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Learn about Generally Accepted Accounting Principles (GAAP), the industry rules, practices, and guidelines for financial accounting. Discover the roles of governing bodies like AICPA, FASB, and SEC in setting accounting standards and enforcing regulations. This presentation covers the importance of GAAP compliance in external financial reporting.
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BA10 2.01b Generally Accepted Accounting Principles – Definition and Governing Bodies GAAP PowerPoint #1
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
Governing Bodies of GAAP • AICPA • FASB • SEC • Define: Security • Securities Act of 1933 • Securities Act of 1934 • GASB
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
FASB • Financial Accounting Standards Board • Established in 1973 • Establishes and improves standards of financial accounting by non-governmental entities (GAAP) • www.fasb.org
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
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
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
Securities • notes • stock • treasury stock • security future • bond • debenture • certificate of interest • participation in any profit-sharing agreement
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
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)
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
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.
