The evolution of reserve and provision accounting in the UK, 1938-50 (2007)

During this period, there were major changes and developments in reserve and provision accounting, many ofwhich are still evident in today's financial statements.

The study focuses on the accounting practices of 21 companies, selected from the 100 largest industrial enterprises in Great Britain in 1948.

The report firstly considers the regulatory influences that affected the nature and practice of reserve and provision accounting during the period.

This included changes in tax legislation, a series of recommendations on accounting principles issued by the Institute of Chartered Accountants in England and Wales and the Companies Acts 1947-48.

The report then looks at the presentational changes that took place over the period, before concentrating on the more quantifiable changes in reserve and provision accounting. The report also analyses the use of secret reserves, finding that two-thirds of the sample companies used some level of secret reserve accounting, suggesting a desire to manage profit levels.

Secret reserves were effectively then prohibited by the Companies Acts 1947-48. Finally, the report concludes on the findings of the research, identifying the major changes in reserve and provision accounting during the period. These changes included: distinguishing between distributable and non-distributable reserves; disclosure of shareholders' funds; separate disclosure of provisions; the abolition of secret reserves; and the disclosure of cost, accumulated depreciation and net book value of fixed assets.