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Accounting Standards

As a result of the 1929 stock market crash and following Great Depression, American regulators began feeling a pressing need for better regulation of the securities industry and the financial information surrounding public companies. As a result, the 1934 Securities Act was passed, which created the Securities and Exchange Commission (the SEC, or the Commission). This sweeping legislation established the SEC, making the Commision responsible for enforcing federal securities law in the United States. As a part of this role, the SEC has legal authority for establishing accounting and financial reporting standards for publically traded companies. 

However, since this time the SEC has delegated its role in developing and presenting accounting and financial reporting standards to the private sector. In 1973, the Financial Accounting Standards Board (FASB), a not-for-profit organization whose primary purpose is to develop generally accepted financial reporting standards (GAAP) for U.S. issuers. The SEC has currently delegated authority to the FASB to be the sole provider of authoritative U.S. GAAP (however, the SEC's own Rules and Interpretive Releases are also authoritative GAAP for companies who file with the SEC). In recent years there has been some discussion by the SEC about the role that International Financial Reporting Standards (IFRS) should play in U.S. GAAP. If the SEC choses to allow U.S. issuers to file financial statements using IFRS, the role of U.S. GAAP, and thus the role of the FASB would be limited. 

Currently, the FASB and the International Accounting Standards Board (IASB) have been working jointly in order to converge U.S. GAAP and IFRS, while the two standard-setting bodies remain independent, each releasing their own set of rules. These efforts have the goal of improving the quality of both sets of standards, while minimizing or eliminating the differences between them. (Also see: Accounting Standard Convergence)

Ethical standards for the accounting profession are determined by the American Institute of Certified Public Accountants (AICPA). A division of the AICPA, the Auditing Standards Board (ASB), develops and sets out generally accepted auditing standards (GAAS). Before FASB, U.S. GAAP was set by another division of the AICPA, the Committee on Accounting Procedure (CAP) and later the Accounting Priciples Board (APB). These bodies have since been replaced by the seperate entity FASB for developing U.S. GAAP. 

In the United States, the framework for accounting and financial reporting standards can be broken into four layers: 

(1) The conceptual framework of accounting: The conceptual framework of accounting outlines the theory behind the rules are the way they are, or the way rules ought to be. It deals with questions such as: what is the objective of financial reporting? who are the primary users of financial reports? what characteristics should useful accounting information have? and what are the decision-making elements necessary for the financial statements?

(2) Basic GAAP: Basic GAAP is a set of basic guidelines and principles that form the groundwork for the more complex and specific accounting reporting standards. These are typically learned early on by accounting students, and help students deal with ambiguious situations when applying U.S. GAAP to different situations. 

(3) US GAAP: These are the more complex and legalistic accounting and financial reporting standards which are built on top of basic GAAP. They deal with specific circumstances as much as possible, fo rexample, the different methods of allocating depreciation

(4) Generally accepted industry practice: In accounting, typically the application of accounting procedure applied by one firm in an industry is copied by other firms. This aids in making firm's within the same industry comparable. As a result, these standards are important when an accountant must choose betwee taking its own course or aligning its significant accounting policies with those of its competitors. 

                                                                                    

Categories within Accounting Standards

The Conceptual Framework of Accounting

Postings: 31

The conceptual framework for accounting includes the FASB’s conceptual framework, the basic generally accepted accounting principles, and the comprehensive codified accounting standards. It also includes generally accepted industry practice.

Accounting Standards Convergence

Postings: 5

Over the last decade international accounting standards have been organized by the International Accounting Standards Board (IASB). The ISAB and FASB (America’s Financial Accounting Standards Board) have been working on a number of projects to converge international standards and the US standards to improve the consistency of financial reporting between countries.

Basic Generally Accepted Accounting Principles (GAAP)

Postings: 287

Basic generally accepted accounting principles, also known as basic accounting principles and guidelines, form the groundwork from which the more detailed and complicated FASB accounting standards (also known as US GAAP) are based.

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