In today unpredictable stock markets, it is extremely important for investors to expand
investments to minimize risk and earn reasonable returns on funds. The diversification
does not have to be restricted to domestic companies because of opportunities available in
foreign markets. On the other hand, securities analysis becomes more complex because of
supplementary variables such as foreign exchange risk, political, economic, cultural
diversities, etc. that need to be taken into deliberation in making investment judgment. A
significant variable in the analysis of foreign securities is various accounting standards.
The accounting standard of United States (US) and United Kingdom (UK) and identifies
the major differences that materially impact the Tangible Assets, Goodwill, Inventory,
Auditing, and financial statements. The study is helpful in evaluating the financial
statements of UK companies and comparing them with US financial statements.
U.K was one of the initial and first countries in the world to expand and have Companies
acts containing supplies and also one of the initial professional accounting bodies was
established in the U.K. Certified accountants and company law play a key role in
dominating the U.K corporate financial reporting and play a important persuade varying
from external and domestic factors. Britains financial market is structured around a
“capital financial market based financial system” where the stock market finances large
scale businesses, trading securities and pricing role. The stock exchange and taxation
system have very little power in financial reporting. Having said that, the stock market has
association in increasing financial reporting standards for listed companies. Although U.K
seems to have urbanized its own companies act and regulations, it still has established
indirect foreign influence from member states of the European Union throughout EU
directives and from U.S.A with their new accounting standards.
Financial reporting and accounting in the U.S.A appear to have a large and dominant
powers on accounting in the world today with its mostly consistent standards circulate by
the international accounting standards committee. On the other hand, the U.S.A accounting
is very similar to U.K accounting due to the fact that U.S accounting was originally an
export from the U.K, which is often recognized to be the financial support fathers of US
accounting. For example, many of the largest accounting firms in the US such as Ernst &
Young and ICPMG were expatriate Britain.
The U.S.A has taken that initial leadership and is flattering the accounting sector leaders in
their accounting standards by exploring and increasing quickly in the accounting field.
Standards have become mainly huge and detailed due to the litigious-ness of American
society and intense competition among accounting firms for business.
Company Law and Standards of the UK have developed and concern only a few number of
accounting standards. The standards that have been introduced expand around the set of
forth-broad principles. The major current legal instrument used in the U.K to govern the
accounting practices of limited accountability companies is the Companies Act 1985
amended in 1989, introducing stipulation of the EC 7th directive. Reporting requirements
in the U.K are governed by the FRS (Financial Reporting Standards) issued by the ASB
(Accounting Standards Board) that introduce the basic provisions contained in company
law in the U.K The companies act consists of a number of act which generally govern the
actions of U.K companies. These acts are regularly updated and amended therefore seem
to be increasing further.
The most important transform seen in the Companies act which was consolidated in 1985
and modify in 1989, was that small and medium sized businesses required to explain any
flow seen in their accounts away from accounting standards. Another aspect that was also
introduced was the true and fair notion. This associated to the way companies treat their
accounts and were left to their own judgments of the profession. The companies needed to
show a factual and fair indicator in their financial statements of the company true financial
position. This standard is still today very difficult to define in accounting terms but
disagree with the requirements of company law to the extent that supplementary
information should be additional to the accounts when needed.
Even though the first effort by the UK to establish methodological guiding principle in
accounting in 1942 disappeared from the literature of the U.K accounting. The U.K set up
its individual self-regulatory organization the ASSC (Accounting Standards Steering
Committee) in 1970, which was afterward over time known as Accounting Standards
Committee (ASC) that was the first recognizable standard setter in modern terms. It was
renamed again in 1990 to the Accounting standards board (ASB). Along with the 7th
directive the 8th directive was introduced in 1989 and led to a new regulatory body called
the Financial Reporting Council (FRC). The FRC is maintain by the FRRP (Financial
Reporting Review Panel) and ASB. The ASB role is to supply the FRC with the financial
support and leadership on public concerns, also to adjust or withdraw accounting
standards. In this situation The (UITF) acts as an aggressive force on issues as supervision
help on new technical problems that appear.
As a result of all these accounting standards commission and regulation being established
since 1850s, the accounting profession in the UK has seen a great amount of
self-determination due to the wants of individual businesses. This is not the case no more
as a more developed and regulated accountancy profession are now receiving persuade
from accounting standards, governmental pressures not to mention harmonization from
members of European countries.
In contrast the US structure is a fragment more complex than that of the UK. To
