The Accounting industry has been under a large microscope for the past six years, ever since the large scandals Enron and WorldCom. Investors, employees and governmental bodies have been calling for major change within the industry. This led to the Sarbanes Oxley Act of 2002, which instituted major regulations on the auditing side of accounting as well on top management of large companies. The Act also looked at the possibility of switching from a rule based system to a principle based system. A rule based system is based on one principle than has many mandates or “checklist” rules that an accountant must follow. This leads to large and complex pronouncements, which are easy to circumvent if a company or individual is looking to break the rules. However, most people are in search of change and feel as though pronouncements should become more principle based. This system provides a “conceptual basis for accountants to follow instead of a list of detailed rules” (Shortridge & Myring). I believe that if the accounting community is truly willing to move into the right direction, they must shift into the direction of more principle based pronouncements and give auditors the opportunity to use their own professional judgment and skepticism more often to make decisions.
U.S. Standard Setting Process: Present & Future
If I am to truly convey my point of how the U.S. standard setting should be changed, I must first look at the state of standard setting today. In the past there have been many governing bodies in accounting that have come and gone or been replaced by another institution, however today the three major bodies that are charged with the responsibility of constructing pronouncements in the U.S. are Financial Accounting Standards Board (FASB), Federal Accounting Standards Advisory Board (FASAB) and the Governmental Accounting Standards Board (GASB). The SEC relies heavily on and oversees those private sector bodies to make thorough... [continues]
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