Divided by common language

We may have a common language base but when it comes to financial reporting and auditing the language used in the Anglo-American context can be misleading, according to a paper, written by Tim Bush of Hermes Pension Management.

Divided by Common Language looks at where economics meets the law and highlights the major differences that exist between the US and other countries surrounding the purpose, authority and enforcement of financial reporting and audit.

The paper emphasises that the common language of the UK and US can at times create a superficial similarity in both governance and reporting matters, when beneath the surface, the law is entirely different in intent and effect. With the globalisation of capital, understanding these differences is important for policymakers, not just in the UK and the US, but also in emerging markets worldwide.

In particular the paper examines:

• the evolution of the US financial reporting model;
• contrasting approaches to accounting and auditing principles versus prescription;
• shareholder rights and the governance function of annual financial statements;
• investor behaviour and corporate governance; and
• accounting convergence with the US or recognition of the differences.

Divided by Common Language is the first in the Beyond the Myth of Anglo-American corporate governance series which aims to:

• Challenge commonly held assumptions regarding the perceived similarity of US and UK corporate governance systems;
• Identify possible areas for convergence and, where not practical, clarify why elements of one system may not be appropriate for incorporation into another; and
• Anticipate developments and set out challenges for future thinking about the US and UK models and encourage transatlantic dialogue.

The paper is at www.icaew.co.uk