Discuss the Effect of the Statement of Principles for Financial Reporting on Current Uk Financial Reporting Practice

Discuss the Effect of the Statement of Principles for Financial Reporting on Current Uk Financial Reporting Practice

Discuss the effect of the Statement of Principles for Financial Reporting on current UK financial reporting practice.

The ASC was set up in the 1970’s, where at the time there was no clear statement of accounting principles, accept that the accounts should be prudent; consistent; follow the accrual accounting procedures and be based on the assumption that the entity would remain a going concern.

Up until 1990 standards were set by the ASC; a body made up of six professional accounting bodies in the UK. By 1991 the ASC had produced twenty-five standards, however they were still criticised for what they did. Criticisms included the absence of a conceptual framework; the adoption of a fire fighting approach to dealing with accounting issues; the allowance of too many alternative treatments with accounting standards; and an insufficient number of staff to deal with the work load.

Consequently, the Dearing Committee was set up to review the standard setting process as there was a decline in the creditability of the ASC. The Dearing Report recommended a conceptual framework by developing past and existing work. They also suggested a new structure comprising the FRC; ASB; UITF and the FRRP.

The ASC was replaced by the ASB on 1 August 1990 as a result of this report. Also the UK Statement of Principles for Financial Reporting was developed by the ASB in 1999 to provide a framework for a consistent review of accounting standards. The Statement of Principles gives a basis for choosing between alternative accounting standards.

In this essay I will further explain the Statement of Principles for Financial Reporting on current UK financial reporting practice, by using examples on the topic of accounting for liabilities. In the Statement of Principles the ASB defined liabilities as follows: “Liabilities are obligations of an entity to transfer economic benefits as a result of past transactions or events” (paragraph 4.24). There are two types of obligations; one which is a legal obligation where a person/entity has a legal claim on payment; and a constructive obligation