Should Accounting Standards be Principles or Rules?

In a recently-published article, Sir David Tweedie notes that: “Forty-odd years ago, as a CA apprentice, I didn't have to study accounting standards because there weren’t any! There was one major standard – the true and fair view – augmented by accepted practice.” According to Tweedie, two disputed takeover bids soon changed that. The President of the Institute of Chartered Accountants in England and Wales (ICAEW), Sir Ronald Leach, senior partner of Peat Marwick & Co., and Professor Edward Stamp of Edinburgh University became embroiled in a public argument in the pages of The Times over the state of British financial reporting.

 

“Professor Stamp argued that for any major company, there would be a million ways which you could show a true and fair view, and that this was totally unacceptable. Sir Ronald reacted with alacrity, and together with the other Institutes (including a rather reluctant ICAS), agreed to form the Accounting Standards Steering Committee in 1969. Pressured by the Government, the Committee looked for a quick win and came upon a research paper of the ICAEW dealing with Associated Companies. This was rapidly turned into the Statement of Standard Accounting Practice 1. While to accountants such a topic would be a bizarre choice for the first standard, rather than what became SSAP2 – Accounting Policies – the profession needed to show it.”

 

“The argument continues over whether standards in financial reporting can best be governed by clear and detailed rules, or by principles and judgement could act quickly in a time of crisis. Since then, we have seen the SSAPs gradually replaced with Financial Reporting Standards and latterly by International Financial Reporting Standards (IFRS). These standards have become more and more complex.”

 

“Accounting is not rocket science. Writing a standard to deal with 80 per cent of the problems takes only a few pages, yet if our profession requires every avenue to be explored, then it can run into hundreds. ICAS is just completing a judgement framework to assist professionals who are unsure what exactly judgement involves. If you have been trained in what I term ‘search-engine’ accounting – looking up the answer in a massive book of rules –judgement can be scary.”

 

“The profession is at a crossroads, and the more we head down the rules route the harder it will be to pull back to simpler, more clearly expressed principle-based standards.” Read the article “Should Accounting Standards be Principles or Rules?” by Sir David Tweedie, President of the Institute of Chartered Accountants of Scotland (ICAS), as well as previous postings regarding the Principles versus Rules debate.

The future of corporate reporting: a review article (2000)

 

In a research article published in 2000, Professor Vivien Beattie noted that: “Significant changes in the corporate external reporting environment have led to proposals for fundamental changes in corporate reporting practices. Recent influential reports by major organisations have suggested that a variety of new information types be reported, in particular forward-looking, non-financial and soft information.”

This paper presents a review and synthesis of these reports and provides a framework for classifying and describing suggested information types. The academic antecedents for certain current proposals are identified and the ambiguous relationship between research and practice is explored. The implications for future academic research are discussed and a research agenda is introduced.

For additional insight, read the article “The future of corporate reporting: a review article” by Vivien Beattie published in the Irish Accounting Review 2000, 7(1), pages 1-36. As well, refer to the 1991 landmark research study called Information to be included in the Annual Report to Shareholders published by the Canadian Institute of Chartered Accountants (CICA). This 317-page study was drafted by J. Paul-Emile Roy, CA under the direction of a seven-member Study Group chaired by Gerald Trites, FCA.

Remembering Professor Edward Stamp (1928-1986)

As a scholar and professional of truly international renown, Professor Edward Stamp was a British subject by birth and a Canadian citizen by naturalization. He took his degree from Cambridge in Natural Sciences and in 1950 was a Fulbright Scholar. In 1951, he came to Canada joining the public accounting firm of Clarkson Gordon & Co., where he qualified as a Chartered Accountant. He was admitted to partnership in the firm in 1959 and practiced in both Toronto and Montreal. In 1976, he was given the rare honour of Fellowship by the Ontario Institute of Chartered Accountants.

