FRANCE NOW
(French
news in English)
September 1999,
Monthly, Issue No. 29
(Only
highlighted issues available for
on-line consultation)
This month in search of an
identity
Universal Medical
Coverage
European Union:
Is everyone free to move?
Accounting :
Consolidation of corporate accounts
A tour of Paris in Alphabet Poems
- X, Y & Z
Universal
Medical Coverage
The Universal Medical Coverage (UMC)
is going to cost the French State
nine billion Francs. This is nine
billion Francs paid by the taxpayer,
including me and maybe you. The
State will pay this nine billion
Francs to the CNAMTS* and private
mutual funds and insurance companies.
These organisations, in turn, will
pass on this money minus their
profit or administration expenses to
the health sector: pharmaceutical
companies, doctors, medical analysis
laboratories and, with this law,
dentists and opticians. We know that
the health sector needs growth in
sales. For this, they need either a
price increase or an increase in
quantity consumed. To avoid
inflation, the government would
prefer the latter. An increase in
consumption can either be more
consumption per head or consumption
by more people. Since France is
already a world leader in
consumption per head of medicines,
especially tranquillisers, the
French are already painfully aware
of their neurotic image and would
not like to tarnish it further. The
increase in sales must be directed
to those who are not consuming at
all or not enough (although even
this will increase the average
quantity consumed per person used
for international comparisons). Who
are the culprits who are lowering
French consumption of medicines from
its potential? The healthy, the very
healthy, who don't need it and the
poor, the very poor, who can't
afford it. While pollution may one
day crack the former, it seems
reasonable that the government find
ways to help the poor consume. This
is what a political settlement is
all about. Help the poor consume and
help the rich grow. The UMC is a way
of funding the consumption of
medicines by the poorest courtesy of
the taxpayer.
The government
has already taken steps to get the
poorest to consume. First, it
allowed non-working people to take
up Personal Medical Insurance. Of
course, this alternative was so
expensive (average of FF 15,000 per
person per year) that only 50,000
took it up. In fact, one would have
to be really sick really often for
it to be a rational decision.
Thereafter the government made
Personal Medical Insurance free for
the very poor, notably those on the
RMI*, covering another 500,000
people. The tab of FF 7.5 billion
was picked up by the CNAF*(FF 3
billion), the Department (FF 4
billion) or the FSV* (FF 0.5
billion). Still, they did not
consume. Why?
It is not clear
if the government does the analysis
for the pharmaceutical sector or if
the pharmaceutical sector pays for
its own market research and analysis.
In any case, the Minister for
Employment and Solidarity, Mme
Martine Aubry, revealed that basic
medical coverage pays only 70% of
the cost of medical treatment, if
the doctor charges the minimum
certified rates and prescribes only
reimbursable medicines, which is
rare. The balance 30% (or more) is
paid by the patient, unless he has
complementary private insurance. 38%
of the unemployed don't have this
complementary coverage and the
situation gets worse as we go down
the income scale. The 30% to be paid
by the patient is often a strong
enough deterrent that one French
person in five has avoided treatment
for financial reasons. In a
population of 60 million, this is 12
million people who have renounced
treatment at least once a year.
Imagine the shock of the directors
of large pharmaceutical companies
and of the economy. Inclusive of
doctors' fees, if the average
treatment costs FF 500, this is a
loss of FF 6 billion! And many may
have renounced the treatment more
than once. Her analysis also
revealed that the package of
departmental aid varied from one
department to another and people
were never sure of whether they
would be covered for a particular
ailment. So, this also may have
deterred them from going in for
treatment. Finally, the schemes
required the intervention of so many
actors (associations, insurance
funds, the prefect, etc.) and took
so much time that the patient
probably gave up.
The UMC needed to
remedy all these defects. So the
government needed to provide a
complementary coverage to the six
million people who are already being
offered free basic coverage by the
departments. This will improve their
health, because now they will have
no excuse not to go to the doctor.
An increase in pharmaceutical sales
also gets translated into an
increase in employment, another
national concern.
