An income statement refers to the financial statement of a company that represents the revenues and expenses of that particular company during a specified financial period, which is usually one year. Generally, an income statements represents the model and avenue of evaluating the revenues (the amount that an organization has received from the sales of their products and services before the expenses are deducted) and showing how they are transformed to net income ("Financial Statements", 2012). For the purposes of the financial reports and informations, income statements are prepared in order to provide adequate information of the companys financial position, especially to managers, shareholders, government and investors among others. They show whether a business is making loss or profit ("Financial Statements", 2012). Depending on the nature of the operations of a business, the income statement could vary. In addition, different set of standard guidelines that have been established also affects and determine the procedure and method that income statements should be published. Therefore, the aim of this paper is to compare and contrast the key elements of published income statements of Deutsche Bank (according to German Accounting and Reporting methods) and Bank of America (according to U.S. GAAP Accounting and Reporting Methods).
Deutsche Bank is a global operating banking institution that has its headquarters in Deutsche Bank Twin Towers in Frankfurt, Germany. It operates in more than seventy countries, especially in America, Europe, and Asian countries. The bank is well renowned due to expertise and excellence that describes it in the foreign exchange globally (Lin, Riccardi, & Wang, 2012). The bank mainly deals with vast investment on banking issues; which can be represented as 50% of equity, 50% of profits and 75% of leverage assets. On the other hand, Bank of America is one of the Americans leading financial institution in the aspects of banking, where it has headquarters in Charlotte, North Carolina in the United States. In U.S economy, the bank is regarded as the second largest bank holding in terms of the assets (Lin, Riccardi, & Wang, 2012).
The published income statement, which in this regard is for the year ending 31 December 2015, of the both companies/ banking institution have been prepared and presented in accordance to the accounting standards that govern the specific places (Cready, 2008) For instance, Deutsche Bank has adopted German Accounting and Reporting methods, while Bank of America uses the U.S. GAAP Accounting and Reporting Methods as their guideline tool in the preparation of the income statements (Cready, 2008).
Both the published income statements from the both institutions have similar components such as revenue, expenses and net income. In addition, there are some disclosures that are made as notes on the bottom of the income statements (Bank of America Corp, 2015). Such disclosures are for the materials such as disposals of property, investments, reversal on provisions, restructure of activities, and litigations of settlements. Also, earning per share is disclosed on the face of income statement. The method of revenue recognition in both accounting standards is mainly based on the fact that there is transfer of the rewards (Bank of America Corp, 2015). Other revenues such as construction of contracts are computed in a completion method, which is in the both types of accounting standards. The method of recognition of the interests is the accrual basis since it is ideally regarded as a better method of amortizing non-cash finance charges (Bank of America Corp, 2015).
In the preparation of the income statements, the German Accounting and reporting methods does not require or prescribe a fixed method of format that should be used. However, in some other cases, expenditure can be presented in any formats (either function or nature), while some other certain particulars should be presented on the front art of the income statements. On the other hand, the U.S GAAP describes a format that should be used to present the particulars, which can be either as a single step or maybe multiple step format method. It is important to note that in the U.S method, the expenditures should be presented by a function. All these are subject to the observation made to the published income statements of the both banks during the year ending 31 December 2015("Financial Statements", 2012).
The German income statement applies an operational approach, which is a method that shows the income as net of tax; hence there is no pretax income amount shown. Conversely, the GAAP system as recognized and used in the United States values and lists many expenses in the published income statement.
In any case, when there is a change in the fair value as the companys books of account, they are recorded in the income statement. This is according to the income statement of the Bank of America for the year ending 31 December 2015(Cready, 2008). This is not in case as per the income statement for the Deutsche Bank due to differing in the valuation method of the Germany, GAAP accounting standards (Cready, 2008).
Also, according to German accounting standards, the expenses are presented and defined in a method that losses would be included. In a business entity, the expenses decreases the economic benefits hence reducing their entity. Conversely, according to the guidelines that have been established by U.S GAAP, different types of concepts in order to reveal the projected cash outflows.
As a matter of critical observations, the Accounting standards used by the Deutsche Bank have consolidation procures that vary slightly. For instance, the Germany income statements has been prepared on separate three sets of statements; that is the world balance, parents statements, and consolidated statements. As per the legal requirement, parent and consolidated aspects are the only acceptable methods (Cready, 2008). According to the U.S GAAP, only consolidated statements that are part of the legal requirement in relation to the provisions provided by the foreign subsidiaries. All these key elements are clearly highlighted in both income statements of both financial institution (Cready, 2008).
In conclusion, due to the many differences that have been exposed in this paper regarding the issues of published income statements of the different institution, it can be argued or regarded moral position if one could propose for adequate harmonization of the whole sets of accounting standards. It can be better or create a lot of benefits if all multinational institutions and business use the same method of presenting their financial information. Harmonization of the accounting therefore should be embraced because even the investors and the creditors can carry out their daily duties with much confidence. The challenges that could face the idea of harmonization of the accounting systems should be avoided and condemned. When there are uniform methods of presenting financial information, uniformity in all aspects can be easily achieved.
Bank of America Corp. (2015). Mergent's Dividend Achievers, 4(4), 30-30. http://dx.doi.org/10.1002/div.6253Cready, W. (2008). Discussion of Accounting Premium for IAS/IFRS and U.S. GAAP Vis-a-vis German GAAP. The International Journal Of Accounting, 43(4), 387-393. http://dx.doi.org/10.1016/j.intacc.2008.09.006Deutshche Bank Annual Report". Retrieved 19 November 2015. .
Financial Statements. (2012). Review Of Income and Wealth, 58(4), 774-785. http://dx.doi.org/10.1111/j.1475-4991.2012.00526.xLin, S., Riccardi, W., & Wang, C. (2012). Does accounting quality change following a switch from U.S. GAAP to IFRS? Evidence from Germany. Journal of Accounting and Public Policy, 31(6), 641-657. http://dx.doi.org/10.1016/j.jaccpubpol.2012.10.006
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