The U.S. program has no general legal
needs for the publication of regular audited financial statements.
Corporations in the United States tend to be formed under state law, not really federal law. Each
condition has its own corporate statutes; generally, these contain minimal needs for
keeping accounting information and publishing periodic fiscal reports. Many
of these statutes aren't rigorously enforced, and reviews rendered to local companies
are often unavailable to the open public. Thus, annual audit as well as financial reporting
requirements reasonably exist only at the federal degree as specified by the Securities and exchange commission's. The
SEC has legal system over companies listed on Ough.S. stock exchanges and companies
exchanged over-the-counter. Other limited-liability companies have no such compulsory
requirements for financial reporting, making the United States unusual by international
norms.
The SEC has the legal authority to prescribe accounting and reporting standards
for public companies but relies on the private sector to set the standards. It works with
the FASB and exerts pressure when it believes the FASB is moving too slowly or in the
wrong direction. At times, the SEC has delayed or overruled pronouncements or has
imposed its own requirements.
Since the SEC is an impartial regulatory agency, Congress and also the president
have no direct impact over its policies. Nevertheless, the five full-time SEC commissioners
are hired by the president and verified by the Senate, and the Securities and exchange commission's has
only those powers which Congress has granted it through statute. As part of the regulatory
procedure, the SEC issues Sales Series Releases, Financial Confirming Releases, and
Staff Sales Bulletins. Regulations SX and SK retain the rules for preparing
financial statements that must be filed with the Securities and exchange commission's. Annual filings by U.Utes. and Canadian
companies take presctiption Form 10K, while individuals from non-Canadian foreign companies tend to be
on Form 20F.
The FASB was established in 19739 and as of June 2009 issued 165 Statements of
Financial Accounting Standards (SFASs). The objective of the SFASs is to supply
information that is useful to existing and potential investors, lenders, and others
who make expense, credit, and similar decisions. The actual FASB has five full-time
members, symbolizing accounting firms, academia, corporations, and also the investor
community. Board people must sever all financial and organizational ties in order to prior
employers or possession in order to serve. The FASB’s utilization of a conceptual framework
is a substantial feature of accounting regular setting in the United States. Statements
of Financial Accounting Concepts set forth the fundamentals on which financial
accounting and reporting standards are based.
The FASB goes through lengthy due-process procedures before issuing an SFAS.
In developing its work agenda, it listens to individuals, professional firms, courts of
law, companies, and government agencies. It also relies on an emerging-issues task
force and an advisory council to help identify accounting issues that need attention.
Once a topic is added to the agenda, the FASB’s technical staff does research and
analysis and an advisory task force is appointed. ADiscussion Memorandum or other
discussion document is disseminated for comment, and public hearings are held. The
FASB considers oral and written comments in meetings open to the public. Next, an
Exposure Draft is issued and additional public comments are considered. The procedure ensures
that standard establishing the United States is both politics and technical. An
SFAS should be approved by three from the five members.
Generally accepted accounting concepts (GAAP) comprise all the financial
sales standards, rules, and rules that must be observed in the planning of
financial reports. The SFASs would be the major component of GAAP. The sales and
auditing regulations are probably much more voluminous in the United States than in the remainder
of the world combined and considerably more detailed than in any other nation. For this
reason, the FASB as well as SEC are considering moving Ough.S. GAAP away from rules-based
standards towards principles-based standards.
The FASB did not seriously engage itself internationally until the 1990s. In 1991,
the FASB developed its first strategic plan for international activities. In 1994, the
FASB added the promotion of international comparability to its mission statement.
The FASB is now a major cooperative international player, committed to converging
U.S. GAAP and IFRS. In 2002, the FASB and IASB formalized their commitment to
convergence by signing the so-called Norwalk Agreement. Under this agreement, the
two boards pledge to remove existing differences between their standards and coordinate
future standard setting agendas so that major issues are worked on together.10
The commitment to convergence was reaffirmed in 2005. Convergence is scheduled
for completion in 2011.
The Sarbanes-Oxley Act was authorized into law in Two thousand and two, significantly expanding
U.Utes. requirements on corporate government, disclosure and reporting, and the
regulating the audit profession. Amongst its more important provisions may be the creation of the PCAOB, a charitable organization overseen by the Securities and exchange commission's.
The PCAOB isresponsible for:
- Setting auditing, quality control, ethics, independence, and other standards relating to the preparation of audit reports on companies issuing securities to the public
- Overseeing the audit of public companies subject to the securities laws
- Inspecting registered public accounting firms
- Conducting investigations and disciplinary proceedings
- Sanctioning registered public accounting firms, and referring cases to the SEC or other enforcement bodies for further investigation
Previously, the AICPA issued auditing standards, was responsible for the Code of
Professional Ethics, and disciplined auditors. The PCAOB effectively assumed these
responsibilities from the AICPA.
The Sarbanes-Oxley Act was passed in the wake of numerous corporate and
accounting scandals, such as Enron and WorldCom. The act limits the services that audit
firms can offer clients and prohibits auditors from offering certain nonaudit services
(including types of consulting services) to audit clients. It also requires that lead audit
partners rotate off audits every five years. Section 302 of the act requires a company’s
chief executive officer and chief financial officer to certify each quarterly and annual
report. Section 404 requires management’s assessment of internal control over financial
reporting, along with a related report by the independent auditor.
Thus, the auditor’s report covers both the financial statements and internal controls.
For example, the auditor’s report on the financial statements in Colgate-Palmolive’s 2008
annual report says the following:
In our opinion, the consolidated financial statements . . . present fairly, in all
material respects, the financial position of Colgate-Palmolive Company and
its subsidiaries . . . at December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2008 in conformity with accounting principles generally
accepted in the United States of America.
The auditor’s report on internal regulates over financial reporting states the following:
[I]n our opinion, the Company taken care of, in all material respects, efficient
internal control over financial confirming as of December 31, 08, based on
criteria established within Internal Control-Integrated Framework issued by the actual
Committee of Sponsoring Businesses of the Treadway Commission(COSO).