Another 150,000
people still refused to take up this
Personal Insurance. Presumably,
these were the healthy ones who did
not see the economic benefits of
taking up optional insurance if they
rarely went to the doctor. The UMC
will make these people pay because
the basic coverage of the UMC is
obligatory. Once they pay, they may
be tempted to take consultations and
buy medicines for ailments that they
had hitherto ignored.
The law on the
UMC explains that it consists of two
schemes: an obligatory basic
coverage and a free complementary
coverage for the poorest (Article
1). The law also goes into the
financial relations between the
different intervening bodies (the
State, the Departments, the CNAMTS
and the private medical insurance
options). Finally, the law discusses
a host of unrelated issues of a
social nature. For example, the free
and anonymous testing to check if
one has a transmittable disease or
the urgent information necessary on
the computerised health card, which
should be legible in any EU country.
Some of these issues were so
unrelated to the main subject that
the opposition members of the
National Assembly asked the
Constitutional Council to examine
the constitutionality of such a law.
The Council, used to this practice,
let most of the articles pass.
However, even it felt that throwing
in an article related to stickers on
cans of food products was really
nothing to do with the rest of the
law, and it threw this article out.
The basic
coverage
The minimum basic
scheme is being made compulsory
(Article 2) and extended to all
residents who are not covered by
some other medical and maternity
insurance scheme (Article 3). The
only criterion of applicability is
stable and regular residence. It is
free for those earning less than a
certain threshold, most of whom are
already getting this benefit.
This basic
coverage is now being extended to
the itinerant homeless if they are
registered with some humanitarian
association. Who is going to verify
the existence of these homeless
people: the public auditors of the
Cour des comptes?
It is also being
provided free to certain others who
meet the residence criterion such as
youngsters in the
sixteen-to-eighteen age group
(Article 7), provided they meet the
income criterion.
The only people
exempted are diplomats, those who
have come to France for treatment,
those working across the border who
are covered in that State for
illnesses in France, and the retired
agents of international
organisations (Article 8).
All other
residents must pay. The government
estimates that 150,000 new people
will get the compulsory basic
coverage, some of whom would do so
at government expense.
The government
has announced that the tariff of the
basic coverage is going to be less
expensive than the compulsory
personal insurance scheme (which is
now scrapped by Art. 2). As an
indication, it is likely to be free
up to an income level of FF 3500 per
month. Thereafter, beneficiaries
would have to pay a percentage of
their income beyond this threshold
(Article 3). For example, those
earning FF 5,000 would have to pay
only on FF 1500 (5000 - 3500).
Of course, this
raises the next question: what
percentage? Salaried employees pay
20% of their gross salaries and
their employer pays another 40% on
social security. If we take total
cost to the employer as the base,
the total social security cost comes
out to 50%. The employer complains
that an employee is costing him FF
15,000 per month and the employee
complains he is earning only FF
7,500. Of course, the medical
insurance component is about 13.5%
of the gross salary if we do not
include the CSG* which was
essentially replacing the employee's
contribution to Medical Insurance.
Otherwise, the total cost of medical
insurance works out to a little more
than 20% of the gross salary. Would
the new people covered by the
compulsory basic UMC be asked to pay
20% or more? If they pay only 20%,
workers will complain. Why should
they work to pay 20% medical
insurance on their entire income,
while those earning non-salaried
income pay only 20% on the excess of
FF 3,500? Obviously, one day, the
government will have to provide a
standard deduction of FF 3,500 to
all and increase the rates. This law
or another will have to be modified.
Of course, some non-salaried income
is also subject to the CSG and RDS
used to finance medical insurance.
Article 4
explains that all claimants would
get the benefit of the medical
services immediately on proof of
residence. Thereafter, the CNAMTS or
the local fund can research the
regime to which the claimant should
belong. This takes away the long
wait before a sick person could
benefit from medical coverage and go
in for treatment which he could not
otherwise afford.
