Uk Accounting
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The following discusses the accounting practices of England (U.K.) and how they vary from those of the United States (U.S.). A breakdown of the U.K. accounting profession will include topics such as growth and development, and pressure from social, economic, and fiscal matters that have contributed to the nation’s current attributes.The history of the British economy is particularly important when glancing at the development of accountancy in England. Large-scale businesses, such as the railroad, and the income tax being introduced led to the rise in demand for auditing, costing, and tax services. “The railway construction between 1830 and 1875 produced more than 70% of Englands final route mileage” (Parker, 1986, pg. 5). Accountants were much needed to help organize the financial situations of large-scale organizations. The accounting standards were bound to have a higher quality due to the fact that clients were going to be making bigger investments. The corporate world has always needed accountants to govern the business activities, which in turn will continue to offer accountants jobs. With how competitive the corporate world is today, an organization would cease to exist without an accountant to monitor its books. “Accountancy practice in the United Kingdom, unlike the United States, has been greatly influenced by company legislation. The essence of modern company law is that it grants by registration with a government agency the rights of corporate personality, perpetual succession and limited liability” (Parker, pg. 8). The South Sea Company took over Englands national debt and issued stock in an attempt to make money. This business concept never worked. After the South Sea Companys bubble popped, the result was the Bubble Act of 1720. “It aimed to correct four evils: (1) excessive stock speculation, (2) formation of fraudulent joint stock companies, (3) the use of corporate prerogatives by unincorporated firms, and (4) the use of corporate charters to conduct inappropriate types of business. This act not only denied limited liability status to all firms not incorporated by Crown or Parliament, but was used as a policy instrument to restrain the formation of new corporations” (Chatfield, pg. 81). South Sea Company is an example of how company decisions affect the accounting profession and laws in England.
Not everything was so positive in Britain in the nineteenth century. Crises and deterioration existed. Limited liability companies (LLCs) were likely to fail. Between 1856 and 1883, “about one-quarter were dissolved within three years of registration, about one-half within ten years, and almost three-quarters within twenty years” (Parker, pg. 10). With such a high failure rate, the demand for accountant spiked. Liquidation was a common act during this time. Britain had many wars that needed funding. Hence, the introduction of income taxes was to help finance the war against Napoleon (Parker, pg. 11). The working people of Britain had zero experience with dealing with taxes. They needed someone to compute the tax figures that would be taken out of their pay and giving to the government. Businesses were already using accountant to monitor their activities, but now this added an even higher desire for an accountant. Moving from the background of accountancy in the U.K to the present day, the Institute of Chartered Accountant in England and Wales (ICAEW) is the largest accounting organization in the U.K. The ICAEW was founded in 1880, and currently has over 128,000 chartered accountants working within the organization (ICAEW, 2011). Accountants working for the ICAEW are required to have credits met in regards to their knowledge in audit, tax, and business law. The United States version of the ICAEW is the American Institute of Certified Public Accountants (AICPA). The AICPA was founded in 1887, and currently it has over 370,000 members in 128 countries (AICPA, 2011). “AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting” (AICPA, 2011). Accounting in the United Kingdom is based upon five Companies Acts which Parliament implemented and enforced. The Accounting Standards Committee (ASC) is comparable to the old Accounting Principles Board in the U.S. The primitive function of the ASC brings standardized accounting requirements that the Companies Act established. The United States has the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FSAB) that the U.K. does not have comparable organizations for.