US GAAP vs International rules – VW faces standards dilemma.

German car manufacturer Volkswagen is gearing up to abandon German accounting standards for either US GAAP or International Accounting Standards. The move by Europe’s biggest car maker could make or break fresh attempts to introduce global standards. If VW chooses US GAAP over International Accounting Standards, the US will have made a leap forward in getting its standards internationally accepted. A decision could also reopen the controversy surrounding accounting rules in the car industry. Discrepancies between UK and German practice fell under the spotlight last year when losses at subsidiary Rover were cited as the reason for BMW’s threat to abandon the Rover Longbridge plant. Rover’s accounts, compiled under UK GAAP and filed at Companies House, showed it made profits of £147m between 1994 and 1997. BMW’s consolidated accounts prepared under German standards showed Rover making a loss of £363m in the same period. The different figures arise mainly as a result of differences in UK and German methods of accounting for depreciation. The planned change in accounting policies follows mounting criticism among institutional investors of VW’s disclosure and communication policies. While CFO Bruno Adelt has not revealed which model he favours, he confirmed any change is likely to happen when the company switches its base accounting currency to the euro in 2001.

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