How and Why Did the Successive Stages of Capitalism Change the UK's Accounting and Financial Reporting Processes - Essay Example

How and why did the Successive Stages of Capitalism Change the UKs Accounting and Financial Reporting Processes? Table of Contents Introduction 3 2. Discussing Major Factors Influencing the Financial Development of the Business Sector since the Introduction of Incorporation in the UK 4 2.1 Capitalism Stage 4 2.1.1 Pre-Capitalism Stage 4 2.1.2 Commercial Capitalism Stage 5 2.1.3 Industrial Capitalism Stage 5 2.1.4 Financial Capitalism Stage 6 3. Analysing Relationship between Financing Arrangements and Growth and Decline of the Business Sector in the UK 7 5. Effects of Internationalisation of Trade on the Development of European Business Interests in Specified Period of Time 9 6. Analysing Effects of the Changing Responsibilities and Perspectives of the States towards the Business Sector 11 7. Evaluating Changes in Entrepreneurial Behaviour and Organisational Structure on the Changing Business Patterns 13 8. Conclusion 14 9. References 16 1. Introduction Over the periods of phenomenological transformation of the global accounting and auditing approaches, the successive stages associated with changes in the capitalism has been imposing a strong influence on the accounting and reporting techniques practiced in the UK (Arnold, 2008). During the emergence of financial reporting and accounting practices, a number of stages ignited many transformations to enhance credibility and accountability of the financial accounting process of the firms. The historical practices of accounting methods embraced different social upheavals within the British commercial revolution of sixteenth century, which further formed the British Industry Revolution (BIR) (Bryer, 2005). Correspondingly, the successive development in the capitalism has been examined not only to mould the accounting methods and practices of the corporations, but also to bring major changes in the financial reporting procedures of these entities (Arnold & McCartney, 2008; Papadimitriou & Wray, 1999). The primary objective of this study is to examine the development pattern in financial practices of the business sector since the introduction of incorporation in the UK. The study in this regard, addresses the chronological development periods of accounting techniques and identifies relationship amid the changes in financing arrangements along with growth and decline in the UK’s business sector. Moreover, the study also examines the impact of internationalisation of trade development in the European business sector and analyses the effect of changing responsibilities of the accounting practices across different allied states. Finally, the study critically discusses the effects of changes in the entrepreneurial behaviour along with organisational structure within the European business sector. 2. Discussing Major Factors Influencing the Financial Development of the Business Sector since the Introduction of Incorporation in the UK The introduction of incorporation in the commercial sectors is one of the major and key stages that had radical influence on the overall economic conditions of the UK. According to the chronological facts, the introduction of incorporation bought major changes in relation to the accounting practices of the commercial institutions across the UK. From a chronological perspective, there are various stages or factors leading to the development of accounting practices in the business sectors across the UK (Hege & et. al, 2003). Few of the major factors and stages have been briefly discussed in the following sections. 2.1 Capitalism Stage With respect to a number of studies, Schmidt (2010) revealed that capitalism stages are few of the major factors leading to the changing financial and accounting practices of the commercial institutions across the nation. With an in-depth understanding of the role of capitalism, the development of accounting frameworks are generally characterised into four distinctive stages including pre-capitalism period, commercial capitalism stage, industrial capitalism stage and financial capitalism stage (Schmidt, 2010). 2.1.1 Pre-Capitalism Stage Pre-capitalism stage can be widely accepted as one of the preliminary periods of financial and accounting development of business sector in the UK. According to the observation of various research studies, pre-capitalism period has been considered as the first stage of accounting development over a long period ranging from 4000 BC – 1000 AD (Harman, 2004). During those periods, the record keeping was a tool for documenting Mesopotamian trade into a clear and easily understandable method by the illiterate community across the different nations. The financial and accounting records were exhibited by different types of forms including knotted cord, papyrus and and/or paper. The primary purpose of record keeping process during the pre-capitalism period was to monitor changes of merchandise and cash for determining profit. During that stage, the individuals who were likely to correlate with political environment or any religious and military dealings tend to focus on accumulating handsome wealth (Bryer, 2005; Harman, 2004). 2.1.2 Commercial Capitalism Stage According to different research studies, the notion of commercial capitalism had also played a pivotal role towards the development of accounting in the business sector of the UK. It is often regarded as a form of mercantile capitalism, in which a large amount of capital stock investments were made by the entrepreneurs that further led to its influence on the financial outcome. During this stage, majority of the businesses, except the commercial institutions from shipping and mining industry were highly focused on obtaining large amount of inventories rather than increasing spending on fixed assets and operating equipments (O’Hara, 2005). 