2.6.1 Accounting regulations under Greek GAAP
In 1980, the Greek General Accounting Principles were defined by decree-law 1123 (1123/1980). According to clause 48, paragraph 1 of law 1041 (1041/1980) “The Greek General Accounting Principles constitutes a taxonomy of accounting principles, through which is intended the standardization of used accounts, their compound operation, the appraisal of companies‟ assets, the editing and publication of balance- sheets, the profit and loss accounts, as well the planning of accountancy in a national scale” (Chevas and Papadaki, 2004, p. 2).
The Greek GAAP are divided into 10 groups:
Groups 1–8 cover general accounting. Groups 1–5 include all the accounts of balance sheet, meaning all those accounts that at the end of each period have balances – debit or credit accounts – that compose the balance sheet. More specifically, Groups 1–3 include all the assets of each company, and Groups 4–5 include all liabilities.
Groups 6–8 include the profit and loss accounts, which at the end of each period are closed off, after the transfer of balances, first to trading accounts and profit and loss accounts, and second to the balance sheet. More specifically, Group 6 includes the accounts of operational expenses, and Group 7 includes the accounts of operational incomings. In Group 8 are included the accounts of general exploitation, of extraordinary items and the profit and loss accounts,
Group 9 covers operational accounting and
Group 0 covers the need for contra accounting (Sakkelis, 2007).
Specifically, Group 1 includes all the assets of an entity that will stay under the entity‟s ownership, the trade receivables and the expenses for depreciation.
Group 2 monitors the entity‟s inventories, which are considered to be commodities that belong to an entity and
i.are intended to be sold;
ii.are still under production and are planned to be sold when they take the form of ready goods;
iii.will be used for the production of other goods or the delivery of services; iv.will be used for the appropriate performance of fixed assets;
v.will be used for the package of goods that are planned to be sold.
Short-term receivables and funds of an entity are monitored in Group 3. Short-term receivables are considered to be all those receivables that by the composition of the balance sheet are receivable within the subsequent use. According to this definition each receivable whose repayment date expires within the subsequent period is reported in Group 3.
Group 4 includes each company‟s ownership capital, provisions and long-term liabilities, and Group 5 monitors the short-term liabilities, which are considered to be all those liabilities whose maturity date is before or on the same date of the end of the period.
In Group 6 the operational expenses are represented as well as the annual burdens for depreciations and provisions that are embodied in the operational cost. If there are no data about nature of these expenses, they are reported in Group 6, and during the period or at the end date of the balance sheet, they are transferred to the accounts to which they belong.
Group 7 monitors operational incomings as well as any income that occurs by the sale of goods or services that constitute the turnover, government grants and sequential incomings. The balances of Group 7, by the end of each period, are transferred to the credit account of Group 8. There is a possibility that the account of incomings includes expenses of future periods, either because they have been already collected or because they do not include worked and ought-to-be-paid incomings that will be paid in the next period. In this case, before their transfer to Group 8, they are reckoned in such a way that their balances depict the exact level of the worked and ought-to-be-paid incomings.
Group 8 includes profit and loss accounts, in gross and net amounts, as well as the accumulation accounts of all those gross profits/losses that have not been specified. In the same group are included the accounts of extraordinary items, profits and losses of previous years and extraordinary provisions.
The following section describes the transition from Greek GAAP to IAS/IFRS. It explains why Greek companies adopted IAS/IFRS in 2005 and not in 2003 as was initially required, and explains why most Greek companies produced no reconciliation statements.
2.6.2 The transition to IAS/IFRS
Although law 2992/2002 suggested that all Greek companies listed on the ASE should adopt IAS/IFRS from 1 January 2003, the fact that the companies proved to be unprepared to adopt them prevented this law from coming into force (Floropoulos, 2006). Therefore, a new law (3229/2004) required all the listed companies to make the transition to IAS/IFRS by 1 January 2005.
Presidential decree 186/1992 defines a fiscal year as a full year of 12 months that should end either on 30 June or on 31 December. Under IAS/IFRS, the date for the official publication of financial statements for a company was two months after the year end; however, Greek companies found it difficult to meet this target, and therefore, the HCMC decided that the publication date should be extended for one more month. Consequently, the first annual reports following IAS/IFRS were published in March 2006 (for all those companies whose year end was 31 December).
The fact that Greek companies as well as their accountants were not ready to convert to IAS/IFRS from Greek GAAP complicated the transition (Floropoulos, 2006). Half of Greek companies expected that the transition would have a positive effect on their financial position. However, the results of a survey by Grant Thornton and the AUEB (2003) revealed that one-third of the companies surveyed admitted that they had not acquired the appropriate experts, and less than one-fifth were prepared for the transition.
The IAS/IFRS required the disclosure of information that was not mandatory under Greek GAAP, enabling the users of annual reports to have access to the information available. Under Greek GAAP, a section of notes followed the financial statements within an annual report; these notes had a specific format, but were not always available to the public. The disclosure of notes within an annual report was not mandatory for all the companies; it was mandatory only for companies required to disclose them by the existing legislation each period. Therefore, companies were not required to disclose a
thorough set of notes that would follow the financial statements, as opposed to the requirements of IAS/IFRS, which in turn prevented investors from having access to all the information needed regarding the policies that were followed by Greek companies.
The first financial statements published under the IAS/IFRS included reconciliation statements that helped users to understand the adjustments resulting from the adoption of the IAS/IFRS. Before the mandatory transition to IAS/IFRS, only a minority of Greek companies had disclosed reconciliation statements within their annual reports; the majority of companies were unprepared and therefore produced no reconciliation statements (Floropoulos, 2006).
2.7 Basic Differences between Greek GAAP and IAS/IFRS as of Their Mandatory