This is undoubtedly a demanding time for practitioners and students of financial reporting. Accountants and business people in European Union countries need to master not only their national regulations but also the rules of the International Accounting Standards Board. Both sets of rules are voluminous, ever growing and presently undergoing a process of rapid change as a consequence of the convergence programme designed to bring national and international standards into line with one another.
The ASB, in the UK, has developed its Statement of Principles for Financial Reporting, a conceptual framework designed to underpin the development of accounting standards which adopts a rather different view from that of the accruals-based approach of traditional financial accounting. However, some of the principles are inconsistent with present company law and several of the Financial Reporting Standards in issue are inconsistent with the Statement of Principles. Company law is presently under review, with the publication of a White Paper which proposes major changes to the mechanism for setting and enforcing accounting rules in the UK. Once the law is changed, then it will be necessary to change numerous Financial Reporting Standards. It can perhaps be seen that the failure in the past to develop a generally-agreed theory underpinning financial accounting is not without its practical costs.
A 2002 EU Regulation requires all quoted companies in Europe to prepare their consolidated financial statements in accordance with international standards, rather than national standards, by the year 2005. Accounting rule setters in the various member states are attempting, with varying degrees of enthusiasm, to achieve convergence between their own standards and those of the IASB, but this process is difficult to achieve because of considerable, often major, differences between the respective standards and because the IASB is itself revising a large number of standards as part of its improvements project. National standard setters are therefore in the uncomfortable position of shooting at a moving target.
The EU Regulation applies only to the consolidated financial statements of quoted companies, although member states may permit, or require, the use of international standards in the single-entity financial statements of those companies as well as in both the single entity and consolidated financial statements of unquoted companies. At the time of writing it is unclear whether the various member states will require universal application of international standards or whether two sets of standards, national and international, will co-exist for application to different financial statements in the same country. In the view of the authors, even the consolidated financial statements of quoted companies in different EU countries are unlikely to be comparable until long after 2005, let alone the financial statements of unquoted companies.
Part 1 · The framework of financial reporting 1
1 The search for principles 3
2 Sources of authority: the United Kingdom 23
3 Sources of authority: the rise of international standards 42
4 What is profit? 59
Part 2 · Financial reporting in practice 93
5 Assets I 95
6 Assets II 133
7 Liabilities 160
8 Financial instruments 176
9 Substance over form and leases 205
10 Pension costs 248
11 Reporting financial performance 276
12 Taxation: current and deferred 337
13 Business combinations and goodwill 359
14 Investments and groups 403
15 Associates and joint ventures 447
16 Overseas involvement 476
17 Expansion of the annual report 526
18 Capital reorganisation, reduction and reconstruction 579
Part 3 · Accounting and price changes 617
19 Accounting for price changes 619
20 Current cost accounting 644
21 Beyond current cost accounting 666