1.5 Borrowed finery
These examples show how financial reporting has evolved in response to economic evolution, but other influences have occurred also. One of these is ‘borrowing’ legislation from other countries. There is a strong tradition within continental Europe of looking at what the neighbours are doing and adapting their solutions for one's own use. Forrester (1996) discusses how professional accountants from the nineteenth century onwards encouraged exchanges of accounting rules.
The Savary Ordonnance (see Section 1.3) spread, ultimately, to many countries and is the original foundation of the accounting elements of the commercial codes encountered in Europe. The German state of Prussia used the Savary Ordonnance in the eighteenth century. At the beginning of the nineteenth century, it was adapted into Napoleon's first Commercial Code (1807), which was forcibly exported to Portugal, Spain, Italy and the Netherlands. Apart from the last, these countries have kept the code in place ever since.
When the new country of Germany was founded in 1870, it too built on the Prussian base and developed that into a similar code. Subsequently, Germany developed another corporate vehicle for small business, the GmbH (Gesellschaft mit beschränkter Haftung), which was an idea taken up in other European countries (France: société à responsabilité limitée etc.) and even back to the UK, in the EC Second Company Law Directive.
One of the remarkable aspects of the borrowing is that while Japan, for example, did not hesitate to adapt the German Commercial Code for domestic use, the UK remained largely outside the European exchanges of accounting technology until it entered the European Union. This is because the UK and the US have always exerted a strong influence on each other. For example, the technique of producing consolidated accounts was pioneered in the US in the early twentieth century and started to be used in the UK from about 1930, but only became widespread in the rest of Europe following the Seventh Directive, passed in 1983.
This fact supports the notion that worldwide there are two ‘families’ of financial reporting, the US/UK one (known as Anglo-Saxon reporting) and the continental European one (sometimes referred to as commercial code accounting).