Article 5 ensures
that no medical insurance
organisation can cancel the
affiliation of a person unless he no
longer fulfils the residence
criteria. It the patient is
transferred to another organisation,
his benefits cease only once his
affiliation to the other
organisation becomes effective. This
stops the practice of passing the
buck and explaining that the
reimbursement form got lost in
transit.
Of course, the
laws are being tightened. If these
150,000 people don't pay their dues
for the compulsory basic coverage,
the CNAMTS can sue them and recover
the money from their bank accounts
(Article 14). It can also recover
penalties for late payment and
interest on the principal and on the
penalties. So, the unemployed
wealthy will suddenly find that in
addition to the Wealth Tax and the
CSG and RDS* on their interest and
rental income, they now have to pay
a Medical Insurance Contribution. (One
day, the bankers will be asked to
deduct this at source from interest
income.) Another reason to consume
now rather than to save and invest.
It is pertinent to give the
government another good suggestion:
make transit insurance compulsory
for all small businesses "so
that they avoid taking the risk of
going bankrupt by an accident".
Private insurance
companies and mutual funds lose out
to some extent. The obligation of
taking the compulsory public basic
coverage means that a person no
longer needs any private basic
coverage he may have taken instead
of the expensive personal medical
insurance. Article 18 allows the
person to get reimbursed for the
cancellation of all such contracts,
pro rata for the unexpired period of
coverage.
The
complementary coverage
Free
complementary coverage is being
extended to the poorest. The
complementary coverage would include
the part of conventional tariffs and
medicinal prices that the basic
coverage does not reimburse, the
hospital forfeit which is not
reimbursed by the basic medical
coverage and the dentists' and
opticians' expenses not reimbursed
by the basic coverage. 85% of French
people already have the
complementary medical coverage and
15% don't. This means about nine
million people are without
complementary coverage. Of these,
Mme Aubry estimates that six million
people will be provided free
complementary coverage since they
would be earning less than a
threshold. This threshold is higher
than that of the free basic medical
coverage. It varies according to the
size of the household (Article 20).
The government has indicated that it
would be around 3,500 francs per
month for an individual, FF 5,200
for two people, FF 6,300 for three,
and FF 1,400 per month for each
extra person in the household.
This would
include 650,000 people who would be
covered by the free basic medical
coverage and many of those who were
already getting but not availing of
the free personal medical insurance
scheme. The people who get free
complementary insurance would also
get the benefit of not paying any
advance and then waiting for it to
be reimbursed. They can consult the
doctor of their choice and he would
get the payment directly from the
CNAMTS and/ or from the private
insurance company.
To simplify
matters, the departmental aid, the
associated financial juggling and
the heterogeneity of the composition
of the basic coverage, are all being
standardised at the State level. Of
course, all simplification is
complicated, and for a number of
years, the departments would be
compensated for the reduction in
subsidies. Departmental aid is being
scrapped, but there will still be
State Aid for people who don't live
regularly in France, if their income
is low enough to qualify. This
includes primarily illegal workers
and those helped by the French State
on humanitarian grounds. Ironic! The
government doesn't want to throw out
the illegal workers but wants to
provide them medical benefits. Why
not provide them political security
and reduce their stress by 90%?
Because, it is not a politically
acceptable solution even if the
votes of the non-approved
nationalist factions have fallen to
below 10%. Lower stress may also
reduce medical consumption and
sales. So, politically and
economically, it remains a poor
solution. Not being able to
regularise them, the government is
doing the next best thing: it is
letting them remain in good enough
health to continue working. The
question is how will the government
assess the income of someone who is
living and working illegally.
Private insurance
companies are unhappy with the
stipulations relating to
complementary coverage for a number
of reasons. First, of the six
million people who would be provided
free coverage, at least half
hadprivate insurance policies for
complementary insurance. The law
permits them to cancel these and get
reimbursed (Article 23).
Second, in most
cases, the new complementary
coverage is likely to be managed by
the CNAMTS or related quasi-public
social security funds, although
patients can opt for a private
organisation. This makes a major
change from a relationship where the
CNAMTS looked after the basic
coverage and the private insurance
had a virtual monopoly into
complementary insurance (58% of the
contracts were with mutual funds,
20% with insurance companies and 15%
with providence funds).
