Differences between US and German/Austrian Cost Accounting
Introduction - Causes of differences
During history a lot of different countries gave their contribution to the development of accounting all over the world. However Cost Accounting headed into different directions in the Anglo-Saxon area like United Kingdom, Denmark, United States in comparison to the so called Continental area including countries like France, Germany, Austria or Japan. What are the reasons for these differences?
Most of the European countries have a system of law that is based on Roman jus civile, where rules are linked to ideas of justice and morality, and are therefore codified. This is for example also the case for company accounting in Germany and Austria, where it is to a large extent a branch of “code of commercial law” (old “Handelsgesetzbuch”, new “Unternehmensgesetzbuch”). By contrast, a lot of other countries like the US use a version of the English based common law instead, that is widely interpreted by courts which build up large amounts of case law to supplement the statutes. (Alexander and Nobes, 1994: 67-68)
In the United State the major amount of capital is provided by large numbers of private investors, contrary to the German-speaking countries, where the banks are important owners of companies as well as providers of debt finance (Alexander and Nobes, 1994: 68). Those different situations in capital markets can explain why “protection of creditors” (“Gläubigerschutz”) is one of the central principals of accounting in Germany and Austria with the objective of keeping and securing capital, whereas “true and fair” is more important in the US to reflect the current economic situation to the public (Narat, 2003: 4).
Differences in accounting systems
US American accounting is based on a so called one-cycle system (=general ledger concept), whereas in Central Europe the two-cycle system is in-use. The main difference is that in two-cycle systems Financial and Cost Accounting routines can be separated (Schoenfeld, 1974: 30). This implicates that the accounts are only used for financial accounting and a connection to cost accounting (the second cycle) must be established.
Cost Accounting in the US provides additional information for the reports to management and also provides data necessary for the preparation of external financial statements, like Cost of Goods Sold (CGS) on the income statement (Nagy et al, 1992: 7). So in combination with Financial Accounting and Management Accounting it is an integrative system, which objective is to collect financial information as well as to serve as a foundation for decision-making. In Germany tax rules and regulations are very strict and detailed, which makes it clear that taxation was a main cause for accounting in this country. It is to a large extent the case that the tax rules are the accounting rules, for example the tax accounts (“Steuerbilanz”) should be the same as the commercial accounts (“Handelsbilanz”) (Alexander and Nobes, 1994: 71). This idea is called “Maßgeblichkeitsprinzip” and there is not even a good translation for this principle.
Different concepts of cost
In the German-speaking countries, accrual accounting is the method in use at most corporations. A problem that comes with this fact is that when cash is spent by a company the date of this expenditure differs most of the time from the actual transaction date.
That those cash expenditures (“Ausgaben”) usually occur sooner than the recording of expenses (“Aufwendungen”) can be shown in the case of equipment purchases, which are settled in cash in a relatively short period of time, compared to expensing these assets through depreciation over several years. According to Schoenfeld, this time difference has been recognized explicitly in European theory without resulting in adjustments of valuation. (Schoenfeld, 1974: 8)