International Financial Reporting Case Study



LVMH Moet Hennessy Louis Vuitton SA Case Study

Question A

What is the Autorité des Marchés Financiers? Explain why it was established in 2003 and describe its role in the development of financial reporting in France.

Answer

The Financial Markets Authority (AMF) is the French regulator of financial markets. It was introduced by Law No. 2003-706 of 1 August 2003 as supplemented by the Decree No. 2003-1109 of 21 November 2003 (amended by Decree No. 2005-131 of 14 February 2005). It works with the Prudential Control Authority (PCA), founded in January 2010. The establishment of the AMF was highly anticipated because there were several financial market authorities:

The CMF (CMF)

The SEC (Securities and Exchange Commission )

The CDGF (Disciplinary Board of the Financial Management)

It made understanding the architecture of the French control of financial markets, particularly for foreign investors. The mission is an addition to those previously assigned to its predecessors (COB, CMF and CDGF). Under Article L 621-1 of the CMF:

The AMF ensures the protection of investors in companies making public offerings or through introduction of financial instruments on financial markets.

It ensures consistency of information given to financial market participants.

It ensures the smooth functioning of financial markets.

Question B

The European Union's Fourth Directive allows four income statement formats. Explain the structure of LVMH's income statements on page 110, and on page 182, in terms of the options allowed under the Fourth Directive and IAS 1.

Answer

The fourth directive was the starting point for creating a community accounting law. The 4th Directive coordinates national provisions of Member States concerning the structure, the valuation methods and content of annual accounts for all limited companies in Europe. The 4th Directive, while allowing a degree of harmonization of the annual accounts of limited companies having their headquarters in Europe, however, left a large number of choices to member states in its application (www.tmx.com/).

The structure of the LVMH income statement comprises of financial reporting which is the set of indicators of accounting, reflected in the specific form of tables and characterizes of movement of assets, liabilities and financial position for the period. Financial reporting of the LVMH is a system of data on the company's financial position, financial results of its operations and changes in its financial position and shall be based on accounting data. Description of the nature of operations and principal activities of the credit institution and information on credit reference has been mentioned in the financial statement LVMH.

The IAS 1 defines the appropriate presentation of financial statements in order to make it compatible to the entity's financial statements and other entity's financial statements.

Under IAS 1, terminology-profit entities are that are applicable on public sector also. However, if firms in the public or private sector aim at applying this standard, they would be required to change the financial statements item description, including the names, that are applicable under the IAS 1 standards.

Question C

The 'Equity' component of LVMH's balance sheet on page 181 includes legal reserve. What are legal reserves? Is this practice allowed in ...