A History of Corporate Financial Reporting in Britain: 1st Edition (Hardback) book cover

A History of Corporate Financial Reporting in Britain

1st Edition

By John Richard Edwards


380 pages

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pub: 2018-07-04
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A History of Corporate Financial Reporting provides an understanding of the procedures and practices which constitute corporate financial reporting in Britain, at different points of time, and how and why those practices changed and became what they are now. Its particular focus is the external financial reporting practices of joint stock companies. This is worth knowing about given the widely held view that Britain (i) pioneered modern financial reporting, and (ii) played a primary role in the development of both capital markets and professional accountancy. The book makes use of a principal and agent framework to study accounting’s past, but one where the failure of managers always to supply the information that users’ desire is given full recognition. It is shown that corporate financial reporting did not develop into its current state in a straightforward and orderly fashion. Each era produces different environmental conditions and imposes new demands on accounting. A proper understanding of accounting developments therefore requires a careful examination of the interrelationship between accountants and accounting techniques on the one hand and, on the other, the social and economic context within which changes took place.

The book’s corporate coverage starts with the legendary East India Company, created in 1600, and continues through the heyday of the statutory trading companies founded to build Britain’s canals (commencing in the 1770s) and railways (commencing c.1829) to focus, principally, on the limited liability company fashioned by the Joint Stock Companies Act 1844 and the Limited Liability Act 1855. The story terminates in 2005 when listed companies were required to prepare their consolidated accounts in accordance with International Financial Reporting Standards, thus signalling the effective end of British accounting.

