Unit XX The Accounting System of Great Britain and Northern Ireland:

It’s General Regulatory Scheme in Relation to Ukrainian Accounting

Read the text and make up the summary.

In accounting as well as in all other spheres of activity, Great Britain's long-standing traditions and frugal attitude are unique. At the same time the British are still open to new trends and achievements in economic science and are ready to integrate them into their national accounting system.

When analyzing the British financial accounting model, one is to take into account that it traces its roots back to the Middle Ages. Its professional foundations have been forming for centuries. The United Kingdom's accounting school, later called the Anglo-Saxon accounting school, became the foundation of its accounting system. According to most specialists this model represents the prevailing paradigm of modern accounting standardization. The Anglo-Saxon system formed the basis for the International Accounting Standards (IAS).

Therefore, the headquarters of the International Accounting Standards Board (which has recently been called the Accounting Standards Committee) is located in the capital of Great Britain.

Because the IAS system is acknowledged by the European Community as the basis for further integration in accounting systems of member states; and because all companies whose shares have been sold on the European stock exchanges will have to represent financial reporting in IAS format beginning in 2005, one may conclude that the British accounting model will continue to prevail. This also affects Ukraine directly because of the Law on accounting and reporting, in which local accounting refers to international standards.

It is important to note that the British often call their accounting rules "the generally accepted accounting principles" (GAAP). Since the USA uses the same abbreviation to designate its accounting system, misunderstandings often occur while interpreting nuances in the processing of accountants' data within the national systems of financial reports. That's why the following abbreviations have recently been used more frequently: for Great Britain — UK GAAP; and for the United States - US GAAP.

In practice, however, the standards created by public accounting organizations are a peculiar feature of the official management of British accounting. This situation generally reflects the British regulatory style in which both the state and society trust the professional community, who in turn strives to qualify this trust by providing maximum efficiency, clarity and democracy in their professional activities.

The legislative regulation of accounting issues on a national scale began only in 1981 when Great Britain started to implement the provisions of the Fourth Directive of the EU. (This document contains basic rules of financial accounting, which must be followed by enterprises of European Union member states). The 1985 Act on Companies continued this implementation by uniting the Acts of 1947, 1948, 1967 and 1981. The 1989 Act on Companies reflected requirements of the Seventh Directive of the EU, which deals with the consolidated financial reporting, and the Eighth Directive of the EU, which refers to auditors' activities.

However, the regulation on the level of professional organizations began much earlier. In 1970 the Institute of Charted Accountants in England and Wales (ICAEW) formed the Accounting Standards Steering Committee (ASSC) whose tasks among others were to generalize accounting practices and improve accounting rules and methods.

The Accounting Standards Board has been fulfilling the functions of the committee since August 1991. The committee managed to pass twenty-two SSAP standards, which were then approved for application by a newly created body. All of these standards are obligatory for members of the six above-mentioned organizations. The 1985 and 1989 Acts on Companies alluded to the compulsory application of these standards.

The Financial Reporting Standards (FRS) are used in England along with the SSAP Regulations.

The following standards of accounting and reporting are now valid in the United Kingdom:

SSAP 2 Disclosure of Accounting Policies,

SSAP 4 Accounting for Government Grants,

SSAP 5 Accounting for Value Added Tax,

SSAP 9 Inventories and Long-Term Contracts,

SSAP 13 Accounting for Research and Development,

SSAP 15 Accounting for Deferred Tax,

SSAP 17 Accounting for Post-balance Sheet Events,

SSAP 19 Accounting for Investment Properties,

SSAP 20 Foreign Exchange Translation,

SSAP21 Accounting for Leases and Hire Purchase Contracts.

A separate statute, the Financial Reporting Standard for Smaller Enterprises (FRSSE), exists for small business entities in the British accounting system.

All of the above-mentioned documents form an integral part of the accounting standards. But Great Britain has recommended standards in addition to those. Most important are the Statements of Recommended Practice (SORP). These documents do not relate to the majority of enterprises and are either concerned with particular problems in a specific industry or in other business situations.

Stock exchange rules are an additional source of accounting regulation. But these rules are applied only to those companies whose shares undergo an exchange listing.

After Ukraine had started a radical accounting reform in accordance with international standards, principal differences between Ukrainian and British financial accounting systems were eliminated. Today's concept of Ukrainian accounting conforms completely to generally accepted accounting principles.

As to the IAS system, Ukraine and Great Britain's national accounting systems preserve some peculiarities.

At the same time some differentiation within the limits of the general IAS concept is considered possible. As is known, IAS allows for the application of so-called alternative accounting methods. But national systems of financial accounting and reporting effect such possibilities in different ways.

Let's give a few examples of discrepancies between the accounting of Ukraine and the United Kingdom.

In accordance with paragraph 23 of IAS 2 "Inventories”, such an accounting method of inventories flow as LIFO ("last in -first out") is optional. The LIFO method is acknowledged as a standard way of accounting along with other generally accepted ways of inventories retirement evaluation in Accounting Standards of Ukraine (ASU). At the same time British standard SSAP 9 directly prohibits the usage of this method in the accounting practices of Great Britain. Despite this fact British companies doing business outside Great Britain through subsidiary enterprises may use the LIFO mechanism if it is permitted by local accounting regulations.

Thus, if an enterprise of British origin functions in Ukraine, it may freely use a method of inventories write-off evaluation in accordance with the "last in - first out" principle.

