Glossary entry (derived from question below)
German term or phrase:
abgegrenzte Aufwendungen
English translation:
prepaid expenses
German term
Abgegrenzte Aufwendungen
In an IFRS statement of financial position I had written "Prepayments" for "Abgegrenzte Aufwendungen" and "Deferred revenue" for Abgegrenzte Erträge" based on what I found in Ernst & Young illustrative financial statements.
The customer wants to know whether "Abgegrenzte Aufwendungen" should be "Accrued expenses". Based on the explanation in the notes (see below), I think Prepayments is ok, but what do others think (Robin, Ted?)?
"Es handelt sich um Aufwendungen, deren Gegenleistungen in zukünftigen Dienstleistungen bestehen und innerhalb des kommenden Jahres verrechnet werden. Die Bewertung erfolgt zum Marktwert. Im Vorjahr erfolgte der Ausweis inhaltsgleich unter der Bezeichnung „Übrige Vermögenswerte“."
3 +3 | prepaid expenses | Steffen Walter |
4 | (AmE) allocated > (BrE) apportioned > expenses | Adrian MM. (X) |
3 | Prepayments | Edgar Bettridge |
This says "accrued" | philgoddard |
Jan 24, 2016 10:30: Steffen Walter changed "Edited KOG entry" from "<a href="/profile/52401">nruddy's</a> old entry - "Abgegrenzte Aufwendungen"" to ""prepaid expenses""
Proposed translations
prepaid expenses
agree |
Ted Wozniak
3 hrs
|
agree |
Henry Schroeder
5 hrs
|
agree |
RobinB
: See also my comment in the discussion entry.
18 hrs
|
Thank you for backing this up.
|
(AmE) allocated > (BrE) apportioned > expenses
Prepayments
So, to your question: "is Prepayments ok". My answer, yes absolutely fine. Why? -
1) Vorauszahlung is translated in the eIFRS glossary as prepayment, see my discussion entry as to why this is relevant;
2) prepayments and prepaid expenses are used interchangeably by a number of practitioners - see example sentence from IFRS clarification on long term prepayments for inventory supply contracts (i.e. prepayments are equated here to prepaid expenses to explain why they are not included in financial assets) and CIMA link below;
3) Oxford dictionary of accounting definition of prepayment: A payment made for goods or services before they are received;
4) Ted makes a good point about prepayments: "Care needs to be taken with "prepayments" so that it is clear whether they are prepayments made or prepayments received" - True, but your example is from the notes to the asset side of the balance sheet, so the context makes it obvious;
5) inconclusive point this - a number of large UK companies do not use "prepaid expenses" anywhere in their annual reports, but do use "prepayments" - eg Tesco and Sainsbury.
This is not to say that "prepaid expenses" is not a better answer, it probably is. Also, some caution is warranted as I do not understand RobinB's point that "You should avoid using "prepayments" here, because this is the term normally reserved for prepayments on assets, i.e. "geleistete Anzahlungen" in German GAAP." - this goes against my understanding (e.g. see points 1,2 and 3 above), but I could be wrong so it would be interesting to hear more on this. (Besides, even supposing RobinB is right here - and he usually is - his use of "normally" suggests that you could be justified in putting something else, he would just do it differently, which brings me back to my reasons for writing this answer...)
prepayments are not financial instruments (IAS 32 AG11) and are scoped out from IAS 39 Financial Instruments: recognition and Measurement for measurement purposes...
...IAS 32 AG11 Assets (such as prepaid expenses) for which the future economic benefit is the receipt of goods or services, rather than the right to receive cash or another financial asset, are not financial assets.
Edgar: Thanks for taking the time to explain your point. As regards what UK companies do or don't do, that isn't always relevant to German companies IMHO. A lot of German companies are very much influenced by HGB so I think drawing a parallel with aktivistische RAP is valid. |
Reference comments
This says "accrued"
http://www.proz.com/kudoz/german_to_english/accounting/649981-periodengerecht_abgegrenzt.html
Discussion
You should avoid using "prepayments" here, because this is the term normally reserved for prepayments on assets, i.e. "geleistete Anzahlungen" in German GAAP.
The client seems to have found "accrued expenses" as a back-translation of IAS 12 IEC3, where "Accrued expenses will never be deductible for tax purposes." is translated in the German Bound Volume as "Abgegrenzte Aufwendungen werden niemals steuerlich abzugsfähig." But this appears only once in the entire corpus of IFRSs, and represents a very different context in any case, and must therefore be rejected as not relevant for your purposes.
BTW, I agree with Ted about EY's illustrative FS. This also applies to all the Big Four illustrative IFRS FS: potentially very useful for translating En->De, but of little practical help for translating German IFRS FS.