United States versus United Kingdom Financial Statements
Gurdeep K. Chawla, DBA, CPA
National University
Abstract:
In todays volatile stock markets, it is very important for investors to diversify investments to minimize risk and earn reasonable returns on investments. The diversification does not have to be limited to domestic companies because of opportunities available in foreign markets. However, securities analysis becomes more complicated because of additional variables such as foreign exchange risk, economic, political, cultural diversities, etc. that need to be taken into consideration in making investment decisions. An important variable in the analysis of foreign securities is diverse accounting standards.
This study compares the accounting standards of United States (US) and United Kingdom (UK) and identifies the major differences that materially impact the financial statements. The study is helpful in evaluating the financial statements of UK companies and comparing them with US financial statements.
Research Methodology:
UK companies' (Form 20-F) returns submitted to Securities and Exchange Commission (SEC) were reviewed for major differences that materially affected financial statements noted in reconciliation or restatement of foreign financial statements according to US GAAP. It is a good source to study differences between UK accounting standards and US Generally Accepted Accounting Principles (GAAP). The reports (Form 20-F) have been professionally prepared by UK companies listing their securities in US markets and have been audited by renowned Certified Public Accountants (CPAs) with a great deal of experience and expertise in the field. SEC's review and acceptance adds further credibility to the information provided in the reports. Some major publications, "Doing Business" series by Price WaterhouseCoopers being a notable one, were also reviewed to ascertain major differences between foreign accounting standards and US GAAP. Following is an example of reconciliation statement included in the financial statements of a UK company:
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2002 |
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2002 |
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2001 |
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2000 |
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Revenues as reported in accordance with UK GAAP |
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32,554 |
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22,845 |
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15,004 |
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7,873 |
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Items decreasing revenues: |
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Non-consolidated subsidiaries |
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(5,930 |
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(4,162 |
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(3,409 |
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Deferral of connection revenues |
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(1,488 |
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(1,044 |
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(492 |
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Revenues in accordance with US GAAP |
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25,136 |
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17,639 |
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11,103 |
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7,873 |
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Net (loss)/income as reported in accordance with UK GAAP |
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(23,021 |
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(16,155 |
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(9,885 |
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542 |
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Items (increasing)/decreasing net (loss)/income: |
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Goodwill and other intangibles amortisation |
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(13,849 |
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(9,719 |
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(5,302 |
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(427 |
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Deferral of connection income |
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(21 |
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(15 |
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(54 |
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Reorganisation costs |
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84 |
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25 |
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Capitalised interest |
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551 |
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387 |
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365 |
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Income taxes |
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10,868 |
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7,627 |
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7,847 |
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386 |
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Minority interests |
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1,864 |
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1,308 |
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(40 |
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35 |
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Loss on sale of business |
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(121 |
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(85 |
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Other |
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(76 |
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(53 |
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(86 |
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(8 |
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Net (loss)/income before change in accounting principle, in accordance with US GAAP |
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(23,805 |
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(16,705 |
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(7,071 |
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553 |
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Effect of change in accounting principle(1) |
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25 |
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17 |
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Net (loss)/income after change in accounting principle, in accordance with US GAAP |
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(23,780 |
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(16,688 |
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(7,071 |
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553 |
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US GAAP basic (loss)/earnings per ordinary share : |
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before change in accounting principle |
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(35.03 |
)’ |
(24.58 |
)p |
(11.51 |
)p |
2.04 |
p |
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after change in accounting principle |
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(34.99 |
)’ |
(24.56 |
)p |
(11.51 |
)p |
2.04 |
p |
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&nbs |