Table of Contents

Part 1. Setting the Scene

Chapter 1. Nature and Purpose of Corporate Financial Statements

1. Scope of text

2. Nature of accounting change

3. Agency theory

3.1. Lack of goal congruence

3.2. CFS as a social construction

4. The British experience

5. Objectives of periodic financial statements

5.1. Origins of stewardship reporting

5.2. Early recognition of decision usefulness

5.3. Changing objectives of CFS

6. Review

Chapter 2. Companies, Shareholders and Capital Markets

1. Introduction

2. Origin of joint stock

3. East India Company

4. Speculation and risk

5. South Sea Company

6. Effect of the ‘Bubble Act’

7. Chartered and statutory companies

8. Registered company

9. Origin of limited liability

10. Rise of the limited liability company

11. Investors and capital markets

12. Post World War 2

13. Review

Part 2. Early Issues in Financial Reporting

Chapter 3. Financial Reporting to c.1800. The Theory

1. Introduction

2. Trading environment

3. Accounting statements of the early modern period

4. Asset measurement procedures

4.1. Merchandize

4.2. Ships

4.3. Voyages

4.4. Estates, land and houses

4.5. Household furnishings, movables and valuables

4.6. Securities and annuities

4.7. Miscellaneous measurement issues

5. Review

Chapter 4. Financial Reporting to c.1800. The Practice

1. Introduction

2. Balance sheet

2.1. East India Company balance sheet 1782

2.2. Languvelack Copper Works balance sheet 1745

3. Profit and loss account

4. Profit measurement and asset valuation

5. Fixed assets

5.1. Depreciation

6. Inventories

7. Debtors

8. Path dependence

Part 3. Nineteenth Century Issues

Chapter 5. Regulation vs Laissez Faire in Nineteenth-century Britain

1. Introduction

2. Pursuit of improved accountability

3. Early accounting regulations

4. A new philosophy

5. Laissez-faire accountability

6. Model articles of association

7. Customized articles of association

8. Regulated companies

9. Review

Chapter 6. Statutory Companies and the Double Account System

1. Introduction

2. Statutes of incorporation

2.1. General statutes

3. Construction of the double account system

3.1. Capital account

3.2. General balance sheet

3.3. Towards accruals accounting

4. Monteagle committee

5. Regulation of railways act 1868

5.1. Criticisms of the double account system

6. Review

Part 4. Company Law

Chapter 7. Profits, Dividends and Capital Maintenance

1. Limited liability and creditor protection

2. Capital maintenance rules

3. Dividend cases

3.1. Uncertainty

3.2. Depreciation

3.3. Realized and unrealized capital profits

3.4. Periodic or accumulated profits

4. Distributable profit versus reported profit

5. Statutory definition of distributable profit

6. Review

Chapter 8. Corporate Legislation and Pressure Groups

1. Introduction

2. Making new law

3. Gladstone committee

4. Davey committee

5. Warmington committee

5.1. Exploiting statutory loopholes

6. Wrenbury committee

7. Greene committee

8. Cohen committee

9. Jenkins committee

10. Review

Part 5. Financial Reporting as Misinformation

Chapter 9. Falsification of Accounts

1. Introduction

2. Railway mania

3. City of Glasgow Bank

3.1. The deception

3.2. Unlimited liability

3.3. Statutory audit of banks

4. Royal Mail case

4.1. Expansion and financial instability

4.2. The deception

4.3. The prosecution

4.4. Legal vs moral responsibility

4.5. Off-balance sheet financing

4.6. Regulatory responses

5. Review

Part 6. Selected Financial Reporting Issues

Chapter 10. Annual Report and Accounts

1. Introduction

2. Regulation of CFS

3. Accounting thought and accounting innovation

4. AR&A in mid-Victorian Britain

5. Publishing less rather than more 1900-1930

5.1. Companies Act 1928

6. Transforming levels of disclosure 1930-1950

7. Lull before the storm

8. Additional CFS

9. Ever-lengthening AR&A

9.1. Discretionary disclosures

10. Review

Chapter 11. Standardized accounting statements

1. Introduction

2. Early initiatives

3. Standardization debate

4. Companies act 1981

4.1. Explaining an historical discontinuity

5. Tiptoeing in the direction of standardization

6. Review

Chapter 12. Group Accounts

1. Introduction

2. Economic background

3. Legal entity-based accounts

4. Problem recognized

5. Group accounts – two early examples

6. Greene committee

7. Explaining delayed accounting change

8. Voluntarism and regulation

9. Post-war economic developments

10. Acquisition and merger methods

11. Associated companies

12. Review

Chapter 13. Profits, Provisions and Reserves

1. Introduction

2. Secret reserves

2.1. Heyday of secret reserves

2.2. Reassessing legitimacy

3. Earnings as performance indicator

3.1. True and fair

4. Measuring ‘normal’ profits

4.1. Provisions and Reserves

5. Capital reserves

6. Non-recurring items – SSAP 6

7. Review

Chapter 14. Tangible Fixed Assets

1. Introduction

2. Fixed asset accounting practices to 1900

2.1. Railway companies

2.2. Practices elsewhere

2.3. Influences

2.3.1 Government committees

2.3.2 Writers

2.3.3 Consultants

2.3.4 Legal issues

3. 1900-1950

3.1. Depreciation

3.2. Revaluation

3.3. Disclosure

3.4. Closer regulation

4. Post-1950

4.1. Historical cost vs. valuation

4.2. Depreciation

5. Review

Chapter 15. Off-balance Sheet Financing

1. Introduction

2. Creative accounting

3. Off-balance sheet financing

3.1. Court line

4. Leasing

4.1. Definition

4.2. Accounting treatment

5. Substance vs form – a jurisdictional dispute

5.1. FRS 5. Reporting the substance of transactions

5.2. FRS 4. Capital instruments

6. Review

Chapter 16. Accounting for Changing Prices

1. Introduction

2. What is profit?

3. RoAPs

3.1. Intra-organizational conflict

3.2. Public face of the profession

4. Asset revaluations on the rise

5. Academics enter the fray

6. Seeking an accounting standard

7. Modified historical cost accounting

8. Fair value

Chapter 17. Cash and Funds Flow

1. Introduction

2. Revival of interest

3. Funds flow statement

4. Cash flow statement

5. Review

Part 7. Standards and Concepts

Chapter 18. Recommendations, Standards and a Conceptual Framework

1. Introduction

2. RoAPs

3. Rising tide of criticism

4. Accounting standards

5. Theoretical framework

5.1. Early institutional initiatives

5.2. SSAP 2. Disclosure of accounting policies

5.3. User decision oriented approach

5.4. Quest for a conceptual framework

6. Review

Part 8. Reflections

Chapter 19. Continuity with Change

1. Introduction

2. Regulations

2.1. Companies acts

2.2. Principles and standards

3. Accounting, politics and economic consequences

4. Legal vs moral responsibility

5. Earnings management and OBSF

6. Causes célèbres as game changers

7. Stewardship and decision usefulness

7.1. Durability of historical cost

7.2. Estimates and values

7.3. Review


Appendix 1. Statutes

Appendix 2. Recommendations on Accounting Principles

Appendix 3. Statements of Standard Accounting Practice

Appendix 4. Financial Reporting Standards

About the Author

J.R Edwards is a professor of accounting at the Cardiff Business School, Cardiff University. His research interests embrace various aspects of accounting history, with outputs published in academic journals, professional journals and in book form.

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Routledge Studies in Accounting

This series explores the roles of Accounting and Accounting theory in the modern world. The series examines research in accounting thought, practice, auditing, principles and ethics as well as international standards and regulation setting. Examining private, public and non-profit sectors, Routledge Studies in Accounting, seeks to advance the scholarly debate by providing cutting edge and insightful research

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