2.1.3 Industrial Capitalism Stage Industrial capitalism instigated in the period of eighteenth century, when a significant development of the commercial sector took place in the entire European region. In this period, British industrial revolution, which had emerged during the period of 1760 to 1830, was identified as one of the major and the key developmental stages of financial performance along with accounting practices of the UK business sector (Edwards, 1989). According to the various claims made by the economists, a high quality iron ore was considered as one of the pioneering factors of the British industrial revolution during the early nineteenth century. However, indeed, the development and higher usage of machinery equipments in different manufacturing processes eventually led to the commencement of the stage of industrial capitalism in the UK. Because of lower rate of infant mortality along with the enactment of different commercial acts during this stage, the businesses in the manufacturing sector were able to make use of a larger volume of labour resources and influence major financial developments within the economy. In this regard, the accounting practices of these businesses gained rapidity throughout this capitalism stage (Bryer, 2005; Edwards, 1989). 2.1.4 Financial Capitalism Stage The financial capitalism stage marked the fourth and the final accounting developmental period, which has been dominant since the year of 1830. Due to a rapid expansion of industrial revolution stage, the financing of wealth no more depended on the fixed capital, stressing public utilities for capital had strongly influenced the financial performance of the business sector in the European markets (Outhwaite, 2010). However, the rapid development of public utilities along with gradual maturity of business associated with promotion and mechanical invention developed a number of issues gradually, relating to the accounting practices of the businesses. Furthermore, the later phase of the financial capitalism stage raised different accounting problems experienced by the organisations in their daily business operations (Edwards, 1989). 3. Analysing Relationship between Financing Arrangements and Growth and Decline of the Business Sector in the UK The introduction of corporation had apparently influenced the financial arrangement of the businesses in making their appropriate investment decisions (Jackson & Deeg, 2012). Although the reporting approaches and practices of these organisations had to face numerous conflicts, the continuous emergence and development of capitalism leveraged the commercial institutions to maintain adequate reliability and accountability of their financial information. With respect to the theoretical perspective, the notion of financial accounting had imposed a major impact on capitalism. Moreover, the accounting approaches and practices in the pre-historic stage of Britain also possess a strong relation with the capitalism structure of the nation (Jackson & Deeg, 2012; Bohle & Greskovits, 2012). In relation to the emergence of accounting development stages, the external form of financial accounting and reporting system has been shaped and influenced by the growth of capitalism, especially in the industrial revolution period in the UK. It can also be identified that the accounting calculations perform as a visible segment in order to determine the transition of methods and practices from feudalism to capitalism. In this regard, the practice of Double Entry Book-keeping (DEB) has been highly acknowledged by the commercial sectors to capitalise long-term financing within the European nations (Bohle & Greskovits, 2012; Posner, 2009). With regard to the reporting language, the financial accounting approaches and practices in the UK incorporate an effective form of DEB in order to analyse the correlation amongst accounting and capitalism. According to the critical understanding of different scholars and economists, the single entry account-keeping system in the commercial sector is highly practiced by the small companies due its minimum or predefined financial transactions with a limited numbers of clients and other shareholder groups (Eichengreen & et. al., 2007). However, the practice of single entry account keeping can also be regarded to convey major problems, especially when a firm intends to expand or increase the numbers of transactions. From a general perspective, it can be stated that increasing number of financial transactions significantly leads to reduction in management capability, wherein the process of unsystematic account keeping can impose major restrictions on the organisations to achieve continuous expansion and development of business functions (Mourik & Walton, 2013). Therefore, the practice of DEB method can be illustrated as widely accepted by the corporations with the motive to emphasise accounting innovation and encompass a wide area of financial record relating to the business functions of the organisations. Moreover, the use of double entry method in financial accounting became a widely accepted technique during the period of seventeenth century across the UK. The increasing number along with frequency of trade has enabled the European marketers to respond to the competitive edge during this period (Hancke, 2007). In the context of DEB, the specific advantages of this method influenced businesses by gaining effective control and capability to oversee each financial transaction within the business operations. The nature of taking greater care and correctness on the accounting practices of the clerical staff can also be considered to provide major support to the capitalist market in the UK by increasing the degree of financial efficiency. The integration of DEB in the seventeenth century also proved as a major assistance to the players in the UK’s capitalist market to effectively deal with a number of issues and difficulties relating to falsification of information, fraud or theft within the organisations (Hall, 2007). In addition, the process of the arithmetic check in the DEB has also been identified to provide major support to the accounting staff to ensure adequate accountability and reliability of the financial transactions made by the business organisations. The practice of DEB had also been effective in increasing fairness and transparency of accounting practices, as it periodically balances the accounting books and extracts an appropriate form of trial balance to the marketers, ensuring to strengthen the number of investors (Walton, 1995). 