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Standard Setting Accounting Industry Presentation

Paper Type: Free Assignment Study Level: University / Undergraduate
Wordcount: 3057 words Published: 12th Nov 2020

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Abstract

The Standard Setting Accounting Industry has an interesting yet impactful effect on the ways in which organization utilize accounting.  The three influential standard setting resources are The US Securities Exchange Commission, the Financial Accounting Standards Board, and the American Institute of Certified Public Accountants. While these three resources are separate they are all interconnected in many ways. This paper will review the historical origins of standard setting along with the three resources and evaluate how it all comes together to create an influence industry.

Presentation Outline

  1. Introduction
  2. Historical roots of standard setting industry- Brief overview of the historical background of standard setting within the accounting field.
  3. The US Securities and Exchange Securities Commission- Give an introduction to the goals and mission of SEC and insight into the relationship between the groups within the organization. 
  4. The Financial Accounting Standards Board- Give introduction to the goals and mission of FASB and insight into the relationship between the groups within the board.
  5. The American Institute of Certified Public Accountants- Give introduction to the goals and mission of AICPA and insight into the relationship between the groups within the organization.
  6. Conclusion-

Introduction

Today I will be presenting to you an informative presentation on the topic of the Standard Setting Accounting Industry.  Accounting principles are necessary skills for an organization.

Many organizations follow a set grouping of standards in which they consider to be the general rules that organization. These rules are considered to be a part of the Standard Setting Accounting Industry or SSAI. Since, it’s beginnings SSAI has immensely grown into a full packed industry whose influence is utilized by most organization as the stomping               groups for the accounting principles it follows. It’s important understand how SSAI began and how the branches that fall under SSAI work together to enhance accounting within organizations.

Historical roots of the standard setting industry

A set of standards and principles within accounting theory and principles was not always the case for organizations to follow. Accounting standards are a necessity to streamline an organization’s tactics to their financial approaches of their organizations. In other words, following accounting standards acts as a foundation for the organization’s financial statements (Accontingfoundation.org). The principal standard that governs health organizations is Generally Accepted Accounting Principles or GAAP. GAAP are the most utilized rules that dominate financial standards within an organization (Finkler, Ward, Calabrese, 2013). There is a great deal of rules that regulate the theses standard principles. The purpose of GAAP is to create a universally pertinent set of regulations for organizations to govern by. GAAP was established by the Financial Accounting Standards Board (FASB).

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FASB has been around since 1973, and they are considered the group of people that set standards for Accounting in organization. When the group was enacted it was “the designated standard-setter in the private sector for setting standards that govern the preparation of corporate financial reports along with not-for-profit organizations.” (FAF).  FASB’s goal is to issue statements of financial accounting standards for the industry. The rules for the standards are developed through an extensive process which involves feedback through public consultation and meetings. FASB governs 168 standards for accounting principles. While there are no direct members in FASB there are working groups that include a full-time staff of workers whose effort are geared towards creation and maintenance of resources and advice for standards review (Jamal and Sandar, 2014).

Prior to the creation of FASB, the United States’ Securities and Exchange Commission (SEC) completed similar work to create accounting standards. SEC is a government regulatory agency created in 1934. The agency came about following the passage of the Securities Exchange Act of 1933. The act was passed following the Great Depression, which saw an influx of poor accounting and financial reporting as the downfall for many organizations.  The Act gave SEC power to oversee accounting and auditing methods of private sector companies (FAF). Prior to its creation there no other group working to set standards for organizations. SEC itself does not actually create the standards, instead it aimed to encourage private sector organizations to set their own standards. However, there were still accounting flaws found within organizations which encouraged the creation of FASB. SEC has thoroughly supported the efforts put forth by FASB (Königsgruber and Palan, 2013).

