April 8, 2013
Response to Client Request I
This paper will describe the accounting standards that are having to be followed and who is responsible for setting them. The reason for accounting standards to be in place is to ensure that the effectiveness of the information is properly implemented by the users. Understanding is pertinent to the organization, so that their objectives and their ethical responsibilities are being met by accountants. Therefore, this paper will review the standard-setting process, the authoritative sources of accounting information, the objectives of financial reporting and their role in the economy, and the role of ethics in financial reporting. Standard setting process According to Schroeder, Clark, and Cathey (2011), the guidance and education of the public, including issuers, auditors, and users of financial information is the part of FASB’s mission is to establish and improve standards of financial accounting and reporting. The mission that FASB seeks to accomplish is as follows (Schroeder, Clark, and Cathey, 2011): 1. Improve the usefulness of financial reporting by focusing on the primary characteristics of financial reporting by focusing on the primary characterizes of relevance and reliability and on the qualities of comparability and consistency. 2. Keep standards current to reflect changes in methods of doing business and changes in the economic environment 3. Consider promptly any significant areas of deficiency in financial reporting that might be improved through the standard-setting process 4. Promote the international comparability of accounting standards concurrent with improving the quality of financial reporting 5. Improve the common understanding of the nature and purposes of information contained in financial reports.
Financial Accounting Standard Board (FASB) In 1973, the APB was to replace the creation of the Financial Accounting Standards Board (FASB). Because of its structure FASB has benefited from a great deal of success. According to the Small Business Association (SBA), it has listed five ways that members are appointed to the board: first, the board has only seven members, allowing it to achieve consensus more easily than its predecessor. Second, unlike the APB, the FASB considers membership a full-time job, so its members are more likely to devote the time necessary to deal with tough, ongoing accounting problems. Third, the FASB is independent of the AICPA. Fourth, because members cannot work for private entities, they are more independent and will thus not allow problems associated with certain industries to skew their decisions. Finally, the FASB membership is not limited to CPAs, giving it a broader perspective on important issues (sba.pdx.edu, n.d.). According to Schroeder, Clark and Cathey (2011), based on the Sarbanes-Oxley Act of 2002 (SOX), the FASB is financed by fees assessed against publicly traded companies, instead of donations from the interested parties in the private sector as a way for the FASB to increase its independence.
American Institute of Certified Public Accountants (AICPA) The definition of American Institute of Certified Public Accountants, according to investodia.com, is a non-profit professional organization of certified public accountants in the United States. The American Institute of Certified Public Accountants was founded in 1887, under the name American Association of Public Accountants, in order to ensure that accountancy gained respect as a profession and that it was practiced by ethical, competent professionals. The AICPA exists to provide more than 370,000 members with the resources, information and leadership to provide CPA services in the highest professional manner (investopedia, n.d.).
Securities and Exchange Commission (SEC) The SEC has statutory authority to…