To make sure that financial statements are easy to
understand, there is a set of rules and practices that is established, which is
known as the generally accepted
accounting principles (GAAP). This has been developed to provide a basic
guideline for the rules of accounting because I think it’s fair to say that it
can get confusing at times. There are a lot of variations to the meaning so
here is the best answer. It’s the generally
accepted accounting rules and procedures that are necessary to define
accounting practice. Basically it’s a set of theories that accountants come to
accept, and there are always controversies with some methods between
accountants like any other field of study. Accounting is a discipline that is
always growing and changing so it’s a good idea to keep up to date with all of
the trends that are going on. Since the management prepares the financial
statements of a company it is possible that a financial statement can be
altered to give a company a particular boost. So, that’s why the companies that
sell their ownership to the public needs to get their financial statements
audited by a public certified accountant. A certified public accountant (CPA) are licensed through the sate for
the same exact reason lawyers and doctors are, so they and protect the public
by providing the highest quality of professional service possible. The reason why CPAs are used is because they
have no connection with the company and are independent. They have zero financing
ties with the company. Some firms that employ a lot of certified public
accountants include Deloitte & Touch http://www.deloitte.com, KPMG http://www.us.kpmg.com/index.asp,
and PricewaterhouseCoopers http://www.pwcglobal.com/. An
accountant with no strings attached or is independent commonly performs an audit, which is evaluating a companies
financial statements, product, accounting systems, and records. The main purpose of an audit is to make sure
that the financial statements have been properly prepared according to the
excepted accounting rules. Keep in mind; since accounting is not a precise
science it has room for interpretation according to the GAPP. However, that doesn’t mean that the
accountants report should contain substantial errors in the financial report,
but more like that for the most report it is reliable for creditors to take a
look at. An accountant can make a
decision only when the financial statements conform to the guidelines of
GAAP. In the past creditors, banks, and
investors tend to favor an auditor when they are deciding to invest in a
company or give loans, because of their independence. The individualistic audit is an extremely
crucial factor in the growth of financial markets internationally. Also, many
organizations can directly or indirectly influence a GAAP. The Financial Accounting Standards Board (FASB) http://www.fasb.org/ is the most critical
body for the development and issuing of rules on accounting practice. The
website I previously listed is extremely critical and you can attend seminars
online for no cost, and also stay up to date with the rules. This independent body issues the Statements
of Financial Accounting Standards. Next, the American Institute of Certified Public Accountants (AICPA) http://www.aicpa.org/index.htm is
the official professional association for certified accountants. It’s the
largest CPA organization that exists in America
and heavily influence accounting practices through its senior committees. The Securities and Exchange Commission is the
agency of the federal government that legally has the power to set and execute
accounting practices for companies that sell security to the public, and it has
a large impact on accounting practice.
Next, the governmental accounting
standard (GASB) http://www.gasb.org/ is critical for accounting because its main
job is to issue the standards for accounting to the local and state governments
in the United States . However, a lot of these organizations are
focused on the rules in regulations in the United States . There are a lot of
businesses and accountants internationally so that’s why the International Accounting Standard Board http://www.iasb.org/ (IASB) was
formed. It was approved by more then 25
international agencies. The U.S laws
that analyze the revenues for the cost of operating a business can also affect
accounting practice. It’s no question that the major provider for income for
the government comes from income tax. The income tax rules are heavily applies
by the Internal Revenue Service (IRS)
http://www.irs.gov/.
Sometimes these rules actually cause a conflict with the accepted rules of
accounting. A lot of businesses use accounting practices because it’s a
requirement by tax law. Also, companies
can use the rules of tax law to their advantage financially. Accounting also has laws of conduct for
profession, and one extremely important one is ethics.
- A nice website dealing with the issues of ethics is http://www.ethics.org/.
It touches bases on questions that help determine if
something is either right or wrong, and is based on moral decisions. Most
people are faced with several ethical issues each day and, and some ethical
activities could be on the range of illegal. If a business decides to use false
or misleading advertising, or to bribe customers into giving them testimonials
for a specific product, then they could be acting in an unethical manner. The ethics of a company could also be a
result of the employees so that’s why it’s always a good idea to run a
background check of who you are hiring, whether it’s online or offline. Professional
ethics is the guidelines that apply to the conduct of individuals of a
certain profession. Similar to the
ethical actions of a company, the ethical actions of an individual is a
decision. As being a member of an
organization, accountants have to take the responsibility not only to their
customers and employers, but also to the general public to act in the greatest
ethical way possible. Accountants are very good at following professional
ethics because they are the second professional group as having the largest
ethical standards, with clergy being the highest, no surprises about that one. It is important for individuals who decide to
become an accountant to have the highest levels of professionalism as possible.
To enforce that its prestigious members are following the rules, the AICPA
along with each state have adopted some codes of professional conduct that
certified public accountants have to follow.
Some simple rules are being responsible to the people that depend on the
trust of accountants, such as creditors and investors. When working with people
the accountant must act with integrity
which means that they are honest, and the individuals gain from the visit with
the accountant. The accountant must display objectivity which means that they
are intellectually honest, and they must remain independent which means that
they must avoid any relationship with the business or individual because it
will damage the accountant’s principles.