Third, the mutual
funds, the providence funds and
insurance companies can opt to
compete for providing the
complementary insurance to the six
million people only by paying a
1.75% tax on their entire health
insurance turnover. The government
would then pay them a charge, say FF
1500, for each person who opts to be
covered by a private organisation
instead of taking the simple route
of letting one fund, CNAMTS,
reimburse the whole amount. Which
means that the private insurers
would need to provide more benefits
than those provided by the CNAMTS to
attract enough "free"
patients to recover their 1.75%
entry fee.
Fourth, once an
organisation decides to participate,
it cannot refuse anybody. This
avoids the practice of private
insurance companies trying to
attract only healthy patients
through attractive schemes and
leaving the really sick ones for the
CNAMTS.
Evidently, the
most important question to be posed
is why the government is trying to
dissuade people from working? Why
would people work for the SMIC* and
pay their own complementary
insurance in addition to the 20%
deducted at source for the basic
medical insurance if others don't
work, get the RMI, and free basic
and complementary medical insurance?
Somewhere, social justice is
creating a strong disincentive to
work. It is making people question
the misery of an unproductive career
if there is no gain from working.
And all their capitalist education
tells them not to work if there is
no gain.
Doctors are
allowed to either fix their tariffs
according to a convention with the
CNAMTS or charge whatever they want.
In practice, this means that there
is a minimum floor which everyone
respects and there is thus no
cut-throat competition among
doctors. Those whose reputations
allow, charge more. The basic
medical coverage reimbursement is a
percentage of the conventionally
agreed tariff. The free
complementary insurance will
reimburse the rest of the
conventionally agreed tariff. But if
certain doctors charge more, the
patient would still have to bear a
part of the cost (although certain
private insurance policies reimburse
this too). It is normal that the
State does not want the poor people
to bear this cost as it discourages
them from going to the doctor and
consuming all the related medicines,
laboratory analyses, etc. The
government has therefore persuaded
the doctors and legislated that the
doctors would charge only the
conventionally agreed minimum prices
to the beneficiaries of the new UMC
scheme (Article 24). A sort of
discriminative pricing for those
above and below a poverty threshold.
This would be to the overall gain of
the doctors, allowing them to eat
into the consumers' surplus. In the
diagram they would get HFGO extra.
In the chic 7th
arrondissement of Paris, in the
waiting rooms of doctors, dentists
and ophthalmologists who charge FF
300 or more for a consultation
instead of the conventional FF 115,
one now expects to see urine-clothed
homeless people finally taking care
of themselves, while the other
patients become sicker still to know
that they actually have to rub
shoulders with their stinking
brethren. So much for the gauche
caviar (term used for rich
bourgeois prattling left-wing
ideology). But how do you feel about
that if you are working hard to earn
a little more than the SMIC? These
poor people can go free to good
doctors that your 100% mutual does
not cover. Just as those earning
above another threshold look at the
beautiful HLMs (low income housing)
which they are neither entitled to
nor can afford in the market place.
*CNAMTS = Caisse
Nationale d'Assurance Maladie des
Travailleurs Salariés (National
Fund for Medical Insurance of
Salaried Workers)
CNAF = Caisse
Nationale d'Allocations Familiales
(National Fund for Family
Allowances)
CSG =
Contribution Sociale Généralisée
(Generalised Social Contribution)
FSV = Fonds de
Solidarité Vieillesse (Old-age
Solidarity Fund)
RDS =
Remboursement de la Dette Sociale
(Social Debt Reimbursement)
RMI = Revenu
Minimum d'Insertion (Minimum Dole
for the long-term unemployed to
reinsert themselves into the system)
SMIC = Salaire
Minimum Interprofessionel de
Croissance (The Minimum wage in
France)
European
Union: Is everyone free to move?
In a federal country like India or
Australia, people are free to move
from one State to another. They can
study, work, holiday or simply
retire in another State.
