French accounting requirements are primarily contained in the Code of Commerce, supplemented by laws, decrees, and the French Tax Code. As pointed out in a number of publications, French accounting requirements differ from the international standards. With regard to convergence, a 2007 European Committee of Central Balance Sheet Data Offices report points out that the National Accountancy Council (CNC) will continue its policy of "progressive convergence" of national Generally Accepted Accounting Practices (GAAP) towards International Financial Reporting Standards (IFRSs), with simplification for small and medium sized enterprises. However, since 2004, in line with its progressive convergence policy position, France has been selective in endorsing IFRSs and has partially adopted only a few of the international standards. A 2006 National Organization of Registered Auditors self-assessment further explains that convergence in France is limited and is likely to stay that way until national tax and legal issues arising due to the application of international accounting standards in the individual annual accounts are resolved. Per European Commission Regulation No. 1606 of 2002, in France, only listed companies are required to follow IFRSs in consolidated accounts beginning January 2005. As for the consolidated accounts of unlisted companies, the French standard-setter, CNC, allows for the option to choose between IFRSs and the French GAAP. The 2006 European Commission report on the implementation of Regulation No. 1606 of 2002 further noted that IFRSs are not permitted for use in the annual accounts of any type of companies.

General Overview

According to a 2007 European Committee of Central Balance Sheet Data Offices (CBSO) report on the impact of IFRSs, in 1998, the Accounting Regulation Committee (Comité de la Réglementation Comptable, or CRC) -- a government body -- was established with the legal authority to approve French accounting standards. In 1999, the CRC approved a new methodology on consolidation in order to somewhat align the French GAAP with the IFRSs. However, significant differences in accounting for intangible assets, goodwill, business combinations, fair value, and optional adjustments were observed. Finally, in 2004, the French Parliament endorsed the preferences established by the National Accountancy Council (Conseil National de la Comptabilité, or CNC), a technical body that sets accounting standards to be approved by the CRC, regarding accounting treatment for different entities. The CNC, in accordance with European Commission (EC) Regulation No. 1606 of 2002, accepts the mandatory application of IFRSs in preparation of consolidated accounts by all listed companies, beginning 2005. The 2006 EC report on the implementation of Regulation No. 1606 of 2002 confirmed that France requires IFRSs in the consolidated accounts of listed companies and permits IFRSs in the consolidated accounts of all other companies. IFRSs, however, are not permitted for use in the annual accounts of any type of companies.

French accounting requirements are primarily contained in the Commercial Code, CRC regulations, and recommendations supplemented by the French Tax Code (accounting requirements are heavily influenced by tax laws). According to a number of publications on the subject, French accounting practices differ from international requirements. With regard to convergence, as noted in the 2007 CBSO report, the CNC will continue its policy of "progressive convergence" of national GAAP towards IFRSs with simplification for small and medium size enterprises (SMEs). However, the CBSO notes that, since 2004, France has been selective in endorsing IFRSs and has partially adopted only IAS 16, 36, 37, and 38. Furthermore, a 2006 National Organization of Registered Auditors (Compagnie Nationale des Commissaires aux Comptes, or CNCC) self-assessment explained that "although certain level of convergence has been reached (particularly regarding valuations and accounting of assets and liabilities) the convergence is limited until all the local tax and legal issues raised by the application of international accounting standards in the individual annual accounts are resolved" (p. 67).

According to the description of the regulatory framework provided in the 2005 CNCC self-assessment, the Financial Markets Authority (Autorité des Marchés Financiers, or AMF) is empowered by the Monetary and Financial Code (Code Monétaire et Financier) to regulate the securities market. The AMF is entitled to publish guidance on a very broad range of financial reporting requirements however it does not play any specific role in accounting and auditing standard-setting. With regard to listed entities, the self-assessment explains that "AMF is required by ruling to deliver a visa on prospectuses. For this purpose, it is entitled to require additional disclosure or information to be provided by the issuer in the prospectus, including certain accounting treatment if necessary." The Banking Commission (Commission Bancaire, or CB) regulates banks and similar financial institutions. As part of its regulatory role, the CB requires more frequent financial reporting (on a monthly or quarterly basis) and more detailed financial statements by financial institutions. Additionally, a different set of accounting standards issued by the CRC must be applied by these entities. The CB supervises the financial information by conducting on-site inspections and examining annual reports sent by auditors. For the insurance sector, compliance and enforcement of accounting and reporting requirements are monitored by the French Insurance Supervisory Authority (Commission de Contrôle des Assurances, Mutuelles et Institutions de Prévoyance, or CCAMIP). Similar to the role of the AMF, the CCAMIP also conducts on-site inspections and examines the annual reports sent by auditors.

