Relationship between FASB, SEC, and PCAOB
While there are many different government agencies that strive to create a more uniform and ethical financial practice, three of the more important ones are FASB, SEC, and PCAOB. FASB is the financial accounting
standards board, SEC is the Securities exchange commission and PCAOB is the public company accounting oversight board.
The FASB works mainly with the private sector it is used to establish the standards of financial accounting and reporting. It is these set of standards that help govern the preparations of financial reports. The mission of the FASB is to “establish and improve standards of financial accounting and reporting for…guidance and education” (Facts about FASB, 2005). The decisions that the FASB board agrees upon affect many organization, therefore it is essential that the “decision-making process be evenhanded” (Facts about FASB, 2005). This organization is recognized by the SEC and is often asked to take actions concerning many different financial accounting and reporting topics. The SEC allows the FASB to have statutory authority in establishing the standards needed for publicly held companies. Along with the SEC the FASB will also seek the advice and information provided to them by the PCAOB.
The PCAOB “establish[es] auditing and related attestation standards, quality control standards an ethics standards to be used by registered public accounting firms in the preparation and issuance of audit reports…as may be necessary or appropriate in the public interest or for the protection of investors” (PCAOB, Standards setting, 2005). At the board meetings the SEC and FASB are given observation status. These meetings help to establish the standards to be used in auditing and professional practice, the observation status also grants the organizations the right to speak and give advice. The SEC was established in 1934 by congress. It was created to help ensure stability in the market and protect investors. The Securities Exchange act was also established in 1934, both of which were used to protect
investors and help keep the securities market ethical. This organization ensures that public companies disclose their financial information to the public, allowing investors to make an informed and sound decision about their investments. The SEC enforces against, “insider trading, accounting fraud, and providing false or misleading information about securities and the companies that issued them” (SEC, Who we are, 2005). Through the years the SEC had helped to restore investor confidence in the market and with the help of the FASB and PCAOB has worked towards making financial reporting accurate and honest.
Basic Accounting Theories, Assumptions and Principles
As accounting and the keeping of financial documents have gotten more detailed and the need for accuracy has increased many guidelines have been promulgated in order to ensure trust. In order to help ensure trust, directors of companies committed themselves to two ideas, the acceptance of general accounting procedures and independent auditing. “This led to the development of (1) the auditing profession and (2) the brand name of auditing firms, which have become a guarantee of integrity” (Whittington, Geoffrey, 2000, 181).
The GAAP devised a series of SFACs, these include providing data that is “useful in investment and credit decision making…useful in assessing future cash flows…providing data that is relevant and reliable…timely…verifiable…
The SEC also had a set of standards two of which are “Companies publicly offering securities for investment dollars must tell the public the truth about their businesses, the securities they are selling and the risks involved in investing
Role of Ethics in Accounting
Ethics affect more than a person may think, ethics have a great impact on the way a person deals with their personal life and professional life. It has an even greater impact when it...
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