C) Identify the political processes that are influencing the setting of accounting standards in the Germany.
Germany adopts the continental European accounting model, where the focus is on legal and statutory control. It is known more for its creditor protection policy and prudency. It seems Germany is unwilling to converge toward IASB standards given its domination by countries with an Anglo- American accounting background (Street, 2002;Kirsch, 2006, 375) that emphasizes on a ’true and fair view’, contrary to its own accounting model. Due to the increased capital needs of German companies, they will have to turn to international capital markets that require relevant and comparable accounting information (Kurylko 1994; Liener 1995). These markets were different from German standards. Case in point in 1993 when Daimler Benz intended to get listed onto the NYSE, what would have been profits by German standards became losses by the US GAAP standards.
German accounting principles creditability suffered a setback internationally and Germany was under industry pressure to relook at its accounting laws(Böcking 2001; Kirsch and Scheele 2004; Pellens et al. 2004). The Alleviation law regarding raising of capital was introduced in 1988 to enhance competitiveness of German companies attempting to expand internationally.(Deutscher Bundestag 1998; Delvaille et al. 2005)
(Rudzio 1997) states that MPs in Germany belong to some sort of association in relation to their profession. These MPs keep close relations which gives the associations’ strong influential power when it comes to decisions making. After all, if the MPs weren’t re-elected, they will have an alternative post back in the corporate world.
Companies may want to conceal negative financial information to project constant growth (Burgstahler and Dichev 1997; Burgstahler and Eames 2003, 2006). They have incentives to