Accounting Rules

Who provides accountability for companies in their accounting practices?
Several accounting regulatory bodies provide accountability for companies throughout the United States. Companies need thorough accounting records for a variety of reasons. Financial accounting records are used to provide information to people outside of the company to help them make decisions based on the results. Managerial accounting records provide important information to help with future financial planning. Regulatory bodies such as the SEC, FASB, GAAP, and IRS all ensure that the information companies provide are clear and accurate representations of financial stability.

Generally Accepted Accounting Principles (GAAP)

The generally accepted accounting principles (GAAP) provide rules for accountants to follow in the preparation of financial statements. To comply with GAAP, companies must prepare financial statements like the statement of cash flows, statement of shareholders equity, income statement, and balance sheet according to the guidelines. A private company called the Financial Accounting Standards Board was created in 1973 to develop and maintain the United States generally accepted accounting principles. The FASB’s mission is “to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information."

Securities and Exchange Commission (SEC) and Internal Revenue Service (IRS)

Another regulating body is the U.S. Securities and Exchange Commission, which enforce federal securities laws. The SEC is also responsible for regulating the stock market and working with self-regulatory organizations such as the NYSE. When the SEC was created, it was given the power to license and regulate stock exchanges. The SEC is in place to prevent corporations from providing misleading accounting records. “The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” (Securities and Exchange Commission, 2008). To comply with the seven major laws governing the securities industry companies must provide correct accounting information and refrain from insider trading. A more popular regulating body is the Internal Revenue Service. The IRS reviews accounting records from companies to ensure that the correct amounts of taxes are paid. A provision for income taxes is placed on the company’s income statement when following GAAP. The balance sheet has a section for income taxes payable to help track the accumulation of taxes throughout the year.

Financial Regulatory Bodies

Each of the regulatory bodies provides standards that govern businesses accounting activities. Companies must provide clear and accurate records of financial activities so that investors and auditors may adequately evaluate performance and integrity. The SEC was created to enforce the Generally Accepted Accounting Principles, which are developed and consistently evaluated by the Financial Accounting Standards Board. The SEC is also responsible for regulating the stock market, while the IRS is responsible for verifying companies pay the correct amount in taxes.