Paper Instructions

Abstract

The Standard Setting Accounting Industry has an interesting effect on how the organization utilizes accounting. The three important standard-setting resources are the U.S. Security Exchange Commission, the Financial Accounting Standard Board, and the American Institute of Certified Public Accounts. While these three resources are separate, they are all interconnected in many ways. This paper will review the origin of the standard setting industries along with the three standard-setting resources and other sub-agencies. It will also evaluate how they all come together to create an accounting standard.

Introduction

Good afternoon, leaders of the Happy Hospital. Thank you for being a part of phase six, the final presentation. My name is Ruth, Health Service Manager of the accounting firm at Pennypacker and Vandelay, LLC.  Wow! Time flies.  Do you believe that this is the last presentation and  I am ready to submit my final paper to your organization? I hope everyone had a good time with the previous presentations. Thank you for attending the presentations.

The order of the material I will be covering today as follows: Historical roots and of background of the standard setting industry; then the role of the US Securities and Exchange Security Commission; followed by the Financial Accounting Standards Board’s (FASB) goals and mission; and finally the role of the American Institute of Certified Public Accountants, FASB, Public Accounting Firms, International Accounting Standards Board (IASB), the Government Accounting Standards Board (GASB), and the Healthcare Financial Management Association (HFMA).

Historical Roots and Background of the Standard Setting Industry

Prior to the Great Depression in 1929 organizations used to follow a different set of accounting standards, and there was no formality of financial statements. Public investors before the Great Depression were therefore selling and buying stocks without any set of accounting standards. The informality of accounting standard setting created economic crises/crashes, and  this financial instability opened the doors for fraudulence. Individuals were investing in non-existent companies (Security and Exchange Commission, 2018).  Due to these facts, it was necessary for the government to step in and take action to regulate the financial market. 

Congress passed significant Acts to control the financial activities to stop fraud. To mention a few, First, the Security Act of 1933 was established for public investors to report their stock sale and distribution and also to report their financial disclosures regularly (Security and Exchange Commission, 2018). Second, the Securities Exchange Act of 1934 was established. This Act ensures that public investors follow the rule of Generally Accepted Accounting Principles (GAAP).

The result of these acts was the creation of the three governmental bodies that are involved in setting the rules. The first body is the SEC. The role of the SEC was to set accounting and control standards for all public companies whose securities were exchanged publicly. With the emergence of the SEC after the Great Depression, two additional official standard-setting bodies that helped to develop the GAAP were created. These two bodies of the SEC are the American Institute of Certified Public Accountants (AICPA) and the Financial Accounting Standards Board (FASB). The AICPA is a body of public accountants that work explicitly to use the efforts of Certified Public Accountants (CPAs) to set standards within all business practices. It aims to “specify the rules their clients must follow”…“If the CPAs choose not to follow one of the rules he or she is subject to strong sanctions” (Finkler et al., p. 35). The other SEC standard setting body is the FASB. The FASB is a private, not-for-profit organization. It aims to develop the GAAP within the United States in the public’s interest (Boundless accounting, n.d.). The SEC relies on these two organizations to establish the GAAP. The SEC enforces the rules and oversight. Then the FASB and AICPA regulate the standards so that buyers and sellers can report their finances legally. Therefore, the standard-setting bodies work side by side (Boundless accounting, n.d). The GAAP are a set of rules that encompass the details, complexities, and legalities of business and corporate accounting,

The Role of the US Securities and Exchange Security Commission

The role of the SEC was formerly broad. The SEC has oversight responsibilities and despite the existence of the AICPA and FASB, the responsibilities were too great.  As a result a nonprofit corporation and two Acts were established by Congress to oversee the audits of public companies in order to protect investors and the public’s interests: these are the Public Company Accounting Oversight Board (PCAOB), the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act. The PCAOB is a private sector, non-profit corporation created by Congress when it published the Sarbanes-Oxley Act of 2002. It was established to protect the interests of investors and further the public interest in the “preparation of informative, fair, and independent audit reports” (Oswald B., 2017). The main purpose of creating the PCAOB “was to oversee the auditors of public companies in order to protect the interest of investors, to promote public trust in both the financial reporting process and auditing profession, and to improve audit quality, and reduce the risks of auditing failures in the U.S. public securities market” (Carcello, Hollingsworth, & Mastrolia, 2011). Prior to the establishment of the PCAOB, the audit industry was self-regulated through the Public Oversight Board of the AICAP.

