Environmental Factors Which Influence Accounting Systems

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Table of Contents

Introduction
The UK legal system
UK taxation systems
The provider of capital
The political system
The UK economic system
UK cultural values
Conclusion
Reference List

Introduction

The aim of accounting systems is to offer useful information to stakeholders that can enable them make proper economic decisions. Stakeholders may include the government, the society or shareholders of a company. The accounting systems therefore reflect the needs and interests of the stakeholders.

Accounting systems and practices have characteristically taken different patterns in various parts of the world. National systems of accounting have usually been influenced by environmental factors.

Environmental factors have always determined the accounting policies, systems, regulations, financial reporting among many others.

The accounting systems and practices in a country are determined by the political and economic system, the ownership patterns, legal and taxation system as well as the cultural values. The UK accounting systems and practices has also been considerably influenced by these factors.

The UK legal system

The country has a limited statute law that guides its commercial system (Day 2000). For example, in dividend cases, courts have to form their own judgments on indefinable concepts of capital as well as income taking case-by-case basis. In the UK, professional accounting as well as company law plays key function in the UK financial reporting.

The state regulates accounting as well as financial reporting of businesses within the country through the Companies Act and other legislations. It also uses professional pronouncements and also maintains the requirements for stock exchange listings.

The regulations are implemented by the Accounting Standards Board as well as the London Stock Exchange. The Financial Reporting Council is generally in charge of policy control particularly in the processes of standards setting.

The Accounting Standards Board together with the Financial Reporting Review Panel are in charge of reviewing the financial reports of companies so as to ensure accurate reporting of information. According to Day (2000) cases of violations of accounting standards set by the Accounting Standards Board are also reviewed by the Review Panel.

The Review Panel could also take the matter to court for court action against the company for not complying with the standards. The court rulings are made according to the accounting principles. The directors of the company have to be responsible for the costs.

The London Stock Exchange on the other hand issues to companies the listing requirements. It requires that companies publish their semiannual interim reports and also disclose information on corporate governance as well as the director’s remuneration (Day 2000).

UK taxation systems

The UK taxation system is highly affected by the objectives of the government. The taxation system has little control in financial reporting in the UK. However, the accounting standards in the UK have been set to reflect the taxation system and the tax authorities in the country are adapting approaches that respond to the accounting standards (Cuzdriorean, Fekete & Sucala 2010, 97).

In the UK, public accounting reports provide the basis under which tax liabilities are determined. The published accounting reports are as such adjusted so as to be used for determining tax charges (Cuzdriorean, Fekete & Sucala 2010, 97). They are therefore submitted separately from those to be sent to shareholders.

The provider of capital

In the UK, the requirement for public accountability as well as disclosure is always greater in situations where there is a large shareholding than in cases where the firm is under family ownership (Day 2000). In cases of state ownership, the accounting systems are usually centrally controlled and this usually supersedes microeconomic objectives of the firm.

The activities of the organisation also have an influence on the nature of the accounting practices as well as systems. The accounting systems depend on whether the company is manufacturing or agricultural; or whether it is a multinational company or a large group of companies. According to Day (2000) separation of business ownership and control have usually mandated for accurate financial report practices.

The political system

The country’s political system significantly influences the nature of accounting systems in the UK since the accounting systems and practices have to reflect the political philosophies as well as the objectives of the UK political system. For example, the objectives and philosophies regarding central planning or private firms are influenced by the political system.

The UK economic system

According to Aghimien, Mitchell, and Overholser (2009) the UK’s economy is the fourth-largest globally and the second-largest in the European Union. The country’s economy is highly developed and in addition, it has a diversified market-based economy.

It has a financial market which is founded on financial systems. In this case the stock market provides finances to large-scale businesses as well as trading securities. It has benefitted from indirect foreign influence particularly from the accounting standards used in the US as well as directives from the EU community.

Economic growth and challenges led to the introduction of inflation accounting in the country in the 1980 (Bromwich 1992, 82). The policy was implemented through the Statement of Standards Accounting Practice 16. It required that financial reporting by companies also provide information on Current Cost Financial Statements.

Accounting principles majorly focus on the investor needs as well as the significance of transparency. Although the UK depends largely on financial direct investment from outside shareholders, the UK lawmakers have not created a powerful securities commission which can be vested with the mandate of regulating the accounting as well as financial reporting. Besides, there have not been detailed rules regarding this.

The UK sustains shareholders investments by ensuring that companies make full disclosure of the financial reports. According to the Aghimien, Mitchell, and Overholser (2009) the UK government believes that full disclosure would assure shareholders and all the stakeholders that the management of the organisation is operating in their best interest.

UK cultural values

The UK cultural values in relation to accounting emphasize respect for social as well as status obligations; however, this should be within limits; willingness to overcome personal interests so as to achieve purposes; virtuous accounting life; making funds available through large savings for the purposes of investment among others.

The UK cultural values also emphasize individual professional judgment and also require individuals to maintain professional self-regulation. Presentation of an organisation’s financial position as well as results largely depends on the judgement of an independent accountant professional (Bromwich 1992, 78).

Again, professional accountants of an organisation or working for an organisation should uphold confidentiality and to only make disclosure of information to those in the management or those who provide finances to the company. However, the financial statements are supposed to be made public.

Conclusion

Accounting systems and practices in the UK are greatly influenced by environmental factors. Environmental factors determine the policy regulations, taxation systems, financial reporting as well as the objectives of the accounting systems in companies. They also influence the accounting principles implemented for accounting practices.

Reference List

Aghimien, P., Mitchell, S., & Overholser, H., 2009, A comparative analysis of significant influences on the accounting systems of diverse European countries and the USA. Journal of International Business Research, 8 (2). London: The DreamCatchers Group. Web.

Bromwich, M., 1992, Financial reporting, information and capital markets. London: Pitman. pp. 78-82.

Cuzdriorean, D., d., Fekete, s., & Sucala, l., 2010, An attempt of measuring fiscal influence over accounting of Romanian Listed Companies. Annales Universitatis Apulensis Oeconomica, 12(1): 95-111. Web.

Day, R., G., 2000, UK accounting regulation: An historical perspective. School of Finance & Law Working Paper Series 20. Fern Barrow: Bournemouth University. Web.

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