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Example research essay topic: Research And Development Balance Sheet - 1,893 words

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... ng economic reform and international ising the economy. Indicating Chinese reforms to harmonise their accounting system with the IASC. Financial Reporting In the UK and US, the main objectives of financial statements are to: Report to shareholders on the directors management and control of the business. Provide information needed by shareholders and potential investors to make informed investment decisions.

The overriding principle in both countries is that the financial statements should present a fair view of the company's operating results and financial position. Whilst in china, the objective of financial reports is to reflect the financial position and operating results of an enterprise. The difference between IAS and UK, USA and China is shown in Appendix I. British, American and recently Chinese companies are obliged by law to show the balance sheet, Profit and Loss account and Cash flow statement.

Balance Sheet US and China tends to have some standard elements like assets are shown on the left of a two sided balance sheet (see Appendix III and IV) while UK uses Companies Act 1985 format and the current assets precede fixed assets (see in Appendix V). Profit and Loss USA and China refer to Profit and loss account (UK terminology) as "income statements." Another differences in the terminology USA refer to STRGL (statement of total recognised gains and losses) as "statement of other comprehensive income. " This statement appears as a note or as a separate statement (similar to UK) or as a single statement of comprehensive income. In addition UK do not consider realisation of gain or loss as income whilst the Americans treat a gain as an increase in income and reduction in other comprehensive income. The difference in the profit and loss account layout can be noticed in Appendix VI, VII, VIII). Cashflow UK, USA and China are obliged to show cashflow under FRS 1, SEC and MOF respectively. There are three headings in the statement - operating, investing and financing.

Unlike the UK statements, SFAS 84 statements start with post tax profit and so tax is not shown as a use of cash. In addition USA has different terminology for some accounting terms (Appendix II). Differences in accounting standards It is logical to come to the opinion that accounting standards still differ extensively from country to country. Individuals among these countries are proud and developed around their own accounting rules. Change and adaptation to other country rules may not seem to nations as appropriate. This is the challenge laid to harmonisation.

There are many factors that can explain why accounting standards are not the same everywhere. This includes external environment and cultural factors in countries. It affects the way an individual would like to perceive their society to be structured and how they would interact with its substructure. Accounting can be related in being one of them substructures.

Another factor is legal systems that focus and operate around statute law e. g. UK and the USA who have obtained it from the UK. These factors are amongst many that cause differences in accounting on many types of transactions and are often striking. To expand on this, we are going to illustrate these differences and its effects to account for tangible assets, impairment, goodwill, inventories and research & development in the U. K, U.

S. A and China Even among highly developed economies with relatively sophisticated standards, the differences in accounting for a particular type of transaction are often striking. To illustrate this, consider the different rules, and their effect, used to account for tangible asset, impairment, goodwill, research and development and inventories in the UK, US and China. Tangible Asset UK -Tangible fixed assets should initially be measured at cost. Revaluation is permitted of individual classes of such assets, but all assets in the class must be revalued. Revaluation gain is recognised in STRGL, not in PL account.

All tangible fixed asset other than investment properties must be depreciated using the common approach ie straight line method. SSAP 19 requires investment properties to be shown in balance at open market value and any change in the value are to taken to an investment revaluation reserve via STRGL in order to show true and fair view. USA They believe that the financial statement carrying values of property, plant and equipment are not increased on the basis of appraisals or changes in prices because those events are not TRANSACTIONS. The asset is depreciated using the straight line method where one allocates "the cost or other basic value of tangible capital assets, less salvage (if any) over the estimated useful life. " There are no exceptions to this rule as there are in UK like investment properties. China All fixed asset should be measured at cost which includes transportation, installation and taxes. Depreciation method should reflect the pattern of consumption benefits and can include straight line, accelerated and units of production.

Impairment Uk contrast UK and IASC rules have no test of impairment using un discounted cash flows. They measure impairment by comparing carrying value of a market value and a value in use (ie discounted cash flows). USSFAS 121 requires assets to be examined at each balance sheet date for any indication of impairment. If there is an indication, a calculation must be made to compare their carrying value with the sum of the expected cash flows from the use and sale of the asset (un discounted and without interest) If b) is lower than a), then an impairment loss should be recognised. The loss is measured as the excess of the carrying amount of the fair value. Fair value means the amount that willing buyers and sellers would exchange the asset for, in an arm's length transaction.

