Comparison Of Accounting System

Comparison of United States, United Kingdom, and Chinese Accounting Systems, Accounting Standards, Accounting Practices

This report discusses the accounting practices of the following countries U.K, U.S.A and China. An analysis of these different accounting systems will be conducted on issues such as the growth and background, social, economic and fiscal pressures that have led to each nations current characteristics. Concluding on the direction each nations accounting systems and practices seem to be heading towards.

Introduction The main characteristics of U.K accounting is that it is highly dominated by organised accounting profession, which only relate to limited liability companies, no other such entity. A separate fiscal accounting has been developed entirely from commercial accounting. Public sector in the U.K follows its own different rules in accounting.

U.K was one of the initial and first countries in the world to develop and have Companies acts containing provisions and also one of the first professional accounting bodies was established in the U.K. Professional accountants and company law play a key role in dominating the U.K corporate financial reporting and play a significant influence varying from external and domestic factors. Britain's financial market is structured around a "capital financial market based financial system" where the stock market funds large scale businesses, trading securities and pricing role. The stock exchange and taxation system have very little influence in financial reporting. Having said that, the stock market has involvement in developing financial reporting standards for listed companies. Although U.K seems to have developed its own companies act and regulations, it still has received indirect foreign influence from member states of the European union through EU directives and from U.S.A with their new accounting standards.

Financial reporting and accounting in the U.S.A seems to have a large and dominant influence on accounting in the world today with its largely consistent standards promulgated by the international accounting standards committee. However, the U.S.A accounting is very similar to U.K accounting due to the fact that us accounting was initially an export from the U.K, which is often known to be the funding 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 guidance and is becoming the accounting sector leaders in their accounting standards by exploring and developing rapidly in the accounting field. Standards have become largely voluminous and detailed due to the litigious-ness of American society and intense rivalry among accounting firms for business.

China on the other hand compared to U.K and U.S.A has seen large-scale impacts of influence of political and economic change on its rules and practices. Although it is one of the few communist regimes to still be intact, it is significantly the largest. The main communist party in the country has developed a "socialist market economy" which has resulted in a huge rapid economic growth.

Recently there have been many western countries that are becoming interested in Chinese accounting both in academic and practical aspects. Chinese accounting over the last decade has seen proliferation of accounting regulations replacing existing uniform accounting systems therefore bringing Chinese accounting in line with internationally accepted practices. This view can be backed up with china in joining the ISCA in 1997in an attempt to make her accounting standards consistent with the IAS.

The most up to date development and recent one in china is the development of her own accounting standards, which include the MOF (Chinese Ministry of Finance) that has revised the existing five accounting standards operated. The MOF has encouraged other enterprises to adopt the new system at an early stage with the provision that only state owned enterprises seeking to adopt early would be required to obtain approval from the relevant government authority. The three government entities in China that are involved in regulating the accounting sector include the following: MOF - Ministry of Finance CSRC - China Securities Regulation Committee CICPA - Chinese institute of certified public accountants From the above three the MOF governs the accounting law therefore one could say is the key factor that dictates the sector. The MOF has also received loans from the World Bank to reform the accounting profession and to extend the accounting statements in China.

Company Law and Standards The UK have developed and issued only a few number of accounting standards. The standards that have been introduced evolve around the set of forth-broad principles. The main current legal instrument used in the U.K to govern the accounting practices of limited liability companies is the Companies Act 1985 amended in 1989, introducing provision 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 statutes which broadly govern the activities of U.K companies. These acts are frequently updated and amended therefore seem to be developing further.

The major change seen in the Companies act which was consolidated in 1985 and revised in 1989, was that small and medium sized businesses needed to explain any drift seen in their accounts away from accounting standards. Another aspect that was also introduced was the true and fair concept. This related to the way companies treated their accounts and were left to their own judgement of the profession. The companies needed to display a true and fair indicator in their financial statements of the companies true financial position. This principle is still today very difficult to define in accounting terms but clashes with the requirements of company law to the extent that additional information should be added to the accounts when needed.

Although the first attempt by the UK to establish technical guidelines in accounting in 1942 disappeared from the literature of U.K accounting. The U.K set up its own self-regulatory organisation the ASSC (Accounting Standards Steering Committee) in 1970, which was later 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