The European
Union (EU) is not yet a federation.
It has not yet permitted complete
freedom of movement for all its
residents. First, non-EU foreign
nationals residing in a EU member
State are free to move without visas
only within the countries who have
agreed to the Schengen accord.
Second, even for EU passport
holders, the free movement is
limited to workers, spouses of the
local person, the retired and
students. But all of these still
have to go through some formalities
to get their papers. Third, those
who don't have money are not wanted
in any other country.
The economic
rationale is simple. Each State
wants to attract productive workers
or, better still, entrepreneurs
prepared to invest and employ. It
also wants to attract those who have
the money (earned elsewhere) which
they would be willing to consume and
spend so that the State's economy
could get the multiplier effect.
This would include the retired and
the students. Conversely, no one
wants those for whom one would have
to pay social security benefits:
unemployment doles, medical benefits
or family welfare. An exception is
made for spouses of the local
residents.
Now that member
countries have understood and agree
to the benefit of attracting
employers, workers, spouses,
well-heeled pensioners and students,
the EU has directed that
administrative formalities for EU
nationals be made easier for these
categories, at least. The
modifications of the French
legislation and procedures relating
to visas and residence permits
allotted to EU nationals and those
of the European Economic Area (EEA)
are to be interpreted in this
background.
1. Earlier, the
French consulate or diplomatic
mission could refuse a visa ad hoc.
Now, it has to provide reasons for
refusing a visa to a European from
the EU or the EEA. Besides being
more humane in itself, this ruling
means that the bureaucrat has to
search for a legally valid and
justifiable reason. Cases of refusal
based on personal doubt are likely
to diminish.
2. EU and EEA
Europeans engaged in an economic
activity (entrepreneurs,
professionals, workers) would now
immediately get a ten-year permit
and, thereafter, a permanent one as
long as reciprocal arrangements
exist with the country of the
applicant. At present, these people
are first given a five-year permit,
which is then renewed. For existing
holders of five year permits, the
ten-year permit would be given only
at the time of the expiry of the
current permit. The government has
taken care to point out to the
prefects that the benefit of such
residence permits is not to be
provided to those who want French
social advantages: RMI, access to
housing, State-financed professional
training, help for finding
employment, etc. This facility is
also not to be provided to temporary
or seasonal workers.
EU and EEA
entrepreneurs, professionals and
workers need to produce their
National Identity Cards and either a
certificate of employment in France
or a declaration to engage
themselves in business or
profession.
3. EU and EEA
spouses of French citizens will also
be provided a ten-year card
immediately instead of a five-year
one, to bring them into equality
with the treatment given to spouses
from other countries.
4. EU and EEA
retired pensioners are to be
provided a residence permit if their
pension is sufficient to allow them
to live here. But even those who are
not earning enough are to be
permitted if they can show
sufficient resources in kind
(property owned or access to free
housing by a friend who owns
property in France, coupled with
marginal activity, royalties or
transfers from a relative who agrees
to stand as guarantor). In addition,
the applicant must have a medical
and maternity insurance policy
offering benefits similar to those
provided by the French basic social
security regime.
EU and EEA
retired citizens therefore need two
documents in addition to their
identity cards: documents proving
that they have sufficient income and
a document indicating affiliation to
a private medical insurance policy.
5. EU and EEA
students will find things simpler.
If they have the income and medical
insurance documents, these are of
course welcome. However, it is
enough for the EU student to
declare, on his honour, that he has
enough resources and to declare that
he has medical insurance for himself
and his family. Based on these, they
will get their residence permit.
Slowly but
surely, therefore, as the EU moves
towards federalism, administrative
formalities are being simplified, at
least where the member-States
unanimously agree that it is in
everybody's interest to do so. All
are agreeing on the benefit of
reducing the cost of administrative
formalities and on attracting the
above-mentioned categories of
people.
If bums were to
organise themselves in a European
syndicate of bums and beggars, they
would probably obtain the political
clout to travel and live in
countries where the social security
handouts are more generous.