The PCAOB has five members who are appointed by the SEC and these members serve for five years. The PCAOB has been given many powers and responsibilities under section 101 of the Sarbanes-Oxley Act. It inspects registered public accounting firms to assess compliance with the Sarbanes-Oxley Act, the rules of the Board, and the rules of the SEC. The SEC has oversight authority over the PCAOB, including the approval of rules, standards, and budgets. The PCAOB prepares a written report of each inspection and provides detailed information for the SEC and certain state regulatory agencies (Carcello, Hollingsworth, & Mastrolia, 2011).

Another act overseen by the SEC is the Dodd-Frank Act. In 2008, a global financial crisis was in its prime and affecting the USA substantially. The government felt compelled to take immediate action to ensure and to protect the American citizens’ financial vulnerability. The response to this financial crisis was the Dodd-Frank Act. Its purpose was to promote the financial stability of the USA by improving accountability and transparency in the financial system. The Investment Adviser Act of 1940 was amended to implement provisions of the Dodd-Frank Act. These rule amendments were designed to expand the provisions of Title IV of the Dodd-Frank Act. The act was initiated in 2009 and was created by former President Obama in 2010. The main purpose of this act was to stop mortgage companies and other lenders from taking advantage of consumers by improving the accuracy and reliability of corporate disclosures and to restore investor confidence (U.S. Securities and Exchange Commission, 2016).

Prior to the Dodd-Frank Act, the Sarbanes-Oxley Act (SOA) of 2002 was signed into law on July, 30 2002 by President Bush. The SOA is a law that sets new or expanded requirements for all U.S. public company boards and management public accounting firms. The law came after major corporate scandals involving Enron, Arthur Anderson, and WorldCom. The bill covers responsibility of a public corporation’s board of directors, adds criminal penalties for cheating and misconduct, and requires the SEC to create regulations to define how public corporations are to comply with the law (Oswald, B., 2017).

Financial Accounting Standards Board’s (FASB) Goals and Mission

The FASB is a private, non-profit organization formed in 1973. It is dedicated to setting the financial accounting standards, which are also known as the U.S. General Accepted Accounting Principles (GAAP). Its goal is to set and provide effective and reliable financial accounting standards in the United States in the public’s interest.  The mission of the FASB is to establish and improve financial accounting and reporting standards to provide decision-useful information to investors and other users of financial reports (Investopedia, 2018).

Prior to the creation of the FASB, the Accounting Principles Board (APB) was formed in 1959. The purpose of the APB was to issue guidelines and rules on accounting principles. Some of the opinions released by the APB still stand as part of the GAAP, but most have been either amended or entirely outdated by FASB statements. The APB was a successor organization to the Committee on Accounting, but it was not keeping pace with changes and growth of the types of transaction activity in corporate America that were required for financial reporting. For these reasons, the formation of FASB was necessary (Investopedia, 2018).

As we all know by now in the U.S., the SEC is legally responsible for accounting standard setting. However, the SEC delegated this task to the FASB, a private sector body composed of seven full-time board members composed of individuals from both within and without the accounting profession (Investopedia, 2018). The FASB standards aimed at creating financial transparency and eliminating fraudulent activity so that investors could have full trust in the companies they want to invest with. The FASB, SEC and PCAOB were created by the U.S. government to improve the quality of financial reporting and to restore the confidence of investors and the public in the country’s market. The FASB serves primarily to regulate the U.S. capital markets by setting standards for GAAP. Then the SEC evaluates each standard-setting project to ensure that the FASB process is operating in an open, fair, and impartial manner (Moore, 2017).

The FASB was not working alone. It was working in conjunction with the AICPA. The AICPA is the world’s largest member association for CPAs. It has served the public interest since 1887. It has more than 431,000 members. All its members represent many areas of practice, including business and industry, public practices, government, education, and consulting. The role of the AICPA is setting ethical standards for the profession and U.S. auditing standards. This includes private companies, nonprofit organizations, federal, state and local governments. It develops and grades the Uniform CPA Examination. It offers specialty credentials for CPAs who concentrate on different professions (AICPA, 2018). The AICPA provides technical support, standard-setting, including GAAP. The AICPA plays an important role in advising the FASB. Since the FASB is mandated with making the accounting rules of the United States as designated by the SEC, the AICPA becomes involved as well since it represents public accountants: “The AICPA provides all the aforementioned in conjunction with the FASB’s work” (Gill, 2003). It also offers resources and guidance to the FASB with the improvement of the standard-setting procedures that involves accounting principles. Until 1973, the AICPA was a virtual monopoly on setting the professional and technical standards of CPAs (Gill, 2013). The responsibility of setting the GAAP later transferred to the FASB. However, the AICPA retained standard setting in various areas including financial statement auditing. “Therefore, the AICPA is mandated with setting the standards to be followed by Public Accounting Firms. It drafts and enforces professional standards. It clarifies the objectives of the auditors and obligatory compliance requirements when conducting an audit” (Gill, 2003).

