Vanderbilt Law Review

First Page



The purpose of this article is to account for the existence of differing accounting standards in the United States and the United Kingdom despite a common language, common practice and a fundamentally common political and economic base in the two countries. What factors explain the fact that, while accounting standards in the United States are codified and explicit, they remain on the whole uncodified and implicit in Great Britain? From which system does the investor more likely benefit? The first section of this paper begins with descriptions of auditing and reporting standards in each country. The factors which influence the establishment of accounting standards are examined in the following section. Within this second section, the inherent limitations of accounting measurements are discussed, from which some hypotheses are developed explaining the function of accounting standards and speaking to the question of why the standards are stated explicitly or implicitly. The answers to these questions are then contrasted with four environmental differences between the United States and the United Kingdom: (1) the professional environment, (2) the economic environment, (3) the regulatory environment and (4) the legal environment. Finally, the last section presents a cost-benefit analysis of explicit and implicit accounting standards for investors.