Essays24.com - Term Papers and Free Essays
Search

Ethical And Legal Obligations

Essay by   •  July 4, 2011  •  996 Words (4 Pages)  •  1,169 Views

Essay Preview: Ethical And Legal Obligations

Report this essay
Page 1 of 4

Abstract

The intent of this paper is to identify the ethical and legal obligations of financial reporting. The relationship between the FASB, SEC, and PCAOB will be discussed. In addition, explanations of basic accounting theories, assumptions, and principals will be given. Lastly, an evaluation of the role of ethics in accounting will be discussed.

Ethical and Legal Obligations Paper

FASB, SEC, and PCAOB

The Financial Accounting Standards Board or FASB is responsible for creating uniform and generally accepted accounting principles (GAAP) by which the financial statements of United States companies must be prepared. The Securities and Exchange Commission officially recognizes the FASB as authoritative and it necessitates that all publicly held organizations follow the rules established by the FASB.

The Securities and Exchange Commission is an independent regulatory agency responsible for administering federal laws on stocks and bonds to protect investors and to ensure that the securities market operates fairly and honestly. The SEC implements securities laws through sanctions and all companies with stock registered in the United States must agree with the SEC rules and regulations. All companies must file quarterly reports as to the progress of their companies.

The Sarbanes-Oxley Act of 2002 created the Public Company Accounting Oversight Board (PCAOB) as a regulatory board to regulate audits of the SEC registrants. According to The Ohio Society of CPAs, “Operating under the U.S. Securities and Exchange Commission, the PCAOB and has the authority for registration, inspection, and discipline of firms auditing SEC registrants, and sets standards for public company audits”.

The Financial Accounting Board, Public Company Accounting Oversight Board and Securities and Exchange Commission arose from a need to have alternative accounting methods established for use by a number of different types of organizations. Other than the FASB, the SEC and PCAOB are regulatory agencies designed to ensure companies are complying with established standards, rules, and regulations.

Accounting Theories, Assumptions, and Principles

The basic accounting principle describes the rules and regulations that oversee the proper accounting for the transactions underlying financial statements. The generally accepted accounting principles (GAAP) are resulting from a variety of sources, including the Financial Accounting Standard Board and the American Institute of Certified Public Accountants (AICPA). The principles support the posting or recording of assets, revenues, expenses, costs, liabilities, and the disclosure and preparation of the financial statements.

According to information retrieved from http://www.quickmba.com, a number of accounting assumptions exist. First, the separate entity assumption is where the business is an entity that is separate and distinct from its owners’ finances. This prevents the finances of the business from not being intertwined with the finances of the owners. The going concern assumption is the belief that the business will be operating in the anticipated or foreseeable future. The stable monetary unit assumption takes for granted the business will be operating in a stable currency, like the U.S. dollar. Lastly, information prepared and reported periodically, either quarterly, annually, etc. is the fixed time period assumption.

These basic accounting assumptions result in the subsequent accounting principles. First, the historical cost principle defines assets that are reported and presented at their original cost and no adjustments are made for changes in the market value. Although the cost of an asset is never written up, accountants may write the costs down, for example, short-term investments and marketable securities. The matching of revenues and expenses for the period earned and incurred is the matching principle and revenue that is reported on the ledger books as earned, or realized, when everything to earn the revenue as been completed is know as the revenue recognition

...

...

Download as:   txt (6.6 Kb)   pdf (91.9 Kb)   docx (10.9 Kb)  
Continue for 3 more pages »
Only available on Essays24.com