Political clout can overcome their
economic impediment, but organising
is work.
Accounting
: Consolidation of corporate
accounts
Is the desire to pay lower income
and wealth taxes the origin of the
conservative principle of
accounting? Does this explain why,
having used these conservative
principles for individual legal
entities subjected to taxes, the
owners of large groups of companies
would nonethelss like to flaunt
their real wealth by indicating much
higher profits and assets for the
group? This is why, after
consolidation, the whole would be
more than the sum of its parts.
In France, the
guidelines on accounting are issued
by the National Accounting Council (Conseil
National de la Comptabilité
-CNC), who replaced the Conseil
Supérieur de la Comptabilité
in 1957. This is the accounting body
which has responsibility for the
French Accounting Plan. It also
provides guidelines for accounting
treatment on specific matters. For
consolidation of corporate accounts,
the CNC issued guidelines in 1968
and 1978 as follows:
1. Where a
holding company has more than 50% of
the voting rights in another company
or where full control is exercised,
the method of consolidation to be
used is global consolidation. This
method may also be called global
integration on line-by-line
aggregation by different authors.
2. For holdings
of more than 33 %, or a lower level
if judged appropriate, the equity
method was to be used. This method
is known as "mise en
équivalence" in French.
Essentially, it requires converting
the value of the investments into
the proportionate net worth owned.
It is not the same thing as the
method "Evaluation des titres
par équivalence" which
concerns the accounts of a holding
company and not that of the
consolidated company (which does not
really exist) and also concerns a
holding company which controls (more
than 50%) as opposed to a notable
influence for the equity method.
3. For joint
ventures owned by two or more
groups, the proportionate
consolidation method was to be used.
This method is also known as the
proportionate aggregation or
proportional integration.
Lavabre &
Lavabre* give a simple example of
the results of consolidation using
the three different methods. Company
X owns 45% of company Y. The income
statement and the balance sheet of
the two companies are presented
below along with those of the
consolidated company XY using the
three different methods.
The example
illustrates the diversity of results
obtained by the three methods.
Obviously, if at 45% control, one is
taking only a proportion of the
income into account by using any of
the last two methods, it may be
worthwhile for a corporation to buy
out another 5% to achieve the
threshold to use the global
consolidation method and report
significantly greater profit and
total assets.
It is evident
that adjustments have to be made for
inter-company accounting of
reciprocal debts, incomes and
dividends paid by the subsidiary to
the holding company.
For complex
holdings, either we can consolidate
in stages, at the level of each
holding company, or we can
consolidate directly into the books
of the final consolidated company.
Either way the result is the same as
long as there is no circularity. If
there is circularity, the
consolidation has to be direct and a
system of multiple equations has to
be solved to obtain the percentage
share in the subsidiary.
|
X |
Y |
XY |
Global
Consolidation |
Proportionate
Consolidation |
Equity
Method |
Balance
Sheet |
Own Capital |
10000 |
5000 |
11250 |
11250 |
11250 |
Minority
Interest |
|
|
2750 |
|
|
Debt |
3000 |
2000 |
5000 |
3900 |
3000 |
Total
Liabilities |
13000 |
7000 |
19000 |
15150 |
14250 |
Various
Assets |
12000 |
7000 |
19000 |
15150 |
12000 |
Investments |
1000 |
|
|
|
2250 |
Total Assets |
13000 |
7000 |
19000 |
15150 |
14250 |
Income
Statement |
Income |
100000 |
41000 |
141000 |
118450 |
100000 |
Proportionate
profit of equalised companies |
|
|
|
|
225 |
Total income |
100000 |
41000 |
141000 |
118450 |
100225 |
Expenses |
99000 |
40500 |
139500 |
117225 |
99000 |
Profit |
1000 |
500 |
1500 |
1225 |
1225 |
Total
(Exp. Profit) |
100000 |
41000 |
141000 |
118450 |
100225 |
The law of 3rd
January 1985 and its decree of
application dated 17th February 1986
introduced an obligation for all
commercial corporations to present
consolidated accounts if they own,
control or exert a significant
influence on another company. These
texts were a ratification of the
accounting methodology considered
appropriate by the CNC. The
legislation was passed to implement
the seventh council directive of the
European Community. The obligation
to present consolidated accounts
started in 1986 for all stock
exchange listed companies and by
1990 for all other companies. There
was no need to present consolidated
accounts if the company itself was
included in the global consolidated
accounts of another company that
provided the information comparable
to that required for the French
consolidated accounts in accordance
with the EC seventh directive.
