Abstract
The significant goal of the board of accounting standards is to promote effective financial reporting in liaison with the council of financial reporting as well as review panel in private sectors. It does this through amendment of accounting standards of the respective states. Studies reveal that, accounting standards and methods in Great Britain are different from those in United States. An example is in how reserve accounts are used in revaluing of assets of companies in Britain while the same is strongly discouraged in U.S. However, accounting standards in both U.S and Great Britain are useful in ensuring transparency between companies and shareholders. This paper analyzes both accounting standards and their differences in Great Britain and U.S
Great Britain’s accounting standards and methods
The Board of accounting standards, council of financial reporting and the review panel for financial reporting form a private sector which is independent whose purpose is of promoting financial reporting. The board of accounting standards takes the role of amending, withdrawing and making of accounting standards. U.K board of accounting standards has been authorized to establish standards for accounting and is recognized under the Act of companies of 1985 (Solomons, 1997 pp47). This board has issued a financial as well as an operating review which encourages transparency and communication that is open between shareholders and their respective companies.
Financial as well as operating review‘s legal requirements are given in Companies Act requiring Great Britain’s companies to prepare such reviews each financial year. These requirements of Great Britain’s accounting standards include that; financial statements should give a view that is fair of losses or profits obtained in a financial year. Another standard requirement is that, companies should disclose undertakings that are related to accounting as well as emoluments providing information to shareholders and directors. However, relevant additional information can be published to compare measures and figures while analyzing financial accounts. (Parker, 1990)
It should be the companies’ duty to make directors’ reports as well as reports for auditors. Accounts for groups and individual companies should be prepared to ensure that, all accounting records are kept for reference when needed. The main objective of these standards is to help shareholders in assessing the methods used in running accounts and the possibility of their success. Accounting standards for Great Britain have guidance for implementation accompanying it which is used by directors in evaluating what to put in financial reports. (Solomons, 1997)
Differences between the treatment of financial statement items in Great Britain and the United States
One great difference is that, in Great Britain, reserve accounts are used in revaluing of companies’ assets while the same is discouraged in financial statements of U.S. Accounting treatment also differs in how leases are accounted for. For example, in U.S, a specific criterion is used to classify lease as either operating or capital while Great Britain uses operating leases as separate lease accounts. This difference alters how expenses and income are recognized in terms of timing. Expenses are therefore recognized sooner when capital lease is used, than when the method of operating lease is used. (Nobes, 2006)
Another difference is that, in U.S, development costs as well as those of research are required to be accounted for in their year of incurrence while in Great Britain capitalization of these costs by firms is allowed as well as their amortization. Treatment of accounts also differs, in that, in Great Britain deferred accounting of tax is required for only reversed timing differences while in U.S it requires tax accounting of differed income for differences between taxable and book income.
In Great Britain, brand names’ of value is estimated and included in those firms’ balance sheets as assets while such estimates are not permitted in U.S. Lastly, while Great Britain’s accounting doesn’t require statements for cash flow, accounting in U.S makes it a requirement resulting to a difficult time when assessing the position of firms with statements of finance different from those used in U.S. Therefore, due to these differences in accounting there have emerged misunderstandings when these countries are interacting leading to the need for uniform and international accounting standards. (Nobes, 2006)
References
Solomons D. (1997): Guidelines for Financial Reporting Standards: Garland Publishing pp. 47-53.
Nobes C. (2006): Comparatives International Accounting: Prentice Hall pp. 102-104.
Parker L. (1990): Accounting History: Blackwell Synergy pp. 28-31.