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Ethical And Legal Obligations In Accounting

982 words - 4 pages

There are several regulatory organizations in accounting. These organizations include the Financial Accounting Standards Board, the Securities and Exchange Commission, and the Public Company Accounting Oversight Board.The Financial Accounting Standards Board (FASB) is a designated organization in the private sector for establishing standards of financial reporting (FASB, 2005). Standards are important for credible and comparable financial information. The FASB is independent of all business and professional organizations. Previously, financial accounting and reporting standards were established by the Committee on Accounting Procedure of the American Institute of Certified Public Accountants (FASB, 2005). The standards set by the FASB are officially recognized by the U.S. Securities and Exchange Commission (SEC).The primary mission of the SEC is to protect investors and maintain the integrity of the securities markets (SEC, 2005). The SEC required public companies to disclose meaningful financial and other information to the public. This gives the public the knowledge to make informed financial decisions. The SEC takes legal action against companies and individuals who break securities laws. This includes insider trading, accounting fraud, and others.The Public Company Accounting Oversight Board (PCAOB) is a private sector, non-profit corporation, created by the Sarbanes-Oxley Act of 2002, to oversee the auditors of public companies in order to protect the interest of investors and further the public interest in the preparation of informative, fair, and independent audit reports (PCAOB, 2005). The PCAOB is also authorized to provide rules governing ethics, independence, and quality control fro registered accounting firms.There are several basic accounting theories, assumptions, and principles which are universally accepted and practiced in the accounting field. These principles are important because they provide for consistency in financial reporting.The basic accounting equation (assets equal liabilities plus owner's equity) is very important to the financial accounting process because the equation must balance after every transaction (Marshall, p 44). The going concern concept is the assumption that the entity will continue to operate in the future, or in other words the company will not be liquidated. This assumption is necessary because the amounts shown on the balance sheet for assets do not equal the liquidation value of those assets (Marshall, p 44). Assets are recorded on the balance sheet as original cost, not current value or replacement cost. This is referred to as the cost principle. Objectivity means that accountants record transactions the same way in all situations (Marshall, p 45). Objectivity is achieved by recording transactions in dollars and applying the cost principle.Matching revenue and expense is necessary to show economic activities during the accounting period accurately. Basically, this means that all expenses which...

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