**This is for international accounting course
For the United Kingdom prepare analysis that covers the following aspects and present
your findings:
Page 1:
1.2.1 Background (a country’s overview) [20% of the total content]:
– Historical and economic country’s outlook;
– Capital markets, stock exchanges;
– Large MNCs, headquartered in the country;
– Accounting profession (professional organizations, level of development etc.)
Page 2:
1.2.2. Accounting regulation and enforcement. [30%]
**Use simple language, and include a lot of information please.
Solution
Background of the United Kingdom
The United Kingdom of Great Britain and Northern Ireland (UK) is made up of four
countries; England, Scotland, Wales and Northern Ireland. Queen Elizabeth II ascended into
power in 1952 after the death of her father George VI and currently is the longest serving
monarch. The UK has made numerous contributions to the world economy through technology
and industry. Its most prominent exports since the World War II have been cultural mostly films,
literature and music. All its colonies throughout the world speak English as a medium for
cultural and economic exchange, perhaps the UK’s greatest export has been the English
language.
In 1973, the UK became members of the European Union (EU). Many Britons were
reluctant to the cause and on 31 January 2020, the UK became the first country to withdraw from
the union. This decision affected UK’s economy considering that 12.6% of its GDP is linked to
exports to the EU. According to OECD (2020), the covid 19 crisis has had adverse effects on the
economy in the UK. As of June 2020, the GDP was predicted to fall by 14% and unemployment
set to double to 10%
The London Stock Exchange (LSE) is the largest and the primary stock exchange in the
UK with thousands of companies from more than 60 countries. It is the leading source of equity
market liquidity and benchmark prices in Europe. The UK is also home to multinational
companies such as Vodafone, GlaxoSmithKline, HSBC Holdings, Unilever and British
American Tobacco.
According to ICAEW, the earliest firms of accountants can be traced as early as 1980 in
Bristol. The industrial revolution in the 19 th century brought about rapid economic growth of
ACCOUNTING REGULATIONS IN THE UNITED KINGDOM 3
technical and transport innovations. A series of Company’s Act and Bankruptcy Act within the
UK brought a dire need for professional accountants. In 18 May 1880, Queen Elizabeth granted a
royal charter that led to the creation of a national body ‘The Institute of Chartered Accountants in
England and Wales’. After then, accountancy became a professional qualification setting the
standards for professional conduct.
Accounting Regulation and Enforcement
The International Financial Reporting Standards (IFRS) is a regulation made mandatory
for groups within the EU to prepare consolidated financial statements. This came by with the
need for harmonization within member states. This process would ensure comparability of
financial statements within countries making them more useful among investors of capital
markets for decision making (Gaston, 2010).
In 1989, the first framework for the presentation of financial statements was issued but
the International Accounting Standards Board (IASB) made amendments to it and issued a new
framework in September of 2010. This framework stayed functional until March 2018 where a
new and final version was released. This framework has eight chapters; the objective, qualitative
characteristics, financial statements and reporting entity, the elements of financial statements,
recognition and derecognition, measurement, presentation and disclosure and finally, concept of
capital and capital maintenance.
The first chapter provides financial information about the reporting entity that could be
used investors and lenders for decision making. In the general purpose reports, countries do not
provide their financial statements but rather reports on its economic resources and claims and/or
changes in these economic resources and claims resulting from an entity’s financial performance
ACCOUNTING REGULATIONS IN THE UNITED KINGDOM 4
or other events. Chapter 2 discusses on the qualitative characteristics of the financial
information, this asses on the usefulness of financial information on the basis of fundamentality
(relevance, faithful representation) and enhancement (comparability, verifiability, timeliness).
Financial statements and reporting entity is covered in chapter 3. Relevant information is
provided in the ‘statements of financial position’ by articulating an entity’s assets, liability and
equity, ‘The statements of financial performance’ recognize income and expenses while ‘Other
Statements’ contain cash flows, assumptions and contributions. These reports are always
prepared for a specified period of time. This chapter also recognizes a reporting entity that could
a single entity, portion of an entity or more than one entity.
The forth chapter focuses on the elements of financial statements; these relate to the
financial position and financial performance. It contains aspects of assets, liabilities, equity,
income and expenses. In chapter 5, recognition means inclusions of an element in the financial
statements if it meets the definition whereas derecognition is the removal of an asset from a
statement of financial position. Chapter 6 discusses on the selection of a measurement basis;
which is a way to measure monetary amounts of items in financial statements. The framework
discusses two basic measurement basis; historical cost which is the transaction cost at the time of
recognition and current value which measures the element updated to reflect the conditions at
measurement day.
Presentation and disclosure in chapter 7 are communication tools. For effectiveness,
similar items should be classified together and information must be only moderately aggregated
to prevent too many details. Finally in the last chapter of the IFRS enforcement framework,
profit is earned only when the amount of net assets at the end of the period is greater than the
amount of net assets in the beginning after excluding contributions and distributions and could be
ACCOUNTING REGULATIONS IN THE UNITED KINGDOM 5
measured in nominal monetary units or units of constant purchasing power. Physical capital is
regarded as the productive capacity of the entity and profit is earned here if physical productive
capacity increases during the period after excluding the movement with equity holders.
ACCOUNTING REGULATIONS IN THE UNITED KINGDOM 6
References
Gaston, S. C., Garcia, C. F., Jarne, J. I. J. & Gadea, J. A. L. (2010). IFRS ADOPTION IN
SPAIN AND THE UNITED KINGDOM: EFFECTS ON ACCOUNTING NUMBERS
AND RELEVANCE. ScienceDirect.
https://www.sciencedirect.com/science/article/abs/pii/S0882611010000374
ICAEW. (2012). The development of the accountancy profession in the UK and ICAEW’s role.
Business with Confidence. https://www.icaew.com/-
/media/corporate/files/library/subjects/accounting-history/the-development-of-
accountancy-in-the-uk.ashx
Silvia of CPDbox. (8 April2019). Conceptual Framework for Financial Reporting 2018.
OECD. (June 2020). Economic Forecast Summary (June 2020).
http://www.oecd.org/economy/united-kingdom-economic-snapshot/
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