5. Effects of Internationalisation of Trade on the Development of European Business Interests in Specified Period of Time Internationalisation of businesses was also a major attribute, which imposed strong influences on their applied processes, especially in the capitalist market. The emergence of the trend to conduct business operations beyond the national boundaries took pace during the mid of seventeenth century. During the appearance of global business operations, large sized manufacturing firms from different industrial backgrounds were reported to build their strong market position in different overseas markets (Walton, 1995). The capitalist environment in the mid seventeenth century provided major opportunities for the large and dominant marketers from mines, railway and iron-ore manufacturing industries in order to expand their business operations in different emerging or developing markets. The industrial capitalist in this particular period has can be recognised as one of the major stages in which the organisations from different European markets had extended their operational units in different international markets (Love & Lattimore, 2009). With respect to an in-depth understanding from different scholarly articles, it can be stated that the emergence of internationalisation has improved the commercial sector of the UK and enabled it to experience commendable economic growth since the stage of commercial capitalism. The thriving business performance of the European businessmen in the capitalism stage improved their strategic directions pragmatically along with practices that led them to extend their overseas subsidiaries (SAGE Publication, n.d.). Moreover, organisations from different business industries have also improved their financial reporting system that further enabled the European marketers to gain significant benefits while performing business operations in the overseas locations during capitalism change. The continuous development of the reporting languages and practices of the firms significantly helped the European marketers to perform reliable and accountable business functions while operating in the overseas locations (Walton, 1995). In this regard, the emergence of internationalisation has also played a pivotal role for the SME’s business sector. The development of trade policies for the SME’s in the mid of nineteenth century had major influence on this particular segment of organisation to capitalise large market share across different foreign markets. The policies associated with SMEs further helped to ensure major support to the organisations to gain benefit from the continuous development of global markets beyond European Union (Hoffmann, 2004). The trade policies and provisions associated with the SMEs have continuously improved the access to international market and acted as a success driver to operate the business functions. In addition to the growth of SMEs, the wider practice of accounting rules and the incorporation of DEB in the financial accounting system have further reduced different global risks to the companies and enabled them to achieve their desired business goals successfully. Therefore, it can be stated that the growing pace of internationalisation in the European commercial sector is one of the key factors for the nations to accumulate rapid develop of financial position along with enhancing business functions of the marketers (Hoffmann, 2004; Walton, 1995). Such trade policies and previsions, with the need of being more structured and précised to assist transparency in the capitalist market, drove the development of international policy frameworks, like the International Financial Reporting Standards (IFRS). Undoubtedly, the establishment of IFRS Foundation by the International Accounting Standards Board (IASB) has been considered as one of the primary and widely accepted auditing languages in the present day context. IFRS is an independent and a non-profit organisation, formed with the aim of addressing public interests with respect to the accounting and auditing performance of the global firms. Although the IFRS framework tends to focus on its different objectives, developing a common set of quality based and globally accepted through a standard setting of IASB is one of the primary goals of IFRS. Moreover, continuous promotion and rigorous application of different accounting techniques associated with the standards comprise a major set of objectives of IFRS in preserving transparency in corporate auditing techniques. Furthermore, comprising a wide area of financial reporting needs regarding emerging economies is attributed as a key objective of IFRS (IFRS Foundation, 2014). 6. Analysing Effects of the Changing Responsibilities and Perspectives of the States towards the Business Sector The emergence of internationalisation not only improved the financial and strategic measures of the companies, it has also developed the responsibilities and perspectives of the nations and states towards the business sector in different European nations. In this regards, the changes that has been taken place in the political sector are one of the remarkable effects that significantly authorized the capitalist market to attract foreign entrants. The development in the legal codes and adequate openness in the trade environment has also been considered as a major change observed during the period of commercial capitalism in the European nations (Edwards, 1989). Similar to the political and legal environment, the emergence of internationalisation regarding the business functions of the European commercial sector is also influenced by the continuous development of economic performances. The robust economic development in terms of increasing annual