Accounting System in UK

Running Head: Accounting System in UK
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Development Factors
The main source of financing to companies, especially the pre-dominant limited liability Companies, in most parts of the UK is the Capital market. Accounting plays a major role in the provision of vital information to the Capital market. It focuses entirely on principle-based approach in standard setting other than the normal rule-based approach. Initially it emerged as an independent body following the ever changing business needs. Later, a professional accounting body was established in 1853 and now there are six such bodies under the Consultative Committee of Accountancy Bodies (CCAB)
Development FactorRussiaThe United KingdomSources of FinanceCommercial banks and governmentCapital and share marketLegal EnvironmentAccounting for taxationThe accounting for taxation is not separate from financial accounting. As such, the financial reports and statements that reveal the financial position are the ones used in taxation. Thus no difference between taxable profit and accounting profits.Financial accounting differs from accounting for taxes. As such taxable profits differ from accounting profits.Economic and political TiesInflationEconomic Development levelLevel of educationCultural environment
The development factors analyzed above provide an inherent accounting values when they co-ordinate together. This is inclusion of the cultural characteristics deployed by the existing country.
 Institutional consequences
 External influences



Ecological influences




Reinforcement
Therefore, Hofstede views that cultural and societal values merges from the diversified nature of historical, political and economic values which are endowed in a particular country, For example, the Hofstede’s socio-cultural behavior in the Russia and UK.
The 5D Model of Professor Geert Hofstede
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The diagram illustrates how the variuos societal/cultural values can build up over a given time-frame via the inter-related process. The emergence of such values determinbes the economy and political destiny of the country and also the laws and regulations to be deployed. The interconnection between accounting and societal values and the systems in place is hoighlighted as in the diagram below:
Societal Values Accounting values Accounting systems




From the above diagram, the accounting systems and practices reinforce the accounting values. Accounting values on the other hand reinforces societal values.
The original contestation of the Hofstede and Gray models faced severe pressure on the global perspective of the worlds’ economy. The process of harmonization has been argued by various authors to have reduced the models’ value. They argue that the process has forced Companies and also countries in question to adopt the more inherent global values in attracting investors rather than focusing on the original accounting and cultural values. These are well illustrated by the diagram below.









Fig.2.7 Change and Development of Accounting values and systems internationally
Key
The international Forces of Change include: Economic and political independence, Foreign Direct investment, Multinational corporate strategy, new technology, International financial markets, Business and financial services and international regulatory organization.
In determination of this, one has to put into consideration the countries involved and the development factors in that economy, for example Russia and UK. In Russia, its economy is different from the others in that it has low share of the new enterprise, there is existence of money soviet-style units which operates at losses, dominated by monopoly markets and also the economic growth is restrained by the over-reliance on gas and oil products. The accounting regulations and rules are made by the government in conjunction with the Ministry of Finance.
The standards for credit institutions and Banks are created by the Central Bank of Russia. The country being a developing one focuses its revenues on taxation and therefore they have a need in planning for its economy to realize efficient revenue. Listed companies prepares their consolidated financial statements in accordance to IFRS in order to increase transparency and also encourage investment by foreign investors while individual Companies provide their financial statements in accordance to Russian Accounting Standards (RAS).
In the case of UK, the determination of the accounting standards and rules are determined by accounting profession. The legislators in UK did not need the powerful security commission in the regulation of financial and accounting reporting by they bestowed it to the Accounting Standards Board (ASB) and the Auditing Practices Board (APB), which are independent bodies. The ASB is focused in aligning the UK accounting standards with the overall IFRS.
The UK accounting principles and practices puts more emphasis on the transparency and the investment goal. The Companies Act provides that the financial statements of corporate should provide true and fair view of the Companies or entities financial position. Auditors are bestowed with the responsibility of ensuring that the companies meet this requirement and therefore they must analyse the Companies financial statements and provide their opinion (Pauline, 2006). This is a core requirement for the Companies operating in UK and listed Companies are required to comply with this. Financial statements should be prepared on the basis of Historical cost concept but allowance is given when revaluing the tangible assets like infrastructure. The accounting standards for UK are similar to IFRS but with only slight differences. For instance, the UK GAAP allows the amortization of the Company’s goodwill while the IFRS tests for goodwill impairment annually.
Why i believe Russia received a high Opacity Index compared to the United Kingdom’s relatively low Index value.
The 5D Model of Professor Geert Hofstede
 EMBED Excel.Chart.8 \s 

Russia uses the French Code law in its accounting system and therefore focuses on the legal form with minimal disclosures, tax alignment and also the financial accounting; is an accounting standard based on public sector and which is parallel to the corporate governance.
According to Hofstede, Russia is perceived to be strong uncertainty avoidance. It is based on collectivism where the low ranked individualism is manifested on close and committed member groups. In this culture, loyalty is highly of importance and each individual in the society should be responsible for the ultimate course of the other individuals in the society. In the Russian economy, it is characterized by high power distance and thus the indication of the availability of high level of inequality in the economy of both wealth and power. This circumstance is highly acceptable by the Russians as part of their cultural heritage. This in essence is of core benefit to the accounting value statutory uniformity, control, secrecy and its conservatism.
On the other hand, UK uses Common law which is developed on the basis of case-by-case analysis. In this case, accounting is developed from judgement and experience; it is flexible, innovative and adaptive. Accounting entirely is focused on economic well-being and is founded by the private sector professional association.
The research conducted by Hofstede on individualism in UK is highest in Dimension with 89 followed by masculinity with a Dimension of 62. This was after the UK was incorporated in a group of countries with the long term orientation dimension. The LTO ranking is the lowest Dimension for UK at 29 in comparison with the Worlds’ 45. The low ranking indicates societal and cultural beliefs of its residents on meeting its obligations. This is followed closely by UK power distance for a dimension of 40 in comparison to the World’s average ranking of 55. The UK uncertainty Avoidance ranking is low at 46 in comparison to the Worlds’ average at 64.
In reference to the Grays’s research on the UK accounting systems, it can be noted that the systems are more of professional. This is clearly depicted by low power distance, low uncertainty avoidance, and therefore highly individualistic. These core values enable the transparency and optimism of the accounting profession.
In the Soviet economy, accounting was not an exception as only bookkeeping was put into consideration. The accounting system was standardized and as it encompassed large area the norm was the common accounting system. The economy was largely state owned and therefore t6he true and fair view if the financial statements was not put into consideration. Even though Russia is no longer a member of Soviet Union it still uses IFRS. This is unlike in the UK where the true and fair view of the financial position of Companies in operation is put into consideration. The Companies must regularly review their financial statements where need be.
On the other hand, the Russian financial and accounting reporting is regulated by Federal Law on Accounting Act, Federal joint Stock Companies Act, and the Civil Code of the Russian Federation Act where only limited information is required for disclosure.
2) Major differences in accounting practices between Russia (in reference to the extracts from the Mandatory Article on Russia) and the United Kingdom (references from Chapter Three of your text – pp. 78-84) as highlighted in this case
The 5D Model of Professor Geert Hofstede
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In UK economy, the main sources of financial accounting standards ar...