1.01 Generally Accepted Accounting Principles – Definition and Governing Bodies

1. 1.01 Generally Accepted Accounting Principles – Definition and Governing Bodies GAAP PowerPoint #1

2. What is GAAP? • Generally Accepted Accounting Principles • Defined as the set of accepted industry rules, practices and guidelines for financial accounting • Includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of financial statements

3. Governing Bodies of GAAP • AICPA • FASB • SEC • Define: Security • Securities Act of 1933 • Securities Act of 1934 • GASB

4. AICPA • American Institute of Certified Public Accountants (CPA) • Founded in 1887 • Sets ethical standards for the CPA profession • Sets U.S. auditing and GAAP standards • Develops and grades the Uniform CPA Examination • http://www.aicpa.org

5. FASB • Financial Accounting Standards Board • Established in 1973 • Establishes and improves standards of financial accounting by non-governmental entities (GAAP) • www.fasb.org

6. SEC • Securities and Exchange Commission • Created by the Securities Act of 1933 and the Securities and Exchange Act of 1934 • Holds the primary responsibility for: • Enforcing federal securities laws • Regulating the securities industry • Regulating the stock market and • Preventing corporate abuse of investors

7. SEC Authority • Enforcement authority granted by Congress • Bring civil enforcement actions against individuals and companies who: • Commit accounting fraud • Provide false information • Engage in insider trading • Violate securities laws • Bring criminal enforcement actions to prosecute individuals and companies for criminal offenses

8. SEC Objectives • Maintains fair, orderly and efficient security markets • Ensures that securities industry professionals deal fairly with their customers • Ensures that corporations make all material information about themselves public • Facilitates capital formation for corporations • www.sec.gov

9. Securities • notes • stock • treasury stock • security future • bond • debenture • certificate of interest • participation in any profit-sharing agreement

10. Securities Act of 1933 • Referred to as the Truth in Securities Law • Two basic objectives: • Requires that investors receive financial/significant information concerning securities offered for public sale • Prohibits deceit, misrepresentations, and fraud in the sale of securities

11. Securities Act of 1934 • Empowers the SEC with broad authority over the securities industry • Includes the power to register, regulate, and oversee • Brokerage firms • Transfer agents • Clearing agencies • Self-regulatory organizations • New York Stock Exchange • American Stock Exchange • NASDAQ • Empowers SEC to require periodic reporting by companies with publicly traded securities (GAAP)

12. GASB • Governmental Accounting Standards Board • Established in 1984 • To establish and improve standards of state and local governmental accounting and financial reporting (GAAP) • www.gasb.org

13. Questions for Understanding and Discussion • What is meant by GAAP? • Why should all companies follow GAAP in reporting to external users of financial information? • Explain the roles of each of the governing bodies in the setting of accounting standards.