According to a 2005 International Monetary Fund (IMF) report, "the accounting and auditing professions are well regulated and subject to rigorous training and entry requirements. They are subject to regulation and codes of conduct issued by the [High Counsel of Statutory Auditors] Haut Conseil du Commissariat aux Comptes (HCCC) and the CNCC" (p. 12). The CNCC is a member of the CRC and the CNC and participates in the working groups of these two bodies, which are responsible for setting private sector accounting standards. The 2006 CNCC self-assessment notes that France has it own code of ethics which differs from the International Federation of Accountants (IFAC) code of ethics. The National Organization of Public Accountants (Ordre des Experts Comptables, or OEC) and the CNCC are listed as members on the IFAC website.

The Principles

IFRS 1: First-time Adoption of International Financial Reporting Standards (effective 2006)

II

There is insufficient publicly available information as to France's compliance with this principle.

IFRS 2: Share-based Payment (effective 2005)

NC

At the time of the assessment, the 2003 KPMG report observed that unlike IFRSs under the French GAAP "there are no disclosure requirements for share-based payments" (p. 13).

IFRS 3: Business Combinations (effective 2004)

NC

At the time of the assessment, the 2003 KPMG report observed, that unlike IFRSs, under the French GAAP, "in determining the cost of acquisition, the fair value of equity securities issued is determined at a date set by the market regulator" (p. 7). Also, per the 2004 CBSO report, unlike IFRSs, "goodwill amortization period may exceed twenty years under national GAAP" (p. 5).

IFRS 4: Insurance Contracts (effective 2006)

II

There is insufficient publicly available information as to France's compliance with this principle.

IFRS 5: Non-current Assets Held for Sale and Discontinued Operations (effective 2005)

NC

At the time of the assessment, the 2003 KPMG report observed, that unlike IFRSs, under the French GAAP, "there are no rules for discontinuing operations" (p. 14).

IFRS 6: Exploration for and Evaluation of Mineral Resources (effective 2006)

II

There is insufficient publicly available information as to France's compliance with this principle.

IFRS 7: Financial Instruments: Disclosures (effective 2007)

II

There is insufficient publicly available information as to France's compliance with this principle.

IAS 1: Presentation of Financial Statements (effective 2007)

NC

At the time of the assessment, the 2003 KPMG report observed, that unlike IFRSs, under the French GAAP, "no statement of recognized gains and losses is required [and] the statements of changes in equity and cash flows need not be presented as primary statements" (p. 5). Other differences also exist.

IAS 2: Inventories (effective 2005)

NC

At the time of the assessment, the 2003 KPMG report observed that unlike IFRSs, under French GAAP, " agricultural produce may be stated at cost at the date of harvest" (p. 11). Additionally, the 2004 CBSO report observed differences in disclosure requirements.

IAS 7: Cash Flow Statements (effective 1994)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP, "the statement of cash flows needs not be presented as a primary statement. The cash flow statement may be reconciled to net indebtedness rather than to cash [and] dividends paid must be classified as financing" (pp. 5-6).

IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors (effective 2005)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP "all errors are corrected in the current period's financial statements. [Also,] accounting policy changes are effected by restating opening retained earnings of the current period; comparatives are not restated" (p. 8).

IAS 10: Events after the Reporting Period (effective 2005)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP "the financial statements are not adjusted for a post balance sheet event that indicates that the going concern principle is no longer appropriate" (p. 8).

IAS 11: Construction Contracts (effective 1995)

NC

According to the 2004 CBSO report, unlike IFRSs, "the percentage of completion method is a preferred treatment but is not required for construction contracts" (p. 14).

IAS 12: Income Taxes (effective 2001)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP "deferred tax is not recognized on the fair valuation of unamortized intangible assets acquired in a business combination if they cannot be sold separately" (p.12). Other differences also exist.

IAS 14: Segment Reporting (effective 1998)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP "segment reporting can be omitted if the directors consider it seriously prejudicial to the enterprise" (p. 14). Other differences with regard to disclosure requirements also exist.

IAS 16: Property, Plant and Equipment (effective 2005)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP "cost always is the contract price [and] revaluations do not have to be updated" (p. 9).

