Pauline Weetman

A Comparative International Analysis of the Impact of Accounting Principles on Profits: The USA versus the UK, Sweden and The Netherlands

Abstract This paper explores the extent to which there are material quantitative differences in profits reported under US GAAP compared to profits reported in accordance with generally accepted accounting principles in the UK, Sweden and the Netherlands. From an analysis of Form 20-F reports filed with the SEC in the USA, there is support for the hypothesis that UK GAAP are significantly less conservative than US GAAP. On the basis of a case study approach, it seems that Swedish GAAP tend to be more conservative than US GAAP, particularly when the transfers to reserves are analysed, but there is insufficient evidence to establish a systematic pattern. In the Netherlands, on the other hand, there is evidence to suggest that Dutch GAAP are at the less conservative end of the spectrum of financial reporting measurement practices, in a position relatively similar to that of UK GAAP, although again the evidence is insufficient to establish a systematic pattern.

Profit Measurement and UK Accounting Standards: A Case of Increasing Disharmony in Relation to US GAAP and IASs

UK accounting practice differs from International Accounting Standards (IASs) particularly with regard to amortisation of goodwill, provision for deferred taxation and the accounting treatment of pension costs. Under the core standards programme of the IASC the IASs have emerged closer to US practice. This paper evaluates the profit of those UK companies reporting to the Securities and Exchange Commission (SEC) in 1988 and 1994, spanning a period which saw the establishment of the ASB and the implementation of the IASCs comparability project. An increasing gap was found between the reported profit under UK accounting principles and that restated under US GAAP. The difference lay most frequently in accounting for goodwill, provision for deferred tax, and the accounting treatment of pension costs, with accounting for goodwill showing a particularly significant impact in 1994. Notwithstanding the introduction of FRS 10, an overall impression of increasing disharmony could continue to cause reconciliations to be required of UK companies seeking full listing on a US stock exchange, with consequent disadvantage relative to companies in other European countries seeking international capital in the US.

A texture index for evaluating accounting narratives: An alternative to readability formulas

Readability formulas have been criticised as a method for scoring accounting narratives because of their focus on word‐ and sentence‐level features and not on whole‐text aspects, their lack of regard for the interests and motivation of the reader, and their inappropriateness for evaluating adult‐based and technical accounting narratives. The literature of linguistics offers theoretical and practical validation for application of a texture index which addresses these criticisms. The paper shows how the general model drawn from applied linguistics can be tailored to the specific situation of an accounting narrative – the Operating and Financial Review. Rules which provide for objectivity in replication are specified and illustrated for a sample narrative. Illustrative empirical analysis shows that there is no evidence of association with the Flesch readability score. This suggests that the texture index is potentially a powerful tool for analysis of accounting narratives and association testing.

Lobbying on accounting issues: Preparer/user imbalance in the case of the Operating and Financial Review

The lack of user response in written submissions on accounting standards has been noted in previous research. That lack of user response has limited empirical investigations with the result that lobbying by users has to be understood largely from theoretical literature in the political and social arena. Aims to add empirical data to the understanding of the user perspective, taking as a focus for the investigation the lobbying of the UK Accounting Standards Board in respect of the Operating and Financial Review. Four issues are chosen for analysis: usefulness to users, effectiveness of voluntary compliance, confidentiality and provision of forward‐looking information. Shows that the ASB’s responses on these four major issues are rational in terms of the relative intensity of lobbying. Using interview methods to obtain user responses shows that a different perception of lobbying intensity may be derived from a comparison of preparer and user responses, such that preparers’ views may have given too negative an impression to the ASB. The relative persuasive power of different arguments is shown to depend on how the comparison is undertaken. Uses the quantitative analysis of responses as a base from which to explore the potential for strategic lobbying to disguise self‐interested motivation and provides some insight on the lack of user response.

Management Discussion and Analysis: An Evaluation of Practice in UK and US Companies

Abstract The Accounting Standards Board has proposed the inclusion of an Operating and Financial Review in the annual reports of large UK companies, similar to the Management Discussion and Analysis (MD&A) required by the Securities and Exchange Commission (SEC) in the USA. This paper explores the nature of the MD&A reports already existing in the case of 42 UK companies which report to the SEC and compares these with a sample of 42 large US companies. Techniques of content analysis and a subjective scoring system were used to quantify the differences between observed practice of UK and US companies within the same set of regulations. UK companies were found to provide more informative reports with respect to disclosure of aspects of risk and uncertainty, as well as providing more forward-looking information. In both the UK and the USA there was no evidence of homogeneity of form and content within or between industry groupings. It is concluded that it is feasible for UK companies to produce the type of r...