Accounting Police: Do They Exist??

Who created accounting principles? Who defines and revised accounting standards? What if you do not follow all the rules, did you go to jail? Is there an accounting police force to investigate and arrest offenders? It seems that there must be a regulatory force to ensure that providers of financial statements in conformity with the rules. It is up to a certain point, and here's how it works:

Mainly, it is voluntary and it works quite well. Firstly, double-entry accounting born in Italy in the years 1400, so its been for some time. The accounting principles have evolved over the years, as have accounting standards. The reason why the system works is that the business could not operate if there was no consensus and consistency in the reports of financial statements. It would be chaos, just as if there were no rules of conduct of the road.

Hence, the USA, a body of experts known as the Financial Accounting Standards Board (FASB gave Fasbee) was established in 1973, which replaced another board called the Accounting Principles Board (APB). The FASB members go through a lengthy process of analysis and studies the problems in the field of accounting that are brought to them. After careful consideration, they will make a statement on what they think new or revised approach to the treatment of a question of accounting should be.

They are a non-governmental organization which has a privately financed. A big supporter of FASB is the American Institute of Certified Public Accountants (AICPA). Many of Certified Public Accountants (CPA) belong to this prestigious organization and are required to comply with its guidelines and principles of behaviour. Other countries have no doubt similar organizations that require high levels of accounting professional ethics.

FASB has established a code of accounting entitled "Generally Accepted Accounting Principles (GAAP). The assumption is that if a company financial statements prepared in accordance with GAAP, then the user of that statement could be based on trust or information more easily than if it is not prepared in accordance with GAAP. Companies that deviate from GAAP, and many smaller companies can not say that their statements are prepared in accordance with GAAP, in fact, they should inform the reader that they are not. However, let the buyer beware.

A government agency which has a policing function is the Securities Exchange Commission (SEC). It focuses primarily on public companies because their job is to protect investors against unscrupulous acts. Recently, the SEC got in the act of establishing accounting standards. It has its hands full today.

Like most companies use their financial statements needed to prepare their tax returns, the Internal Revenue Service (IRS) May audit tax returns and examine the financial statements on which tax returns are based. Do not follow the rules that you can get in trouble with this governmental body.

You can see that in many respects, compliance with the principles and standards is a mixture of voluntary and regulatory behavior. Currently, there is an effort underway to establish international accounting standards because of the inexorable process of globalization. This is a great company that will take years, but it is obviously necessary and inevitable.

By: John Day