The American Institute of Certified Public Accountants (AICPA) is body of public accountants that specifically works to use the efforts of CPAs in order to set standards within all business practices. In the world of standards setting AICPA aims “to specify the rules their clients must follow. If the CPA [certified public accountants] chooses not to follow one of rules he or she is subject to strong sanctions” (Finkler, Ward, Calabrese, p.37, 2013). This means that AICPA’s works as a governing body to enact rule created by organization designed to make rules.

The US Securities and Exchange Securities Commission

The U.S Securities and Exchange Commission (SEC), is government operated agency that was created in 1934. The agency was created as enforcing operators for newly enacted security laws in addition to protecting investors by promoting stability within the market (FAF). In order for the agency to succeed at completing its responsibilities, there five divisions which operate within the agency. The five divisions are: Corporate Finance, Trading and Markets, Investment Management, Enforcement and lastly, Economic and Risk Analysis.

In the Division of Corporate finance the main responsibility is to oversee maintain the activities of other regulatory department such as FASB and similar organizations. Additionally, corporate finance deals confirming investments are being utilized in the correct manner. In the Division of Trading and Markets the main responsibility is maintaining appropriate and efficient trading markets. Additionally, within this division, there is responsibility placed on the chief accountant to maintain the accounts of all five divisions. In the Division of Investment management, the chief responsibility is protecting investors and promoting investors. In the Division of Enforcement’s main responsibility is to oversee and enforce legal regulation. Additionally, this division completes private investigations of possible violations to civil laws from a number of sources. Lastly the Division of Economic and Risk Analysis deals with more of the data analytics aspect. These are completed through very meticulous and exact tests that aim to maintain an accurate and orderly markets (SEC.gov).

In its efforts to support a standard setting there are various entities that SEC oversees and supports. The Sarbanes-Oxley Act of 2002 is enforced by SEC. The Act falls under the Office of the Chief Accountant within SEC. The purpose of its creation was to “enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud” (SEC.gov). Specific to instances of corporate fraud, prior to the passing of the Act there were no legal obligations places on CEOs of companies to be honest. As a result, it was difficult to take action on those taking illegal actions within an organization (Amadeo, 2017).

The Sarbanes-Oxley Act created the Public Company Account Oversight Board or PCAOB.  PCAOB is a private, non-profit corporation that works specifically with independent publicly traded organization. The corporation specifically works with the accounting professionals within these organizations. Ultimately, the goal of PCAOB are “registering public accounting firms; establishing auditing, quality control, ethics, independence, and other standards relating to public company audits; conducting inspections, investigations, and disciplinary proceedings of registered accounting firms; and enforcing compliance with Sarbanes- Oxley Act”. (SEC.gov).

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Another Act that that the SEC oversees is the Dodd-Frank Act. This Act falls under the Office of Compliance Inspections and Examinations in SEC. The purpose of the Dodd-Frank Act was “to enhance the regulation, accountability, and transparency of nationally recognized statistical rating organizations” (Sec.gov). Under the act the Office of Credit Ratings or OCRcwas created. The OCR’s main responsibility is maintaining a fair market for investors by ensuring that credit ratings are fair and not influenced by any conflicts of interest (Maxfield, 2017).

The Financial Accounting Standards Board

The Financial Accounting Standards Board (FASB) is a nonprofit corporation that has been around since 1973, and they are considered the group of people that set standards for Accounting. When the group was enacted it was “the designated standard-setter in the private sector for setting standards that govern the preparation of corporate financial reports along with not-for-profit organizations.” (FAF).  FASB’s goal is to issue statements of financial accounting standards for the industry. The rules for the standards are developed through an extensive process which involves feedback through public consultation and meetings. FASB governs 168 standards for accounting principles. While there are no direct members in FASB there are working groups that include a full-time staff of workers whose effort are geared towards creation and maintenance of resources and advice for standards review (Jamal and Sandar, 2014).

