| Who created accounting principles? Who sets and | | | | behavior. Other countries no doubt have similar |
| revises accounting standards? What if you don't | | | | organizations that require high levels of accounting |
| follow all the rules, do you go to jail? Is there an | | | | professional conduct.FASB established an |
| accounting police force that investigates and | | | | accounting code called "Generally Accepted |
| arrests violators? It would seem that there must | | | | Accounting Principles" or (GAAP). The assumption |
| be some regulatory force to make sure that | | | | is that if a business financial statement is prepared |
| providers of financial statements conform to the | | | | according to GAAP, then the user of that financial |
| rules. There is, up to a point, and here is how it | | | | statement could rely on or trust the information |
| works:Mainly, it's all voluntary and it works pretty | | | | more readily than if not prepared according to |
| well. First, double-entry accounting originated in | | | | GAAP. Those businesses that deviate from |
| Italy in the 1400's, so its been around awhile. | | | | GAAP, and many smaller businesses do, cannot |
| Accounting principles have evolved over the years | | | | say that their statements are prepared under |
| just as have accounting standards. The reason | | | | GAAP; in fact, they should inform the reader that |
| why the system works is that the business | | | | they are not. However, let the buyer beware.One |
| community could not function if there was not | | | | governmental body that has a policing function is |
| commonality and consistency in financial | | | | the Securities Exchange Commission (SEC). It is |
| statement reporting. It would be chaos, much like | | | | primarily concerned with public companies because |
| if there were no driving rules of the | | | | their job is to protect investors from |
| road.Therefore, in the United States, a body of | | | | unscrupulous acts. Recently, the SEC has gotten |
| experts known as the Financial Accounting | | | | into the act of establishing accounting standards. It |
| Standards Board (FASB pronounced Fasbee) was | | | | has its hands full today.Since most businesses use |
| established in 1973, which superseded another | | | | their financial statements to prepare their required |
| board called the Accounting Principles Board (APB). | | | | income tax returns, the Internal Revenue Service |
| The FASB members go through a lengthy | | | | (IRS) may audit those tax returns and review the |
| process of analyzing and reviewing problems in | | | | financial statements upon which the tax returns |
| the accounting field that are brought to them. | | | | are based. Not following the rules can get you in |
| After much thought, they will make a | | | | trouble with this governmental body.You can see |
| pronouncement as to what they think the new or | | | | that in many ways compliance to the principles |
| revised way of approaching the treatment of an | | | | and standards is a mixture of voluntary and |
| accounting issue should be.They are a | | | | regulatory behavior. Currently, there is an effort |
| non-governmental organization that has private | | | | underway to set international accounting |
| financing. A big supporter of FASB is the | | | | standards due to the inexorable globalization |
| American Institute of Certified Public Accountants | | | | process. This is a massive undertaking that will |
| (AICPA). Many Certified Public Accountants (CPAs) | | | | take years, but it is obviously necessary and |
| belong to this prestigious organization and are | | | | inevitable. |
| obligated to abide by its guidelines and principles of | | | | |