Another organization with the role of setting accounting standards is the Government Accounting Standards Board (GASB). It was created in 1980 to establish rules that require state and local governments to report clear, consistent and transparent financial information to their constituents. Its goal was to promote financial reporting that would provide reliable, transparent and comparable government financial data to taxpayers and other stakeholders (FAF, n.d). Its mission is to establish a standard for financial reporting that provides useful information to assist individuals in assessing the government’s financial conditions and performance. “The GASB is one section of a non-profit standard-setting group that is self-ruling of any corporate or government body” (FAF, n.d.). This group includes the Financial Accounting Foundation (FAF), the FASB, the Financial Accounting Standards Advisory Council (FASAC), and the Governmental Accounting Standards Advisory Council (GASAC) (FAF, n.d).

In addition to the GASB, the International Accounting Standards Board (IASB) is an independent, privately funded accounting standards agency. Its headquarters is in London. It was created in 2001 as a replacement of the International Accounting Standards Committee (IASC). It serves as an accounting standard-setting body of the International Financial Reporting Standards (IFRS). The GASB is an organization whose main goal is to improve and create accounting report standards for the GAAP. It works to educate the public, including financial statement prepares, auditors, and users about its standards and the required information the government must show in their financial reports. The mission of the GASB is achieved through an open and independent process that encourages board participation from all stakeholders and considers and analyzes all their input and reviews.  

The last rulemaking board is the Healthcare Financial Management Association (HFMA) principle and practice board. The HFMA is the nation’s premier membership organization for healthcare finance leaders. It supports alliances with all healthcare associations to achieve  consensus on a solution for the challenges the U.S. health care systems face in the world today (Arcpa, n.d). It has more than 38,000 members. It collaborates with health care associations to seek consensus on how to control challenges facing the U.S healthcare system, including the revenue cycles of the health care system. It provides education, analysis, and guidance. It builds and supports coalitions with other healthcare associations to ensure accurate representation of the health care finance professions. It also “works with stakeholders to improve the healthcare industry by identifying and bridging gaps in knowledge, best practices, and standards.” (Arcpa, n.d).

Conclusion

Overall, the standard setting board in the accounting industry plays a major role in the accounting profession. The efforts and constant progression of the Standard Setting Board is endless. Each organization plays an important role in improving and advancing the accounting and financial reporting profession. The organizations strive towards their goals and missions in order to protect investors from fraud and to have a standard setting for accounting.

Accounting and Auditing Standard Setters Chart

GAAP Its goal is to set and provide effective and reliable financial accounting standards in the United States in the public’s interest.   

IFRS A Set of International accounting standards stting how particular types of transactions and other events should be prepared in financial statements..it is issued by IASB.  
GASB Is independent private sector organization. It establishes accounting and financial reporting standards for U.S. state and local governments that follow GAAP.  
ISAB Provides the Department with independent insight and advice on all aspects of arms control. Issued IFRS  
FASAB Is a U.S. fedral advisory committee whose mission is to improve fedral financial reporting through issuing fedral frinancial accounting standards and providing guadiance after considering the needs of external and internal users of federal financial information. Created GAAP  
HFMA Is the nation’s premier membership organization for healthcare finance leaders. It supports alliances with all healthcare associations to achieve  consensus on a solution for the challenges the U.S. health care systems face in the world today  

SOX Is a U.S. federal law that set new or expanded requirements for all U.S. public company boards, management and public accounting firm.  
DODD-FRANK ACT It was signed into US federal law by President Obama in 2010. It made changes in the American financial regulatory environment affecting all federal regularoty agencies and almost every part of the nation’s financial servives  industry.  
CPAs Is the titile of qualified accountants  

PCAOB Is a private sector, nonprofit corporation created by  SOX to oversight the audits of public companies and other issues inorder to protect the interests of the public interest in the preparation of informative, accurate and independent audit reports.  

SEC It is a US Government agency. Its purpose is to protect investors from dangerous or illegal financial practices or fraud, by requiring full and accurate financial disclosure.  

  Congress    

FASB It is a private, non-profit organization standard-setting body whose primary purpose is to establish and improve Generally Accepted Accounting Principles (GAAP) within the United States in the public’s interest.    
AICPA Is an association that develops and scores the Uniform Certified Public Accountants examination Individuals seeking to qualify for public accountant certification in the United States are required to pass the CPA Examination.      

