the depreciation policy. The company does, however, expense costs that do not satisfy the development criteria. L’Oréal and Caterpillar, on the other hand, have selected to expense all their research and development costs. The research is expensed as they occur in the two companies, and nothing is deferred.


In the presentation of inventory, each company has a different approach to its valuation. Caterpillar has opted to value its inventory based on the LIFO (Last in First Out) method. The company does, however, recognize the shortcomings of the methodology and has disclosed in its notes the change of inventory value if it had instead opted for the FIFO (First in First Out) valuation approach. The FIFO method was the valuation approach selected by GSK. Furthermore, as a pharmaceutical company, it recognizes inventory if there is a high probability of approval. If the approval is slim, the inventory to be is regarded as a provision and valued at its recoverable amount. A reversal of the provision is made into an item of inventory once a high probability of approval is established. L’Oréal employs the weighted average method in the valuation of its inventory. The weighted average method is deemed to be a better measure of inventory valuation than the LIFO and FIFO methods. Any obsolete or slow-moving inventory in L’Oréal is, however, impaired to its net realizable value.

Taxation and Financial Asset Valuation


Concerning taxes, L’Oréal recognizes taxes by the tax charge to the group and the tax due. Caterpillar and GSK in the aspect of tax have elected to have the elements of current tax and deferred tax in the presentation of their financial reports. L’Oréal does not have a deferred tax element since it only looks at the tax due based on the subsidiaries and does not incorporate the tax rate of the parent company. Caterpillar and GSK have a deferred tax provision since they recognize future tax liabilities and the differences in tax rates and tax laws of the subsidiary and parent companies.


Regarding financial assets, L’Oréal recognizes in the financial statements at their cost less any incidental expenses on their purchase. The company does impair its investments in instances where their market value falls below the net book value. Caterpillar, on the other hand, prefers the fair value method of the valuation of its financial instruments while recognizing gains and losses accordingly. GSK values its financial assets at fair value but classifies its financial instruments as held-for-trading. The goodwill in L’Oréal, unlike in the other companies, is not presented as an independent item but as a part of the intangible assets. Goodwill is not amortized in L’Oréal but is instead written down if it is below the book value. Caterpillar impairs its goodwill if its carrying value exceeds its fair value. GSK does make a preference of not impairing its goodwill unless the goodwill relates to cash generating units.

Depreciation of Assets and Treatment of Foreign Exchange


L’Oréal uses both the straight line and the reducing balance methods in the depreciation of its assets. The straight-line method is used for ten years upon which the declining balance method is used for the tax added depreciation. Caterpillar only employs the use of the declining balance method of the depreciation of its assets. GSK has a preference for the residual value approach when valuing its inventory. GSK recognizes the movement in foreign exchange in the other comprehensive income. L’Oréal, on the other hand, does regard any losses and gains from the translational aspect of the foreign accounts as unrealized gains and losses in the balance sheet. Unlike L’Oréal, Caterpillar opts to recognize the gains and losses due to currency translation as other income in the statement of comprehensive income.

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