2 - Accounting in the UK and the effects of international harmonisation

Summary

The UK's Accounting Standards Board

For the first one hundred years or more of the accountancy profession in the UK, there was a basic company law framework, and a body of practice, but no codification or standardisation of accounting rules. Until the middle of the twentieth century business was relatively simple and accountants used their judgement. Increasingly, however, business became more complex and then the lack of a standardised approach led to different profit figures being reported for what were essentially the same economic events. Although the US had pioneered standard-setting from 1939, the first development in this area in the UK was soon after, in 1942, when the Institute of Chartered Accountants in England and Wales (ICAEW) developed ‘Recommendations’ to members as to suitable accounting principles. These had no binding force. Eventually, it became clear that these were inadequate. Hence in 1970 the Accounting Standards Committee (ASC) was formed, subsequently becoming a joint activity of the six professional accounting bodies in the UK and Ireland.

The ASC developed Statements of Standard Accounting Practice (SSAPs) in the period 1970 to 1990. Some of these are still in force today. They did not have the force of law, although the Institutes said that they expected their members to comply with them. This system worked for some years as regards the majority of standards that were uncontroversial, although its weakness started to be seen from the early 1980s in relation to the attempted imposition upon the profession and companies of various systems of adjusting financial statements for the effects of inflation, including SSAP 16 ‘Current cost accounting’. This standard eventually had to be withdrawn.