If there is no market, the impairment loss is measured by reference to discounted cash flows as an estimate of fair value. China The rules are consistent with those in IAS 36, Impairment of Assets - impairment occurs when the carrying amount of an asset exceeds its recoverable amount (ie higher of net selling price and the value in use). An enterprise should reverse, wholly or partly, an impairment loss recognised in prior years only if the indicators of impairment no longer exists. Goodwill UKU. K. companies are permitted to write off goodwill directly against reserves rather than having to capitalise and amortize it against income.

There has been a major source of controversy both in the U. K. and around the world. The attractiveness of this treatment for U. K. companies is in the enhancement of reported earnings.

US Goodwill is capitalised and amortized by charges to earnings over not more than 40 years, China generally using the straight-line method. Research and Development UK Development expenditure may be capitalised in special circumstances. SSAP 13 on research and development requires research to be written off as incurred but allows capitalisation of development costs in defined circumstances. Disclosure is required of research and development costs written off and of movements in una mortised deferred development costs. US All expenditures are charged to earnings as outlined in FSA 2. China All expenditures are charged to earnings as outlined in FSA 2.

Inventories UKSSAP 9 on stocks (inventories) states that inventories should be valued at lower of cost and net reliable value but LIFO method cannot be used as a measure of cost. USThere is no particular difference in theory between UK and USA except that LIFO is allowed for inventory valuation for tax purposes. China It uses the US GAAP approach to inventories such as FIFO, weighted average, moving average, specific identification and LIFO are accepted for determining cost. Auditing Auditing standards are the rules governing how an audit is performed. An auditor is an independent person who gathers data in order to come to an conclusion on how well the financial statements conform to GAAP. The Companies Act in UK requires every company to appoint an independent qualified auditor.

The acts 8 th directive states that auditors of companies must be registered auditors. Only private companies that have an annual turnover of not more than 1 million are exempted from audit. However the audit report have changed over the time over wording, mixture of statutory requirement and of what the audit practices board (APB) consider being the function of an audit. The audit report desires that the financial statement should provide a true and fair view and prepared in accordance to Companies Act. Also independent auditor must be a member of one of the five specified accounting professional organisations in the UK. Nevertheless in USA has no national statutory requirement of any audited accounts like the U.

K. Only large companies with more than 500 shareholders and assets over $ 5 million are required to have their annual financial statements audited. The standard form of the audit report (designed by AICPA) in US is fairly similar to audit reports in UK. The key words used in US audit report are " fairly...

in conformity with GAAP." This is quite similar to UK where companies are required to be compliance with Company law and accounts show true and fair view. Although detailed analysis of law cases is required to establish the exact interpretation. However the reference to GAAP in the US report may reflect a greater reliance than in UK on authoritative literature. In contrast China requires audit to be conducted on many enterprises including foreign funded, limited liability and state owned companies. The auditing profession in china include state auditors, internal auditors and independent CPA auditors. Despite the rise of the big five international accounting firms in China, there are some limits on practices on them.

For instance, audited reports can generally only be signed by Chinese CPA (Certified Public Accountants), but some foreign members of CICPA are being allowed to sign under certain conditions. Conclusion In conclusion Chinese financial reporting has been transformed mainly through economic reforms but the state still seems to process influence over the country. Chinese accounting regulations are reasonably close to USA and IAS and continue to become even closer. Despite UK accounting system is moving closer to US GAAP and IAS, she still wants the true and fair concept to remain valid. There has been a vast improvement in the quality of financial reporting in the UK but still is out of step when you compare U. K to other developed countries especially in areas such as goodwill.

It is quite difficult to predict the course U. K accounting is heading towards but British accounting is being to be seen as more and more eccentric. There has been quite a big change in U. S accounting, until very recently the U.

S has operated in an isolation situation from the rest of the world especially when related to accounting policy making bodies. However there is now an intertwined action by the us on accounting issues making U. S accounting difficult to separate from the rest of the world and continues to explore and develop further improvements in the accounting profession. Bibliography Comparative International Accounting - Christopher Notes & Robert Parker International Accounting - Peter Walton, Axel Haller and Bernard Raffournier Accounting, An International Perspective - Mueller, German, Meek Readings In International Accounting - John Blake, Mahmud Hossain Advances In International Accounting - Timothy s. Doupnik Students Guide to Accounting and Financial Reporting Standards - Geoff Black


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