Transformation of Role Models: Germany, the UK and the US

Abstract

This chapter sketches developments in the financial reporting systems of Germany, the UK and the US, all of which will be discussed in greater detail in Part II. These three national configurations have been selected for different reasons. All three systems traditionally display diverging goals, functions and institutional set-ups in financial reporting, which are contrasted throughout the following chapters. The US regulation focuses exclusively on listed companies, is founded on strict enforcement and provides detailed rules. The UK system has a long-standing tradition of mainly societal (community) accounting governance by the accounting profession. It focuses on capital markets, which is similar to the US system, but has a broader scope and emphasizes professional judgement instead of detailed rules. Finally, traditional German accounting concentrated more on creditor protection and on using accounting for problem-solving within firms while capital markets played a subordinate role; the system is also highly influenced by jurisdiction. The British and German systems stand for two extremes in the European spectrum of accounting systems that spans between the so-called Continental European (Germany) and Anglo-Saxon approach to accounting. This necessarily rough distinction differentiates mainly between a predominant role of equity financing (Anglo-Saxon) and of bank financing (Continental) in funding companies and has remained dominant for almost three decades in comparative accounting research (Flower 2004; Nobes 1983; 2003; Nobes and Parker 2004).