His academic teaching interests began in 1957 when he was a Special Lecturer at the Osgoode Hall Law School in Toronto. His first full-time academic appointment was in 1962 at Victoria University of Wellington in New Zealand where he was later appointed Professor of Accountancy. In 1967, he was appointed Professor and Head of the Department of Accounting and Business Method in the University of Edinburgh, Scotland - positions which he held until his appointment as Professor of Accounting Theory and Head of the Department of Accounting and Finance at the University of Lancaster in 1971. In 1975 he was named the Endowed Research Professor at the University of Lancaster. He founded the International Centre for Research in Accounting at that University in 1971 and was appointed as the Director of the Centre.

Professor Stamp's research interests are particularly broad, covering financial accounting and reporting, accounting theory, international accounting and auditing, and public accounting and auditing. He is the co-author of the basic document of the British conceptual accounting framework (The Corporate Report, 1975) and the author of the counterpart document for Canada (Corporate Reporting - Its Future Evolution, 1980).

One of the particular achievements of Professor Stamp is bridging the gap between academe and practice. His continual and articulate urging of the profession to respond to the new findings and direction emanating from the universities prompted much professional progress. His professional experience as a partner in an international public accounting firm and his senior academic appointments provide a uniquely rich background for these endeavours.

Among many of Professor Stamp's achievements and honours are: Advisor to Her Majesty's Treasury; Distinguished International Visiting Lecturer of the American Accounting Association; and Visiting professorships in Europe, Africa, the United States, Canada, Australia, New Zealand and Japan He was an executive member of the European Accounting Association and a Founding Member of the International Association for Accounting Education and Research in Japan. Professor Stamp was awarded the degree of Doctor of Laws at the University of Saskatchewan in 1984. He continued as the Endowed Research Professor and Director of the International Centre for Research in Accounting at the University of Lancaster, England, until he passed away on January 10, 1986 in Toronto.

ICAEW - Accounting History Gateway (Archives)

As noted in a previous posting (February 23, 2011), the Institute of Chartered Accountants in England and Wales (ICAEW) has created an Accounting History Gateway. As part of the Archives Section of the gateway, the ICAEW conducted an archive survey of member firms in 1991-1992 and the information gathered was published in Chartered accountants in England and Wales - a guide to historical records in 1994. It is a useful starting point for research into accountancy firms, with an overview of the types of records that may have been retained. Archival materials also include Accounting Standards Committee Archives (1952-1990) and Auditing Practices Committee Archives (1971-1991).

ICAEW - Timeline of the Accountancy Profession in the United Kingdom

The comprehensive ICAEW Timeline explores events from ancient times through to the first half of the nineteenth century (for detailed events, click on the red titles – for example, 1853 - 1880 and 1968 - 2003. The Timeline shows when accountancy starts to take form as an organized profession, growing primarily as a result of the commercial and legal activity of bankruptcy, insolvency and the winding up of companies all the way to the current day.

ICAEW - Accounting History Gateway and Accountants’ Directory for 1877

The Institute of Chartered Accountants in England and Wales (ICAEW) has created an Accounting History Gateway. The gateway was developed

as an easy access point to historical materials available from, or about, the Institute. One of these historical documents is the Accountants’ Directory for 1877 compiled by Alfred Harper and published by Williams & Strahan. The directory provides a snapshot of the membership of the first professional bodies for accountancy. Professional bodies were established in Edinburgh and Glasgow (1853) and Aberdeen (1866). These were followed by the Incorporated Society of Liverpool Accountants (1870), the Institute of Accountants (1870), Manchester Institute of Accountants (1871) and the Society of Accountants (1872). Another society was established in Sheffield during 1877, but this falls after the compilation date for this edition of the directory.

Accountancy Magazine – celebrating 120 years of people and events that shaped the profession

The first issue of The Incorporated Accountants’ Journal was published in June 1889 by the Society of Accountants and Auditors. In 1938, the magazine was renamed Accountancy. It continued to be published by the Society until 1957 when the Society merged with the Institute of Chartered Accountants in England and Wales (ICAEW). Accountancy remained in the hands of the ICAEW until 2002 when it was sold to the Dutch publisher Wolters Kluwer. (The June 1889 issue of The Incorporated Accountants’ Journal is available for viewing online.)