BilMoG and the Convergence of Managerial and Financial Accounting: Trade-off between Information Purposes and Tax Accounting

One of the reasons for transitioning from local German GAAP to IFRS is the convergence of management and financial accounting - at least on a group level basis. The latest revision of German GAAP was intended to provide a less expensive alternative to IFRS. This paper discusses the possible impact on convergence after the enactment of this legal change. Since financial statements for a legal entity have more purposes than only provision of useful information to stakeholders, i.e. quantify dividends, bonus payments and income taxes, it is an open question how and to what extent convergence or divergence will occur in the future. Especially, not only group accounts but, on an entity level, also tax accounting systems and cost accounting systems have to be considered as part of convergence or divergence decisions. The paper concludes that the revised German GAAP now provides a wide range of options in structuring the relation between these accounting systems and stakeholder interests. It is hypothesized that smaller firms with a low number of shareholders will probably focus on the convergence of tax and financial accounting while larger firms with diverse shareholder may decide for convergence towards IFRS and management accounting on company and group level. Such decisions will most likely be influenced by factors like stakeholder needs, corporate governance, cost, and synergies. Further empirical research is needed to understand how firms deal with these issues in practice.