Reviewed by Chris J. L. Fefebvre Katholieke Universiteit Leuven (Belgium)
Issue No. 4 of the series, Issues in Accountability, discusses the process of establishing the reformed accounting legislation in Bel-gium. It comprises, as the subtitle indicates, “A study of back-ground and detail with reference to Annual Accounts, Holding Com-panies and Accounting Plans.”
In his “lntroduction” the author briefly explicates the situation of Belgium and explains some of the reasons why this case is worth consideration.
The next chapter discusses the historical background illustrating inter alia the importance of the accounting analysts, the Belgian economic history, the Belgian enterprises, the financial situation, the organization of the economy, the stock exchanges (bourses) and the professional accounting situation (Belgian Experts-Comptables and Revisors). This chapter concludes with an interesting digression on the development of Accounting Plans.
In the following chapter, the Accounting Law of July 1975 which remains the core of the new accounting legislation in Belgium is tackled. After indicating what enterprises are subject to this Act, the author illustrates the fundamental principles underlying the Act, and the exceptions for small enterprises as mentioned in art. 5 of the Act. Turning to the different articles involved in the basic law of 1975, he briefly discusses: vouching, annual accounts, records and books, form and contents, consolidated accounts, smaller firms (exemptions of art. 12), implementation, the Accounting Standards Commission, derogations and exclusions and the law’s enforcement.
Chapter 4 subsequently deals with the Royal Decree on Annual Accounts of October 1976 implementing the basic law of 1975. The most important articles are discussed together with the Ministers’ Report to the King, before turning to some differences between this Royal Decree and the Fourth Directive of the E.E.C. The role of the Centrale des Bilans as a depository and dispatching center of annual accounts is then emphasized. This chapter elaborates further on some principles of accounting in which leasing, the overall fiscal influence in reflecting true and fair values in the accounts, together with revaluation and inflation accounting are considered. The author concludes with the Illustration of the role the Belgian Accounting Standards Commission can play in interpreting accounting principles.
Although consolidation was not settled within the previous ac-counting legislation, a special Royal Decree was issued in November 1977 dealing with consolidation for holding companies. This topic is discussed in Chapter 5, showing the failure to consolidate group accounts with the example of the largest Belgian holding company, Société Générale de Belgique.
Chapter 6 reopens the discussion on the Uniform Systems of Ac-counts. As mentioned in the Law of 1975 and the Royal Decree of 1976, a Minimum Normalized Chart of Accounts had to be elaborated and was finally imposed through a new Royal Decree of March 7, 1978. Forrester emphasizes also in this chapter the importance of commitment accounting together with claims and counter-claims. He concludes this chapter discussing the C.I.G.E.C. (Centre d’lnfor-mation de Gestion des Experts Comptable), pointing out that data processing exchanges between France and Belgium were facilitated “by the use of compatible Plans Comptables in each country” (p. IV/42).
Management accounting aspects are briefly summarized in Chapter 7. Forrester concludes this issue No. 4 with the following assertion: “In aspiration over decades, and now feasibly, Belgian accounts fulfil both capitalist and socialist purposes, and inform private and public decisions. If for this reason alone, the intent, the wording and the effects of recent Belgian accounting legislation is worth attention” (p. IV/44). Issue No. 4 ends with a postscript on holding companies, some bibliography and annexes showing pre-reform published information, a model balance sheet and Profit & Loss account under the 1976 Act and the Chart of Accounts of 1978.
Issue No. 4 contains a tremendous amount of precious information on the Belgian case in developing accounting legislation, so that the reader who takes a quick glance at it might well be favourably impressed. We also do agree with Professor J. P. Gillet in his foreword to Issue No. 4 that “Writing such a comprehensive and understandable article on the new Belgian accounting legislation is no small achievement and the author deserves congratulations.” This performance is even more impressive if we consider that the author is a foreigner.
Nevertheless, a more profound investigation reveals a number of weaknesses, errors, and shortcomings. One of the major difficulties of the author in tackling this topic will certainly have been the Ianguage problem. When scrutinizing his bibliography, for example, no Dutch articles are quoted.
The Dutch literature, however, would have revealed another approach in the discussion on annual accounts and the increased demand for information. The French approach traditionally inclines to more emphasis on the registration regulations, as where a Dutch approach emphasizes more disclosure requirements. This controversy led to the adoption of the first Draft of a Fourth Directive as the basis for further discussion on implementing a new accounting legislation in Belgium. The difference in emphasis can best be illustrated when taking into account another prior aspect of the total renovation in information disclosure requirements in Belgium, i.e. the Royal Decree of November 27, 1973 providing financial and economic information to the Industrial Relations Councils. It is really a pity that Forrester excluded this Royal Decree from the scope of his analysis because in it the main emphasis was placed on disclosure rather than on registration requirements. “The requirements of the types of reliable information that should be released (disclosed) are indeed more important than are the requirements of how the accounting data must be processed. In this regard, we can refer to the etymological sense of the words, where “enregister” means to put into registers (input—opsluiten van informatie) and ”disclosure” has just the opposite meaning, that is to release information (output— ontsluiten van informatie).”1 In the same context, it must be observed that a great many terminology problems emerged in the translation of the French texts into the Dutch version, due to the fact that preliminary drafts were in most cases originally drawn up in French and translated into Dutch afterwards. So, for example, the French text is dealing with “avoirs” which implies all “assets” of the firm, while the
Dutch counterpart incorrectly translates “avoirs” as “tegoeden” which means “receivables.” 2 Forrester, however, only notes that “Laws and decrees are of course drafted and enacted both in French and Flemish,” (p. IV/17) not considering the terminological problems in the sense mentioned above (p. IV/19-20). Belgium has a problem like that of the E.E.C. in general. Namely an accounting standard in one language must be almost totally re-written for another language. In all E.E.C. legislation, the translation from the original working text to the member languages is not a trivial problem, but must be carefully executed by experts in accounting.
