British and American Accounting System
Britain is one of the first countries in
the world to have professional accounting bodies and Companies Act
containing various provisions. British accounting system is
dominated mainly by well organized accounting profession, which
takes into account only limited liability companies. Public sector
in the UK follows its own accounting rules rather than complying
with international accounting standards.
  
British corporate reporting system has
significant influence of company law and professional accountants. Its
stock exchange and taxation system has less impact on financial
reporting system. Accounting systems and procedures followed by US and
Britain are pretty much similar but there are also some differences in
the accounting systems of both of the countries. These differences are:
-
SFAS statements begin with post tax
profit; therefore, tax is not indicated as a use of cash.
-
Tangible fixed assets are initially
measured at cost. Revaluations of individual class of assets are
allowed but all assets within the class need to be revalued.
Therefore, any gain resulting after revaluation is recorded in STRGL
not in PL account.
-
Treatment of good will is different
from American accounting system. In Britain, companies are allowed
to directly write off the good will against reserves rather than to
capitalize and amortize against income.
-
Stock inventories are valued at lower
cost and net realizable value. LIFO method is not allowed to be used
as a measure of cost.
-
Every company is bound to appoint
independent qualified auditor according to Britain Companies Act.
Companies having annual turnover less than £1 million are exempted
from the audit.
-
Current assets precede fixed assets.
-
Income statement recognized as profit
and loss account.
American Accounting System
-
In the cash flow statement there are
three headings in the statement named operating, investment and
financing.
-
Any changes after the revaluation in
the carrying value of property, plant and equipment are not
recognized because these are not transactions taking place. Value of
these assets can be increased or decreased only in case of
transactions, not appraisals in carrying value.
-
Balance sheet has standard elements,
just like assets are shown on the left side of two sided balance
sheet.
-
Profit and loss account recognized as
Income statement
-
Companies having 500 shareholders and
turnover $5 million are required to get their financial statements
audited.
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