Accounting Police: Do They Exist?

     Who created accounting principles? Who sets and revises accounting standards? What if you do not follow all the rules, go to jail? Is there a police force that investigates accounting and arrests of offenders? It seems that there must be some force regulators to ensure that providers of financial statements in conformity with the rules. There is to some extent, and here's how it works:

     In general, it is all voluntary and it works fine. First, double-entry accounting originated in Italy in the early 1400, so it's been a while. Accounting principles have evolved over the years as well as accounting standards. The reason the system works is that the business community could not function if it was not common and consistent presentation of financial statements. There would be chaos, as if there were rules of the road driving.

     Therefore, the United States, a group of experts known as the Financial Accounting Standards Board (FASB pronounced Fasbee) was established in 1973, which superseded another board called the Accounting Principles Board (APB). The FASB members go through a lengthy process of analysis and discussion of problems in the accounting field that are brought with them. After careful consideration, it will make a public statement about what they think of how the new or revised approach for the treatment of an accounting issue should be.

     It is a nongovernmental organization that has private financing. A big supporter of FASB is the American Institute of Certified Public Accountants (AICPA). Many of Certified Public Accountants (CPAs) belong to this prestigious organization and are obligated to comply with its guidelines and principles of conduct. Other countries may have similar organizations that require high levels of accounting professional conduct.

     FASB established an accounting code called "Generally Accepted Accounting Principles" or (GAAP). The assumption is that if a state of financial affairs is prepared in accordance with GAAP, so that users of this financial statement could rely on trust or information more readily than if not prepared in accordance with GAAP. Companies that deviate from GAAP and many smaller companies cannot say that their financial statements are prepared in accordance with GAAP; in fact, they should inform the reader that it is not. But let the buyer beware.

     One of the authorities of the state, which is a police function, is the Securities Exchange Commission (SEC). These are mainly public companies because their job is to protect investors from unscrupulous actions. More recently, he joined the SEC act of establishing accounting standards. She has her hands full today.

     Since most companies use the request for reporting tax returns, the Internal Revenue Service (IRS) may inspect the tax returns and review the budget, which is based on tax returns. Not following the rules can get in trouble with this governmental body.

     You can see many ways consistent with the principles and standards is a mixture of voluntary and regulatory behavior. Currently, there are efforts underway to establish international accounting standards due to the inexorable globalization process. This is a major undertaking that will take several years, but it is obviously necessary and inevitable.