FASB consists of a restrictive seven-member board. All of whom were appoint by FASB’s foundation’s board of trustees. Responsibilities for the members of FASB consist of “establishing, updating, clarifying, and publishing both the broad principles and the specific practices that constitute acceptable private-sector financial accounting” (Referenceforbusiness.com). The way in which the board completes their responsibilities is through various projects consisting of research projects, public hearings, etc. Nonetheless the essential purpose of all efforts put forth by the board is to create a set of standards to be adhered to by all private sector organizations to abide by (Jamal and Sandar, 2014). 

Prior to the formation of FASB, the body of authority regarding accounting principle was the Accounting Principles Board (APB).  From the years of 1959-1973, APB completed research studies regarding standardizing accounting principles and the dynamics revolved around that process. During their 14 years as an organization APB was very small and only issued four statements during that timeframe. APB members worked on a part-time basis which caused for less information to be created during their tenure. However, while the organization outputted a small amount of information during their existence, their work influenced the accounting standards that can be seen in today’s accounting world. One of the main reasons FASB was created was because APB was unable put out a lot of information due to the fact that member only worked part time. FASB members work full time which allows for more work and research to be completed on accounting standard setting (Bragg, 2014).

Prior to the creation of FASB, the United States’ Securities and Exchange Commission (SEC) completed similar work to create accounting standards. SEC is a government regulatory agency created in 1934. The agency came about following the passage of the Securities Exchange Act of 1933. The act was passed following the Great Depression, which saw an influx of poor accounting and financial reporting as the downfall for many organizations.  The Act gave SEC power to oversee accounting and auditing methods of private sector companies (FAF). Prior to its creation there no other group working to set standards for organizations. SEC itself does not actually create the standards, instead it aimed to encourage private sector organizations to set their own standards. For this reason, FASB was created to be the governing bodies in creating standards. Since its creation, SEC has thoroughly supported the efforts put forth by FASB (Königsgruber and Palan, 2013).

The American Institute of Certified Public Accountants

The American Institute of Certified Public Accounting (AICPA) is a professional organization that consists of CPAs that works to influence the rules and standards setting among many organizations (Finkler, Ward, Calabrese, 2013).  AICPA was originally created in 1887 under the name of American Association of Public Accountants. Members represent organizations under various professions such as: public practice, government, education, etc. The organization works to be a vital part of standard setting and rule making within the CPA profession. Additionally, the group works are to advocate various legislative bodies and public interest groups (Staff, I, 2010). AICPA is considered to be the world’s largest member association, with a membership of over 418,000 CPAs. The mission goes as follows “Powering the success of global business, CPAs, CGMAs and specialty credentials by providing the most relevant knowledge, resources and advocacy, and protecting the evolving public interest” (aicpa.org). As it is clear from their mission statement AICPA strives to profoundly influence and setting standards. Additionally, the organization has a huge desire to appeal to the needs of public interest.

Standards for AICPA are developed using various methods. Many of the methods have been around since AICPA’s beginnings and have been expanded over time. The categories of standards and statements are: Audit and Attest Standards; Code of Professional Conduct; Preparation, Compilation and Review Standards; Consulting Services Standard; Continuing Profession Education Programs Standards; Peer Review Standards; Personal Financial Planning Standards; Tax Standards; Valuation Services Standards. These standards categories created by AICPA set precedence among organizations as GAAP (aicpa.org).

One of the legislative bodies that AICPA works with is the Financial Accounting Standards Board (FASB).  The relationship between AICPA and FASB is somewhat simultaneous. AICPA is responsible for setting generally accepted accounting principles (GAAP) which FASB governs. Basically, when the accountants of AICPA set standards FASB is the group that ensures the standards are properly being followed. The same approach is taken with other standard governing organizations such as the International Accounting Standards Board (IASB) and the Government Accounting Standards Board (GASB). The rules initiated by AICPA sets the precedence for what rule governing organizations will follow (aicpa.org).

Conclusion

This concludes our presentation on the Standard Setting Accounting Industry. As you can see, these three resources, were all created at different times in history with different initial goals. However, it is clear that there is a cohesiveness among between SEC, FASB and AICPA. Ultimately all three resources have an end goal of enhancing the standard setting industry.

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