                                Outline                     

  1. Abstract
  2.  Introduction
    1. Historical roots of and background of standard setting industry: Brief overview of the historical background of standard setting within the accounting field.
      1. Great Depression- 1929
      1. Security Act of 1933
      1. Security Act of 1934 – creation of GAAP
  3. The US Securities and Exchange Security Commission.
    1.  Give an introduction to the goals and mission of the SEC
      1. To set accounting and control standards

B.   And an insight into the relationship between the group within the

organization to:

  1. Public Company Accounting Oversight Board (PCAOB)
    1. A private sector, non-profit corporation, established to protect and oversee and promote auditors of public companies
  2. The Sarbanes-Oxley Act of 2002
  3. Is a federal law that was established for auditing and financial regulations for public companies
  4. The Dood-Frank Act
  5. Initiated by former President Obama in 2010.
  6. A law that regulates the financial markets and protects consumer’s financial vulnerability.
  7. The Financial Accounting Standards Board (FASB)
  8. Give an introduction to the goals and mission of the FASB and insight into the relationship between the groups within the Accounting Principle Board (APB).
  9. The American Institute of Certified Public Accountants (AICPA)
    1.  The goal and mission of the AICPA
      1. To set ethical standards for the profession and the U.S. auditing standards with all business practices
      1. Is a body of public accountants
      1. Work explicitly to use the efforts of CPAs to develop and grade the Uniform CPA examination
    1. Insight into the relationship between the groups within the organization.
      1. FASB
      1. A private non-profit organization standard established to improve GAAP within the USA in the public interest.
      1.  IASB
      1. An independent private-sector body that develops and approves International Financial Reporting Standards (IFRS)
      1.  GASB

i. The source of GAAP

  1. Used by states and local governments in the U.S.A.
    1.  HFMA
    1. Is an organization intended for healthcare finance leaders to seek consensus on the revenue cycle.
  2. Conclusion
  3. The role of SEC in setting accounting standards as a government

organization created after the crash of stock or the Great Depression, in 1929

  1. The government felt that there was a need to regulate the financial market.
    1. In 1933, the government created the SEC to help develop standards for financial information that has presented in the stockholders
    1. The SEC has become a delegate and also works with its sub- commissioners such as FASB, AICPA, PCAOB
  2. The Sarbanes- Oxley Act of 2002, the Dodd-Frank Act, ISAB, GASB, and HFMA. They seem they are separate, but they all have the same goal to protect consumers and investors business from fraud to happen.


References

About the AICPA. (n.d.). Retrieved from https://www.aicpa.org/about.html

Boundless Accounting. (n.d.). Retrieved from https://courses.lumenlearning.com/boundless-

accounting/chapter/conventions-and-standards/

Carcello, J. V., Hollingsworth, C., & Mastrolia, S. A. (2011). The effect of PCAOB inspections

on Big 4 audit quality. Research in Accounting Regulation, 23(2), 85-96. doi:10.1016/j.racreg.2011.10.001

Establishing financial accounting standards; report of the Study on Establishment of Accounting

 Principles. (1972). New York: American Institute of Certified Public Accountants.

Examining the Dodd-Frank Act and the Future of Financial Regulation. (2016, November 16).

Retrieved from https://www.sec.gov/news/speech/fleming-speech-keynote-address-111616.html

Finkler, S. A., Calabrese, T. D., & Ward, D. M. (2019). Accounting fundamentals for health care

management. Burlington, MA: Jones & Bartlett Learning

Gill, F. (2003). Principles-Based Accounting Standards. Retrieved from

History.com Editors (2018, August 21). Security and Exchange Commission. Retrieved from 

Moore, N. (2017, September 18). What Are the Roles of the SEC & FASB? Retrieved from

Oswald, B. (2017, September 25). What is the PCAOB? Auditing Standards & Inspection

Reports. Retrieved from https://linfordco.com/blog/what-is-pcaob-auditing-standards/

Staff, I. (2018, May 30). Financial Accounting Standards Board – FASB. Retrieved from

What the FASB’s GAAP Codification Means for CPAs. (n.d.). Retrieved from

Do you have a similar assignment and would want someone to complete it for you? Click on the ORDER NOW option to get instant services at essayloop.com

Do you have a similar assignment and would want someone to complete it for you? Click on the ORDER NOW option to get instant services at essayloop.com. We assure you of a well written and plagiarism free papers delivered within your specified deadline.