Financial reporting in the UK: a history of the financial accounting standards committee...

Financial reporting in the UK: a history of the financial accounting standards committee 1969-1990 Brian Rutherford Routledge, Oxford, ISBN 978-0-415-39421-5

The subtitle accurately reflects the nature and contents of this history comprising in total some 460 pages In addition to the author's

preface there is a foreword by the series editor, Stephen Zeff, some eleven chapters outlining the reasons for the establishment of the UK Accounting Standards Committee (ASC), and its operations and demise over the period December 1969 to August 1990. These are supported by 77 pages of footnotes, while nine appendices cover a listing of the exposure drafts (EDs) and Standards (SSAPs) issued, the personnel involved, submissions made and copies of key documents - for example, Statement of Intent and extracts from the Watts Report. There is an extensive bibliography of works referred to and/or cited, as well as a combined author/topic index.

The book is the result of a research project funded by the Institute of Chartered Accountants in England and Wales (ICAEW) with the proviso that Rutherford "examine 'lessons for the future' to be drawn from the history" (Preface xi).

Zeff compares the development of the ASC without formal government backing to that of the USA Accounting Principles Board (APB)/Financial Accounting Standards Board (FASB), and the Canadian Institute of Chartered Accountants (CICA) where there was legislative support for professional accounting body standards (Foreword xiii).

The chapter titles give some indication of the author's approach to the history, and the footnotes to his meticulous research through source documents, secondary sources, press statements and extensive interviews with the senior ASC personnel of the time.

The chapters are:

1. 'Present Troubles, and More to Come'

2. The Invention of the Accounting Standard

3. Honeymoon Period: 1970-1974

4. Accounting for Changing Prices: The Struggle Begins

5. The Holy Grail

6. The Going Gets Tougher: 1975-1979

7. Reforming the System

8. The Art of the Possible: 1980-1984

9. Accounting for Changing Prices: The Struggle Continues - and Ends Badly

10. Losing Steam? 1985-1990

11. Setting Accounting Standards 1969-1990 Technical and Political Realms

In chapter one, exploring the reasons for the establishment of the Accounting Standards Steering Committee (ASSC), as it was initially called, Rutherford canvasses the pressures arising from major company incidents in the UK in the 1960s and especially the Rolls Razor collapse, the GEI/AEI takeover and the Leasco/Pergamon affair. While in each case concerns were raised with regard to the application of accounting principles, Rutherford argues that problems arose because of poor or manipulative management. A useful analogy here would have been some reference to the Reid-Murray and/or HG Palmer collapses in Australia over this period.

Financial press comments on Professor Eddie Stamp's role as a critic of existing accounting principles are highlighted, including reference to Professor Ray Chambers' "over a million different 'true and fair views' of the same facts" (pp. 10-11).

Chapter two indicates how quickly the profession (initially the ICAEW) responded to set up the ASSC with membership/participation by the other UK accounting bodies utilizing its own technical staff to provide the secretarial support. Issues regarding design and enforcement of standards were outlined and disclosure of non-compliance was seen as the way ahead.

The honeymoon period sees the foundling ASSC draw up what proved to be an over-ambitious five year, 20 item work program as well as formally establish an Exposure Draft (ED) process.

The successes, delays and withdrawals over the first five years are summarized in Table 3.2, together with commentary regarding those who believed the work program was not progressing fast enough and comparisons with the international scene (USA and Canada).

Chapter four on "Accounting for Changing Prices" looks at the initial discussions (or was it ambivalence?) on inflation accounting and the way the CPP provisional standard came about, the lack of debate, government action and ED responses (113) compared with the Current Cost Accounting (CCA) ED (746 responses) discussed in chapter nine. As Zeff states "No standard setting body anywhere in the world invested more time and resources to finding a solution to this problem" (Foreword p. xii). Rutherford indicates that the inflation accounting determinations appear to be one of the major reasons for the ASCs demise.

"The Holy Grail" looks at attempts to develop a conceptual framework as well as involve academic accountants in research into financial reporting methods US developments within the APB and Trueblood Report were noted followed by the issuing of the Corporate Report (1975) focussing on user needs The radical views of Hines, Tinker et al. that standards can be seen as a social construct of reality and so the Conceptual Framework was doomed to fail (p. 119) conclude this chapter.

The second five year period sees constitutional change, the admission of CIPFA, the ASC title, staffing increases, the retirement of the founder Chair and increased business community interest as the impact of standards on stock, extraordinary items, deferred tax, research and development and depreciation begin to impact. Political lobbying and related activity increases. Would a conceptual framework have helped?

Reforms were introduced by the Watts review but progress to the final report was slow. Conflict continued within the CCAB. However changes were made with a new Chair and reconstituted committee which introduced Statements of Recommended Practice (SORPs) and franked SORPs as a means of addressing specific industry accounting issues.

"The Art of the Possible" (1980-1984) sees challenges with foreign currency translation options and the FASB and IASC decisions coupled with the EEC fourth directive, leases and the Courtline (Tristar) collapse (need for substance over form), business combinations and goodwill and investment properties (heavy lobbying by the British Property Federation).

Earlier standards were reviewed and revised versions issued (e.g. deferred tax) while the problems with goodwill remained contentious, "The technical case for reviewing the areas of difference had now become deeply embroiled in an environment of economic consequences and political interests" (p. 222). It was clear that the optimistic work program was not being met and the ASC was losing steam.

The final five year period (1985-1990) saw takeover activity triggered by the October 1986 "Big Bang" reform of the Stock Exchange, another change in ASC Chair and new members. Despite ASC Chairs pressuring for monitoring and compliance activities to back up the standards there was little support from the CCAB. In November 1987 the CCAB set up a committee to review standard setting in the UK and in September 1988 the Dealing Report recommended a new independent standard setting structure which was accepted by the CCAB (thus ensuring the ASC's demise).

Issues on the agenda were often controversial and included pension costs, off balance sheet finance, the Solomon Report on a Conceptual Framework, group accounting and intangibles, segmental reporting and related party transactions The revision program continued and the true and fair override raised concerns The last three months saw a flurry of activity with seven EDs issued - some revisions some new - thus guaranteeing a full and in part controversial (ED 47 Accounting for Goodwill) work program for the new Accounting Standards Board (ASB).

Rutherford concludes this chapter by looking at the ASCs work output over the 20 years and argues that the constraint "was not its technical resources but rather its judgement about what was acceptable to its constituents" (p.291).

In the final chapter, Rutherford highlights concerns expressed by the various ASC Chairs including its work being undermined by disputes within the CCAB and the "labyrinthine complexity" of the CCAB committees (p.293). He then discusses whether the demise was inevitable and how effective the ASC was.

In completing his remit, Rutherford looks at lessons for the future covering areas such as technical construction of standards, resisting quick fixes and EDs testing the detail, not the principle. Embracing of a conceptual framework? Tips for young standard setters are included as well as the need for greater user involvement.

The final lesson is for the UK accountancy profession as a whole, and the problems that their multipartite institutional structure can bring that "... damage our capacity to act, and to be seen to act, responsibly and for the public good" (p.314).

This volume is an invaluable addition to the libraries of those interested in, or involved with, the development of accounting standards and the standard setting process in the second half of the twentieth century and the early years of the twenty-first.

It highlights the involvement of individuals, accounting firms, academics, chief financial officers, the government (departments), industry associations and lobby groups in this process

Useful comparisons are drawn with similar developments over this period in the USA, Canada and to a lesser extent Australia, as well as touching upon the emergence of the IASC and now the IASB.

AUTHOR_AFFILIATION

Professor Terry Heaziewood

Charles Sturt University