Increased Disharmony or Twin Accounting? A Closer Look at the Compatibility of UK Accounting Practices with US GAAP

Financial accounting practices in the UK and the US have often been assumed to be highly compatible. The similarity of the institutional and business context, as well as of the professional environment reinforced this commonly shared perception. In general, the US and the UK are perceived as belonging to the ‘Anglo-Saxon’ part of the accounting world, where standards are driven by the market and have a micro-economic, and possibly user-friendly, orientation (Nobes, 1992). However, a number of studies have also pointed out that a number of technical differences still exist in the rules (Nobes, 1988; Ghosh and Elwell, 1992; Pereira et al., 1994; Price Waterhouse, 1997) and that at a deeper analysis UK and US financial results do not appear as close as one would expect (Weetman and Gray, 1990, 1991; Weetman et al., 1993). Within a larger research project on the measurement of European company accounts conservatism, this empirical study aims at shedding some further light on the proximity of the UK and the US financial reporting, drawing on the most recent available data (1994-96). To this end the entire population of UK companies listed on American official stock exchanges has been considered. These companies are bound to produce a statement reconciling their UK net profit and shareholders’ equity with US GAAP. This reconciliation then permits a detailed and reliable evaluation of the claim that UK and US accounting practices are highly compatible. Some interesting insights seem to emerge as to the respective degree of conservatism and the relative impact of the expected major qualitative differences between the two accounting systems.