household income and GDP was also a major change identified in the European business sector during the capitalism era. The prominent development of capitalism has further allowed the European nations to build well-structured and stabilised economic policies that were further recognised to bring changes of the business sector. In this regard, the continuous refurbishment of economic policies can also be considered as a major factor for the states to enable the European business sector accelerating their business performance (Jackson & Deeg, 2012; Walton, 1995). Furthermore, the greater pace of technological advancement from the period of late eighteenth century can also be regarded as a major stage of commercial development in the European nations. During this stage, a number of commercial industries, such as automobile, telecommunication electronic goods have gained greater pace across the emerging European markets. Correspondingly, the technological development can also be regarded as a major considerable area of the states, which have increased the business operations of organisation from different industrial fields (Jackson & Deeg, 2012; Walton, 1995). 7. Evaluating Changes in Entrepreneurial Behaviour and Organisational Structure on the Changing Business Patterns With regard to the major factors influencing the financial development of the business sector, the financing arrangements in the UK can also be regarded as an effective measure for the nation to stabilise its economy. The introduction of corporation further influenced the financial arrangement of the marketers assisting them to make appropriate investment decisions (Walton, 1995). With reference to the key development stages of capitalism, the business sectors in the UK have experienced a major change in terms of improved commercialisation and financial positioning of the nation. In the similar context, the notion of commercialisation in the capitalist markets brought-about radical changes in the entrepreneurial behaviour along with the organisational structures within the European nations (Schmidt, 2010). In relation to the view of entrepreneurial behaviour, the business sector in the UK was centrally focused on developing effective strategic measures in order to take the advantages of internationalisation. The emergence of internationalisation have significantly gave power to the business sector to improve the decision making process of the marketers to capitalise their existence globally. In this regard, the continuous focus on technological innovation and greater pace on strategy formulation relating to new product development have transformed the European market players. Moreover, the pace of internationalisation, since the industrial stage of capitalism, has increased the number of labour resources across different global markets of the organisations. Similarly, innovative marketing and communication strategies along with adequate promotional measures regarding the organisational offerings had further accelerated the business performance of the European businesses (Mourik & Walton, 2013). As similar to the entrepreneurial behaviour, the changes in the organisational structural measures can also be considered as a major aspect leading to commercialisation of the European business sector across the global market. In this context, the transformation of flat or decentralised organisational structure from centralised or authoritative business arrangement can be considered as major changes of the European business sector. The increasing pace of competition along with internationalisation of the global entrepreneurs has supported the European business sector to form a decentralised organisational arrangement. The changes in organisational structure have further enabled the European market players to improve their decision-making process across their different functional and management areas. Therefore, it can also be stated that the emergence of internationalisation, formed during the capitalism stage has facilitated the business sector of UK to formulate effective organisational structures that played a pivotal role to improve the decision making process of the businesses (Mourik & Walton, 2013). 8. Conclusion The chronological background of the transitions to capitalism has been a primary factor leading to the currently developed accounting principles and practices in the UK. With regard to an in-depth understanding of the key stages, it can be affirmed that the business sector in the UK has been experiencing a transformative growth through the transition of different stages of capitalism. Correspondingly, the transition stages allowed the financial performance of the businesses. With regard to critical observation of capitalist UK markets, the development of the trend, persistent to the incorporation of the commercial sector within the nation, played a major role for the marketers to build a strong financial position and exploit robust growth opportunities for the business beyond the conventional European market. The accounting arrangements evaluated in the earlier discussion builds a strong relationship between the financial performances of the organisation with the UK’s capitalist markets. In this context, the emergence of incorporation in the commercial stage of capitalism has significantly demonstrated the practice of effective accounting methodology by the industry players in order to capitalise their market position. Furthermore, the internationalisation of trade on the development of European business interests has also been identified to bring major growth of the financial performance along with improve the business operations of the businesses across different geographic markets. In this regard, it can be clearly stated that the stages within the European capitalist market and emergence of incorporation in the business sectors are few of the major dimensions that played a supportive role behind the overall financial growth of the UK’s national economy. 9. References Arnold, A. 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