As to the discussion on the role of the Public Auditors in Belgium, Forrester did not mention an important Recommendation to the Government by the National Economic Council of July 12, 1972.
As to the auditing profession in Belgium, three major problem areas might be discerned:
a) accounting standard setting does not exactly imply that auditors will meet the standards, leading to a performance gap. Furthermore an expectations gap will occur due to the fact that public expectations of the work performed by the auditors might differ from the standards set by the profession.
b) the profession is confronted with a vicious circle of low fees, low scope, low quality, low image and low fees.
c) the problems arising from an audit monopoly situation in Belgium, where only a very restricted number of public auditors can legally and officially perform the audit required for firms quoted on the Stock Exchange.
After several drafts, a Royal Decree dealing with Public Auditors might at last appear in 1983.
The introduction of a Minimum Normalized Chart of Accounts in Belgium (p. IV/37-42) was also a strongly debated topic, although the organizations of accountants and revisors (public auditors) favoured such a Royal Decree on Uniform Systems of Accounts. The discussion centered around advantages and disadvantages of Uniform Charts of Accounts. The merits of Uniform Systems of Accounts, however, should be measured by criteria, such as:
a) information criteria: defining what kind of information the accounting system should be able to provide.
b) control criteria: the accounting system should be able to provide reliable information.
c) economic criteria: reliable information should be processed in economically acceptable conditions, in a labor-saving way.
Turning to the discussion on E.D.P. processing, Forrester refers to “such modern data processing methods” (p. IV/29. In reality there exists a very large gap between the accounting practices and the text of the new accounting legislation. Art. 8 of the Law of 1975 emphasizes mainly the importance of books, which must be “certified, numbered and initialled” (p. IV/20), leaving some possibilities open to “replace them by alternative measures guaranteeing the regularity, completeness and continuity of matter in the books” (p. IV/21). Nothing much, however, has been realized in this matter up till now. In this way, art. 8 is introducing a modern anachronism into a body of new accounting legislation.
As to the company financial data deposited and dispatched on computer tapes through the special Agency of the Central Bank of Belgium (Balansen centrale—Centrale des Bilans), recent studies of Jegers and Buijink have demonstrated that registered annual accounts do not meet the necessary criteria of reliability. So for 1980, for example, they conclude that less than seven percent of the annual accounts are reported correctly. Omissions and arithmatic errors are numerous and are not merely due to transcription inaccuracy.
About the Tableaux de financement or Funds Flow Statements (p. IV/25) Forrester argues that the “government anticipated that the law would eventually require” (p. IV/25) such statements. If he had been working through some preliminary working texts or drafts, he might have discovered that Funds Flow Statements were required, but that in later drafts this topic was finally dropped and given as a general consideration in the Report to the King. In light of this opposition, it might still take many years before Funds Flow Statements, however defined, might be accepted in new accounting legislation.
Also the Belgian legislators have been inconsistent in dealing with inflation accounting. No alternative methods are imposed on Belgian companies to show the effects of inflation on annual ac-counts, except for replacement costing and revaluations. This differs from the Fourth Directive. It is too strong an assertion to say that “replacement cost accounting … is forbidden except as auxiliary calculation and report in the decree” (p. IV/28), because firms are allowed to use this method.
If many firms do not use replacement cost accounting it is merely due to the fact that this system is not acceptable for the Belgian Tax Authorities. Furthermore, Forrester is wrong in arguing that “base stock methods for inventory valuation” (p. IV/31) are allowed in Belgium.
The author of Issue No. 4 stresses the deficiencies in the Profit and Loss account (p. IV/25) only based on the nature of costs. He omits in his analysis to mention the difference between the Royal Decree of 1976 and the Fourth Directive on this matter (p. IV/27-28). The Fourth Directive allows also for a Profit and Loss account presented on the basis of cost allocation. The Belgian Royal Decree does not, suggesting that the Belgian legislators still have to discover modern analytical cost accounting methods. This might also help to explain why in the Minimum Normalized Chart of Accounts classes 8 and 9 are left free and undefined, and could of course be used especially for Cost Accounts. (Appendix IV, see also p. IV/40)
It is furthermore somewhat surprising to see that Forrester wants to present a current picture of the Belgian economic environment anno 1980 (publication date) when on several occasions he refers to statistical data which were already ten or more years old. For example, data on “Companies registered at local Commercial Courts” goes back to 1970 (p. IV/8), Cobbaut’s study on dividend policies of 1969 covers the period 1946-1965 (p. IV/10) etc. … At least the author should have updated his empirical evidence in the text.
Finally, I believe Issue No. 4 deserved a better editing. Photo-printing from a typewritten copy sometimes results in an illegible presentation. This is especially true in the
Appendixes.
Although Issue No. 4 contains several faults and shortcomings it remains a valuable piece of research and provides the nonspecialist and non-Belgian a concise and comprehensive overview of the topic. In this regard, it would be appropriate for classroom discussion.
FOOTNOTES
2i
1Lefebvre, p. 114. 2Lefebvre, p. 115. 3Jegers and Buijink.
BIBLIOGRAPHY
Jegers, M. and Buijink, W. The Compliance of Belgian Firms with Recent Legislation, Based on the E.C.’s 4th Directive, on the Disclosure of Financial Information: An Evaluation. Antwerp: State University Center, 1982.
Lefebvre, Chris J. L. “Development of Belgian Accounting Standards within the European Economic Community Framework.” The International Journal of Ac-counting Education and Research, Vol. 17, No. 1 (Fall 1981), pp. 103-132.