Over the years,
it was generally recognised that
significant influence started as
early as 20% and as such companies
should be included in the global
consolidated accounts if the holding
company, its subsidiary or the
different entities of the group held
more than 20% of another company. In
all such cases the equity method was
to be used.
The major
evolution was a recognition that
* The same
accounting policy should be used
throughout the group for presenting
the consolidated accounts (e.g.
Depreciation policy, stock
valuations, accounting of leased
assets).
* The effect of
accounting entries made solely to
conform to tax laws should be
eliminated
* The recognition
of deferred tax (timing differences
and effects of tax losses carried
forward) should be accounted for.
* The value of
the assets to be used in obtaining
the net worth was to be based on a
revaluation principle so that the
consolidated accounts present a more
accurate picture of the global
enterprise. Since revaluation in
general inflates the figures, it may
be presumed that the idea of
presenting consolidated accounts is
to show how strong or potent the
group really is and to lay aside the
principles of conservative
accounting which seem to be valid
only for the individual enterprise.
* The difference
in the book value of the shares and
the cost of acquisition could be
treated as the difference owing to a
lack of revaluation and the
difference owing to the extra price
of acquiring control. It is evident
that a fair accounting treatment
requires that the two components be
separated and reflected in the
accounts of the consolidated
company.
All this extra
accounting and revaluation mean more
money paid to accountants. This is
obviously in the interest of
accountants. It also means that
small companies may not afford all
the extra accounting fees for
consolidation accounting. Does this
mean that legalising the CNC's
guidelines endorses a policy that
mergers and consolidations are to be
left for the big boys?
"No", replies Deepak
Menon, partner at J.P. Kapur &
Uberai's Chartered Accountancy firm:
" As I see it if there is a
merger or consolidation of plural
corporate entities, they unite into
a single entity and this ultimately
leads to only one set of financial
statements and not plural financial
statements which need to be
consolidated as in the case of as
group where each unit maintains a
separate identity though is part of
the same group, thus needing
consolidation of accounts."
The latest
guidelines of the CNC (December
1998) have now been ratified by the
Accounting Regulations Committee
(April 1999), itself ratified by an
order of the Ministry of Economics,
Finance and Industry (June 1999).
The CNC has updated the entire
accounting policy associated with
the issue of the Consolidation of
Corporate Accounts. The final
version seems rather poorly
presented, even though it follows a
codification scheme. For example,
many pages are devoted to global
consolidation and only a third of a
page to proportional integration and
less than a page to the equity
method. In both of the latter
methods, certain principals
discussed in the global
consolidation method are to be
applied. This criticism could have
been obviated by placing all the
common provisions in one part and
then using a second part to discuss
the separate principals unique to
each method. The result would have
been an easier understanding of the
differences between the methods and
their application. Maybe, the reason
for the lack of balance in the plan
is that the CNC has been trying to
include every change in a
preconceived code to which
accountants are already accustomed.
*C. Lavabre &
G. Lavabre: Comptabilité des
sociétés fusions consolidation,
(1995) DECF, Litec.
UN Centre for
Transnational Corporations:
International Accounting and
reporting issues (1987).
C. Nobles &
R. Parker ed.: Comparative
International Accounting (1995),
Prentice Hall Intl (UK).
** Our thanks to
Deepak Menon for having read through
the article and the suggested
corrections. He also adds that there
is no legislation on the subject in
India, thus allowing a large amount
of flexibility in presenting group
accounts.
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