Changing Accounting Essay Example | Topics and Well Written Essays - 1500 words

Changing Accounting - Essay Example siness was usually owned by individuals through shareholding, in Germany businesses were mainly owned by families whose capital had been providing by financial institutions. These differences in ownership structures have been led to the development of accounting standards that are geared towards shareholders in Britain and towards creditors in Germany. This paper will look at some why the accounting standards are different in Germany and in the United kingdom, in addition, it will also discuss the reasons why the the 4th directive had minimal effects on German’s accounting standards and why the 7th directive had more impact. One of the differences between German and UK accounting standards is the format of the financial statements. While in the two countries it is mandatory for companies to prepare a balance sheet and profit and loss account, in Germany, these are supposed to be accompanied by a note to the accounts, which explain the details in those accounts. In preparing a balance sheet, the UK accounting standards have allowed for two formats; one is the vertical format where current assets are deducted from current liabilities to show net current assets, the other format is the two sided format where liabilities and assets are placed on opposite sides with the easily liquefiable at the end. According to German standards, balance sheets can only be prepared using the two-sided format with assets being divided into current and fixed assets. In preparation for profit and loss accounts, United Kingdom allows for four formats two of which are vertical and two of which are horizontal. In the vertical formats, one formats puts expenditure as a cost of sales, distribution or administrative cost therefore, giving the gross profits while the other vertical formats gives a more detailed view of expenditure. On the side of the horizontal formats, expenses are put on one side and income on the other side with one of the format giving more details about the expenses.