Comparison of Financial Accounting Principles Between UK & US

The general requirements stated above apply to all employer administered pension plans in both the United Kingdom and the United States. Problems arose in the United States, however, with respect to defined benefit plans (Drummond, 1986, p. 33). Most employers opted for a procedure whereby the annual pension plan cost charged to profit and loss was equal to the annual funding payment for the pension plan (Buchanan, 1986, p. 61). Funding payments were based on actuarial projections, and they appeared to most to firms provide an appropriate basis for pension fund charges. With respect to defined contribution plans, the approach was sound from an accounting perspective, because benefits were largely determined by a combination of contributions to the fund and fund asset value at the time of payout.
The procedure (using fund contributions as a basis for profit and loss charges) was not, however, always satisfactory, with respect to defined benefit plans in the United States. A number of different actuarial procedures were available for firms to use. None of the available actuarial procedures, however, fully satisfied all of Financial Accounting Standards Board standards in the United States.
Possibly the most significant of the provisions of the regulations included in Section 401(k) deal with discrimination by employers between highly paid employees and other employees, and with early withdrawal by individuals from a qualified plan in the United States. To remain qualified, a plan must meet a nondiscrimination test, the intent of which is to assure that highly paid employees or executives are not disproportionately rewarded in comparison with other employees, as Section 401(k) defines disproportionate. The early withdrawal of funds from a qualified plan under ordinary circumstances in the United States subjects the withdrawals to federal income taxation, and disqualifies the plan (Werner, 1988, p. 129). The final regulations under Section 401(k), however, enumerate specific hardship circumstances, under which individuals in the United States are permitted to withdraw funds from a plan without risk of disqualification.
The revised guidelines also required that projected benefit derivations in the United Kingdom be based, in part, on estimated future compensation (Emenyonu and Gray, 1992, pp. 49-58). The projections of future compensation by firms in the United Kingdom must be based upon best estimate assumptions for (1) future salaries, (2) mortality rates, (3) employee mix, and (4) employee withdrawals.
Financial disclosure is required because financial statements, and the disclosure of other information relevant to these statements are central to the securities investment process, and to the needs of lenders and affected governmental bodies. The contention is that the disclosure of financial information, more so than any other type of information, has a highly significant impact on investor judgment.

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