The global financial crisis has demonstrated that the public sector as well as the private sector needs the highest quality accounting standards. Around the world, accounting in the public sector is practiced in diverse ways and struggles to achieve comparable standard in accountability and transparency.
The Securities Act of 1933 gave the commission the authority to prescribe accounting standards to be followed by the companies for the purpose of complying with federal securities laws. The Commission has historical looked to the privates sector to help establish those standard, creating an important joint responsibility. This joint responsibility has recently being subject of concern and comment, from both congress and the business community. The Commission exercises strong oversight in the standard setting process and must do so in the context of complex and challenging accounting issues, some of which are viewed as extremely important in today national and international business environment.
Since 1973, the Financial Accounting Standards Board (FASB) has been the designated organization in the private sector in the U.S. for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports. They are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential because donors, investors, creditors, auditors and others rely on credible, transparent and comparable financial information.
The mission of FASB 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. The FASB develops broad accounting concepts as well as standards for financial reporting. It also provides guidance on implementation of standards, known as Statements of Financial Accounting Standards (SFAS).
The credit crisis has raised several public sector accounting issues. Governments have extended credit to banks, guaranteed the liabilities of banks, purchased impaired debt instruments and in some instances have assumed control of banks. The unique nature of the credit crisis and the unprecedented response by governments around the world has reinforced the importance of high-quality standards for financial reporting by governments. The credit crisis has increased the need for accountability in the public sector and for transparency in its financial dealings.
Based on the situations above, we are going to discuss more about the private sector and public sector regulation of accounting standard, the argument and support among the two regulations.
2.PRIVATE SECTOR ACCOUNTING STANDARD
2.1 DEFINITION OF PRIVATE SECTOR AND THE OBJECTIVE
Private sector means the part of national economy made up of, and resources owned by, private enterprises. It includes personal sector (households) and corporate sector (firms) and is responsible for allocating most of the resources within an economy. A variety of legal structures exist for private sector business organizations, depending on the jurisdiction in which they have their legal domicile. Individuals can conduct business without necessarily being part of any organization. The main types of businesses in the private sector are:
•Partnership, either limited or unlimited liability
•Private Limited Company or LTD-limited liability, with private shares •Public Limited Company – shares are open to the public. Two examples are: •Franchise – business owner pays a corporation to use their name, receives spec for the business The objective in the private sector is to inform the stakeholder about the performance of the business, to provide possible investors with information, to aid management decision making and...