If you ever wanted to know what is accounting then this is your change to learn? Who is in charge of setting basic accounting standards that we all follow? Is there some type of regulatory system is place to investigate and arrest people for accounting fraud? Well guess what, there is, at least to a certain degree any way. So hear is a quick accounting principles education that can explain everything.
First, just what is accounting anyway? Well in simple terms accounting is the comprehensive system of gathering and recording financial information of a business for the purpose of preparing summaries for tax authorizing, investors, managers and other who make decisions within the companies or organizations that they are involved in. The accounting terminology or terms can get tricky at times and you may need to keep handy an accounting glossary that explains the terms in plain language if you are a beginner. To keep people from ethics frauds in accounting the United States top experts created the Financial Accounting Standards Board or (FASB) for short. This was established in 1973 and it replaced the Accounting Principles Board(APB). The job of the (FASB) is to analyze and review problems in the field that is brought to them. After much deliberation they will make an assessment of what type of action that will be taken when an accounting issue occurs.
This was mainly voluntary and it had very good success. Double-entry accounting was founded in Italy in the 1400’s and the accounting formula has change since then. The reason why the basic accounting concepts worked or well was that the business community would not be able to function properly if there were no consistency in the reporting of finances.The FASB has its’ own private financing and is not government organized. The American Institute of Certified Public Accountants(AICPA) are a big supporter of the FASB and many of our Certified Public Accountants(CPAs) are members of this prestigious organization. Accounting careers are shaped on you being a member. They are bound by the guidelines and principles that they offer as other countries also have similar boards that require a high level of accounting conduct.
The FASB created the basic accounting concepts code known as General Accepted Accounting Principles(GAAP). The idea behind this is if everyone uses the same business financial statement prepared according to GAAP, then who ever uses the information can trust or rely on the information more steadily than if prepare differently. Any business that prepare their statements without using the GAAP standards, like a lot of small businesses do, cannot say that their statements are created under GAAP guidelines and they should let the user know they are not and let the buyer beware.
To keep a watch out on everything the government relies on the Securities Exchange Commission(SEC) to sort of police the accounting world. They mostly focus on public companies because they are responsible for protecting investors from fraudulent misrepresentation. The SEC has established it own set of accounting standards and with the economy the way it is today they really have their hands full with this.
Accountants are now more involved with preparing income tax returns and they use their business financial statements. The Internal Revenue Service(IRS) may review those financial records when they perform an audit and not following the rules can get you in to big trouble risking fines and penalties.
As you can see the principles and standards in many ways are a combination of voluntary and regulatory guidelines. There is a push to create an international accounting standards board or (IASB) due to the growing globalization process. This will be a huge undertaking that will surely take years to build. Now that the stock markets around the world are in trouble it is obviously needed.