Uk accounting regulation: an historical perspective

The 1948 Companies Act

By the end of the war in 1945, the question of changes in the law was addressed by the

setting up of a Company Law Amendment Committee (the Cohen Committee). Feelings

had built up that more honesty was needed in disclosing financial results, typified perhaps

by such statements as the ‘growing public conviction that directorship of a British

company is in itself a species of moral trusteeship towards the British Nation’ in the

Accountant of 25

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  October 1941. Keynsian ideas of economic management pointed a way

to more state involvement in many areas. A further product of the war was a stronger

awareness of the need for social fairness (Bircher 1988a). Insofar as business was

concerned, ‘the changing perception of the social accountability of companies meant that

accounting could no longer be defended as a private issue’ (Bircher 1988b p.23). The

Cohen Committee finally rejected the idea that accounting was a matter concerning

directors and shareholders only. They felt that adequate disclosure would get rid of any

suggestion of hidden profits which would be to the detriment of consumers and those

working in industry. The subsequent Companies Act of 1948 reflected the beginning of a

new era of thought and has been described by Edey (1956) as a watershed in British

company accounting.

The 1948 Act, as well as making group accounts compulsory, increased the level of

disclosure and extended the audit to the profit and loss account. Such was the

comprehensive nature of the changes that it would remain as the principle Companies Act

for over thirty years with only minor amendments and additions. It came into operation in

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a period of increasing prosperity following the post war austerity of reconstruction.

Problems of accounting tend to manifest themselves during economic downturns and the

boom of the 1950s and early 1960s typified by Prime Minister McMillan’s “you never had

it so good”, might have hidden any weaknesses.