IAS 17: Leases (effective 2005)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP "the capitalization of finance leases is preferred, but not required" (p. 14). Further, "there is no definition of a finance lease under French GAAP" (p. 14). Differences in the treatment of sale and leaseback transactions were also observed.

IAS 18: Revenue (effective 1995)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP "more emphasis is placed on the legal form of a contract in deciding when to recognize revenue [and] there is little specific guidance on revenue recognition" (p. 13). Further, the report noted that, unlike IFRSs, percentage-of-completion method is optional for long term contracts.

IAS 19: Employee Benefits (effective 2006)

NC

According to the 2004 CBSO report, national GAAP is inconsistent with IFRSs as "recognition of a liability for post- employment benefits is a preferred treatment but is not required" (p. 14).

IAS 20: Accounting for Government Grants and Disclosure of Government Assistance (effective 1984)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP "investment subsidies are shown as part of shareholders' equity" (p. 13).

IAS 21: The Effects of Changes in Foreign Exchange Rates (effective 2005)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP "unrealized gains on foreign currency transactions may be deferred" (p. 8).

IAS 23: Borrowing Costs (effective 1995)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP "imputed interest may be amortized on a straight-line basis" (p. 13).

IAS 24: Related Party Disclosures (effective 2005)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP, "the definition of related parties generally is narrower than under IFRS" (p. 15).

IAS 26: Accounting and Reporting by Retirement Benefit Plans (effective 1998)

II

There is insufficient publicly available information directly addressing this principle.

IAS 27: Consolidated and Separate Financial Statements (effective 2005)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP, "control is based on de facto control, and there is no guidance on potential voting rights. At least one share in a controlled entity must be held in order to consolidate it" (p. 6). Other differences with regard to consolidation of subsidiaries also exist.

IAS 28: Investments in Associates (effective 2005)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP, "significant influence is based on de facto significant influence [and] there is no guidance on potential voting rights" (p. 10). Other differences with regard to treatment of investee and goodwill also exist.

IAS 29: Financial Reporting in Hyperinflationary Economies (effective 1990)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP, "financial statements of foreign entities in hyperinflationary economies may be measured as if their functional (measurement) currency were their parent's reporting (presentation) currency" (p. 6).

IAS 31: Interests in Joint Ventures (effective 2005)

II

At the time of the assessment, the 2003 KPMG report observed that requirements of French GAAP are similar to IFRSs regarding this principle. However, there is no further information on exactly how the French requirements conform to or deviate from IFRSs.

IAS 32: Financial Instruments: Disclosure and Presentation (effective 2005)

NC

At the time of the assessment, the 2003 KPMG report observed that, under French GAAP, "financial instruments are not classified into the same categories as under IFRS, and are not fair valued except in very limited circumstances"(p. 10). Other differences also exist.

IAS 33: Earnings per Share (effective 2005)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP, "the method of calculating EPS [earnings per share] is not specified" (p. 14).

IAS 34: Interim Financial Reporting (effective 1999)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP, "the recognition and measurement rules are the same as for annual financial statements, with no exceptions" (p. 15).

IAS 36: Impairment of Assets (effective 2004)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP, "an impairment loss is recognized in the form of additional depreciation when an asset's net realizable value is lower than its net book value" (p. 11).

IAS 37: Provisions, Contingent Liabilities and Contingent Assets (effective 1999)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP, "there is no requirement to discount provisions [and] provisions for major repairs and maintenance are recognized" (p. 12).

IAS 38: Intangible Assets (effective 2004)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP, "expenses may be capitalized more frequently than under IFRS." Differences in accounting treatment of development costs, amortization of intangibles, revaluation, and impairment testing were also observed. The 2004 CBSO report further noted differences in the definition of intangible assets.

IAS 39: Financial Instruments: Recognition and Measurement (effective 2006)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP, "generally only 'permanent' impairments are recognized [and] any liability discount or premium may be amortized on a straight-line basis" (p. 10). The report further noted that hedge accounting is permitted more frequently under IFRSs.

IAS 40: Investment Property (effective 2005)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP, "investment property is accounted for as property, plant and equipment. Investment property may be revalued only when all long-term financial instruments and property plant and equipment are revalued. Any revaluation surplus is credited directly to equity" (p. 9).

IAS 41: Agriculture (effective 2003)

NC

At the time of the assessment, the 2003 KPMG report observed that, unlike IFRSs, under French GAAP, "biological assets may be stated at cost" (p. 11).