An interpretation of financial expenses incurred because of an acquisition of fixed assets is another example of different applications of IAS alternatives.

IAS 23 "Borrowing Costs" in paragraph 11 as an alternative approach allows for the amortization of borrowing costs incurred due to the entering of qualified assets into the books.

Ukraine has not accepted this alternative. Cl.11 of UAS 8 "Intangible Assets" and cl.8 of ASU 7 "Fixed Assets" prohibit the inclusion of interest credit expenses into/an intangible assets cost.

At the same time English standards permit in some situations to include such costs into the cost of fixed assets. But this method is deemed more an exception rather than a rule and is not encouraged as a primary approach. Thus, paragraph 19 of the standard says that an enterprise may make a decision to capitalize borrowing costs directly related to the building up of intangible assets as a part of the value of such assets. In connection with this, the total amount of the borrowing costs capitalized within a reporting period is not to exceed the total amount of borrowing costs incurred within this period.

There are also many discrepancies of a less conceptual character.

For example, when evaluating fixed assets such as constructions erected by the enterprise itself (without hiring a general contractor) the British system highlights overspent costs. They are explained in the following way. If extraordinary expenses were incurred during construction, an enterprise is to find a guilty person. If the overspending occurred because of internal inefficiency, it is not to be included into the value of the building and is to be written off in the period of its occurrence. Excessive spending on building materials, which do not correspond to the nomenclature of the construction, by the internal supply dispatcher is an example of such situation. If overspending was caused by external factors (e.g. legislative increase in workers' salary underestimated expenses are to be capitalized by the genera standards. An interpretation of selling expenses in accounting illustrates another discrepancy. In accordance with cl. 11 SAS 16 selling expenses are not to be included into the production cost under cl. 17 of the same standard they are also not to be included into the cost of goods sold.

In practice, British accounting follows the same rule. But this general principle loses validity in the case of goods sold under the conditions "sale or return." Thus, goods at a buyer's warehouse remain a seller's property. In such situations, a seller's expenses for package and delivery of goods to a buyer are to be included into the cost of goods.

The British are also eccentric in some nuances of charging amortization.

A renewals accounting, whose annual costs necessary to maintain the said infrastructure are acknowledged as an amortization security, is applied to such assets. As long as these expenses occur, they are to be amortized. As a result, both the cost of water network items and the amounts of their amortization increase.

A forced transformation of Ukrainian accounting to the general European format expanded professional interests of Ukrainian accounting personnel. This article was written to facilitate a familiarization with the British accounting experience.

NOTES

regulatory scheme – регуляторная схема

long-standing traditions – давние традиции

frugal attitude – бережливое отношение

one is to take into account – следует принять во внимание

traces its roots back – уходит корнями в

prevailing paradigm – превалирующая парадигма

modern accounting standardization – современная бухгалтерская стандартизация

International Accounting Standards (IAS) – международные стандарты бухучета (МСБ)

International Accounting Standards Board – совет по международным стандартам бухучета

the Accounting Standards Committee – комитет по международным стандартам

acknowledged – признана

European stock exchange – Европейскaя биржа

will continue to prevail – будет превалировать

Affects – касается

the Low on Accounting and Reporting – Закон о бухучёте и отчётности

refers to – соответствует

Generally accepted accounting principles (GAAP) – общепринятые принципы бухучёта

while interpreting nuances – при интерпретировании нюансов

processing of accountants’ data – бухгалтерская обработка данных

within the national systems – в рамках национальных систем

peculiar feature – особенность

official management – официальное регулирование

regulatory style – регулирование

trust – доверяют

in turn – в свою очередь

strives to qualify – старается оправдать

clarity – ясность

accounting issue – учётный вопрос

to implement the provisions – внедрять положения

EU = European Union – Европейский Союз

implementation – внедрение

the Institute of Chartered Accountants – институт дипломированных бухгалтеров

Accounting Standards Steering Committee – Комитет по управлению бухгалтерскими стандартами

to generalize accounting practice – обобщить опыт бухгалтерской практики

the Accounting Standards Committee – комитет по бухгалтерским стандартам

draft standards were passed – были приняты проекты стандартов

the Statement on Standard Accounting Practice (SSAP) – положение по стандартной бухгалтерской практике

alluded to – ссылались на

government grants – правительственные дотации

value-added tax – налог на добавленную стоимость

hire purchase contract – контракт на арендное приобретение

Financial Reporting Standard for Smaller Enterprises – стандарт финансовой отчетности малых предприятий

the Statements of Recommended Practice – положение по рекомендуемой практике

undergo exchange listing – проходят биржевой листинг

radical accounting reform – радикальная реформа бухучёта

conforms completely – полностью согласован с

preserve some peculiarities –сохраняют некоторые особенности

discrepancy – расхождение

acknowledged – признан

inventories retirement evaluation – оценка выбытия запасов

despite – не смотря на

inventories write-off evaluation – оценка списания запасов

interpretation of expenses incurred – интерпретация понесённых расходов

of a less conceptual character – менее концептуального характера

without hiring a general contractor – не привлекая генподрядчика

highlights – выделяет

overspent costs – перерасходные издержки

occurrence – наступление события

excessive spending – перерасходные издержки ( на закупку )

loses validity – не действует

goods at buyer’s warehouse – товары, находящиеся на складе у покупателя

water network item – объект водной сети

forced transformation – форсированный перевод

to facilitate – для того, чтобы облегчить

familiarization - ознакомление