“Britain's American colonies broke with the mother country in 1776 and were recognized as the new nation of the United States of America following the Treaty of Paris in 1783. During the 19th and 20th centuries, 37 new states were added to the original 13 as the nation expanded across the North American continent and acquired a number of overseas possessions” (CIA World Fact Book, 2004). The history and background of the United States serves as a basis to the way accounting is reported in the US. The earliest method of accounting in the United States includes the “Dutch style” and the “method of Venice” (Secord, PowerPoint, 2006). In addition, accounting in the US highly influenced by the United Kingdom (UK); thus, their accounting development and systems were originally exported from the UK system. This British influence initially brought professionalism to accounting in the United States. In addition, the founding fathers of US accounting and early accounting societies were of expatriate Britons, in particular, Arthur Young of Ernst & Young and James Marwick of KPMG (Nobes, 2006, p143).
“The United States is a federation of individual states, each of which has its own legislative body with extensive powers to control business activity and levy taxes within its own boundaries” (Nobes, 2006, p144). Due to this, the right to practice as a Public Accountant and the requirements of a PA differs from state to state. Furthermore, it is not a requirement for every state to be a member of the national body the American Institute of Certified Public Accountants (AICPA). By definition, the AICPA is a national association for all Certified Public Accountants (CPA) whose mission is to provide accounting professionals with uniform certification and licensing standards, establishing professional standards, and enforcing current requirements” (Definition of AICPA). Any firm that wishes to be audited by the AICPA must follow Generally Accepted Accounting Principles (GAAP will be discussed later in this paper). The AICPA served as a main standard-setter in the United States for several years. The AICPA’s history dates back to 1887 with the formation of American Association of Public Accountants (AAPA), also known as the American Institute of Accountants, with voluntary committees to help the Institute to maintain high quality standards of the PA profession, promote interest as a CPA, act as a spokesperson for the profession, and providing any necessary services to their members (AICPA, 2006-2007). Although the AICPA gave up its role as the main standard-setter, it still issues detailed guidance called Statements of Position, concentrating from 2003 on industry-specific guidance (Nobes, 2006, p148).
The United States’ “federal securities...