Principles of Accounting Essay
Principles of Accounting
This paper seeks to examine at least four accounting regulatory bodies, and discuss how an organization complies with the standards of the regulatory bodies. The four regulatory bodies to be discussed are the Financial Accounting Standards Board (FASB), Government Accounting Standards Board (GASB), the US Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board PCAOB.
Both standard boards FASB and GASB aim to the make the financial statements understandable, relevant and useful to users of financials statements by prescribing the generally accepted accounting principles (GAAP) to be used as guides in the preparation of financial statements (Business Editors, 2002). They however differ on entities covered. While GASB issues GAAP to local and state governments, FASB prescribes GAAP to the private and public entities. Since the primary objective of the government entities is service rather than profit, GAAP for local and state governments deals on fiscal and operational accountability.
On the other hand, since the primary objective of private and public entities is profit, GAAP under FASB focuses on fair presentation of the financial statements. The differences in the functions of the two are evident in the kind of users. The users of FASB standards are private and public companies are stockholders, investors, creditors, labor unions, taxing authorities and the customers while the users of GASB standards are normally legislators, oversight bodies, investors, creditors and the general public. Strayhorn, 2003)
The entities covered also differ in auditors. Those under the GASB jurisdiction are subject to audit by government auditors while those under FASB are subject to audit by certified public accountants or independent auditors As to how organizations comply with the standards prescribed by the two bodies is just to the two bodies to have a clean or unqualified opinion by auditors who will conduct and audit of the financial statements of the companies.
If the audit opinions are not unqualified for clean, there is a good sign of non-compliance with GAAP. The US SEC is also in sense an accounting regulatory bodies since it will make it sure that public companies covered by the GAAP will have to comply with the requirements other these companies risk the penalties that the SEC may impose in accordance with its authority a regulator body under the law.
Since the companies may suffer the consequence for non-compliance with the GAAP, these companies are encouraged if not forced to comply with the standards set by the FASB as enforced by SEC. By the passage of Sarbanes-Oxley Law of 2002, the Public Company Accounting Oversight Board (PCAOB) was created for the purpose of overseeing the audits of public companies and their auditors.
The office in a sense helps in the implementation of the purpose of Sarbanes-Oxley law in increasing independence requirement of auditors, in the forms of more strict professional and ethical standards for auditors, directors and offices via the use of more disclosure requirements (Giles, J. et. al, 2008). In short the PCAOB is believed to improve quality and transparency of financial reports issued by companies. Thus, PCAOB is also considered an accounting regulatory body since strengthening the audit requirements necessary forces compliance with the accounting standards set by the FASB.
University/College: University of California
Type of paper: Thesis/Dissertation Chapter
Date: 8 November 2016
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