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Intermediate Accounting

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Financial Accounting Standards Board The Financial Accounting Standards Board (FASB) has been the assigned organization in a private sector for establishing standards. These standards are important to be useful because it allows investors to make informed decisions. Financial information must be reliable, consistent and transparent. Since 1973, FASB has been part of a structure that’s independent of all other business and professional organizations. The rest of the parts are Financial Accounting Foundation (FAF), Financial Accounting Standards Advisory Council (FASAC), Governmental Accounting Standards Board (GASB) and Governmental Accounting Standards Advisory Council (GASAC).
The role of monitoring and controlling business reporting and accounting practices in a modern organization is to establish and improve standards of financial accounting. FASB has a board full of members that participate in accomplishing the mission. There are 7 board members as well as several staff members that help assist. The board members are: * Russell Golden is a chairman. He began in July of 2013. He served six years as a staff member (technical Director) for the FASB before he got appointed to the chairmen. His term will end in 2017, but then he can get an appointment to an additional 3 more years. He is also chaired in FASB’S emerging issues task force. * James Kroeker is the vice chairman. He was appointed in September 2013. He served as the deputy managing partner for professional practice in Deloitte. Before that, he was the chief accountant of the Securities and Exchange Commission in 2009. He served as the senior accounting professional for the commission and the principal advisor to the commission on all accounting and auditing matters. Jim was also responsible for resolution of a wide range of globally significant accounting and auditing issues. * Daryl Buck became a board member to the FASB in 2011. Daryl was also reappointed in 2015 for a second term. Before he joined the board, he spent 18 years as Senior President and Chief Financial Officer of Reasor’s Holding Company. * Thomas was appointed in July 2006 and also served a second term in 2011. He is an award-winning teacher and researcher. He served as Academic Fellow and Special Consultant to the Office of the Chief Accountant. * Harold Schroeder joined in 2011 and then served a second term in 2015. He brings over 30 years of diverse experience. He also brings a strong investor perspective to the FASB. He has 15 years of experience working with all the facets of the investment community. * Marc Siegal was appointed in 2008 and served a five-year term in 2013.he spent five years as a Director, technical application and Implementation Activities. He also served as Chairman of its Emerging Issues Task Force. * Lastly, Lawrence Smith joined in 2007 and reappointed in 2012 for a second five-year term. He was a Director, Technical Application and Implementation Activities of the FASB for five years. He managed FASB activities related to the application and implementation issues as well he served Ias a Chairman of its Emerging Issues Task Force.
FASB has the responsibility to appoint members to the board. The board members have three to five-year terms and also can be appointed for another three to five years after their first term. There is also almost seventy staff members that assist the board members. FAF has charged FASB with the responsibility of looking for financial inconsistencies on behalf of the Securities and Exchange Commission (SEC) that has the authority to formulate and report financial guidelines for businesses across the United States. SEC’s dependency on the private sector led to the establishment of the seven-member board that regulates the financial matters of many businesses (Mead, 1990). FAF demands the neutrality and self-reliance of the seven members of FASB by ensuring that they end their ties with any other companies.
In a capital market, it is important to have useful financial information to allow investors to make decisions. Financial information must be consistent and transparent. Being transparent allows investors, creditors and the market to properly evaluate a business entity. Having it transparent and easy to understand is to increase the confidence of markets fairness and the companies to use to evaluate the effectiveness of management and to make the right decision when a problem may arrive. Being transparent also increases confidence in the fairness of the market. This is why GAAP was created. GAAP, (Generally Accepted Accounting Principles) is a set of standards and procedures that companies use to collect their financial statements. They were created to protect the companies, investors, and stakeholders from questionable accounting practices. It also helps to hold the companies responsible for their financial reporting activities. It maintains consistency in reporting financial information and to reduce the risk of fraud and error. If GAAP didn’t exist, companies couldn’t provide accurate or consistent information to the investors, creditors or stakeholders. FASB has helped to protect the stakeholder’s interest by creating the standards for the financial reporting. In the article on the importance of GAAP, Sabah Karimi writes, “most companies in the United States adhere to Generally Accepted Accounting Principles to maintain consistency in reporting of financial information and reduce the risk of fraud and error. The principles have been derived from traditional accounting systems and can be adapted to an organization’s management style and industry. If GAAP didn’t not exist, companies would not be able to provide accurate and consistent financial information to investors, creditors ad stakeholders of a company” (Karimi, 2008).
The Securities and Exchange Commission (SEC), was created by the Securities Act of 1933 and the Securities Act of 1934. SEC has the primary responsibility for enforcing the federal securities laws, proposing securities rules, and regulating the securities industry, the nation's stock and options exchanges, and any other activities and organizations, including the electronic securities markets in the United States. SEC establishes standards for preparing and auditing the financial statements of publicly held companies. The SEC was given authority to set accounting standards and were in charge of the activities of auditors. The American Institute of Certified Public Accountants (AICPA) originally set the guidelines that accountants follow. From 1936-1959, the Committee on Accounting Procedure was the committee that was originally responsible for defining accounting principles for the AICPA. It was replaced by the Accounting Principles Board of the AICPA in 1959. The Accounting Principles Board Remained responsible for establishing accounting principles until 1973. In 1973, the AICPA and Accounting Principles Board had to move the responsibility to the Financial Accounting Standards Board, a non-profit company that was appointed by the SEC.
The FASB standards are set as the primary level of GAAP, which is the framework for the accounting field. The standards are set forth recognition, measurement and disclosure principles to be used in preparing financial statements. The FASB has the power to set but not to enforce the accounting standards. FASB also develops accounting concepts. These concepts make up the conceptual framework and are useful in resolving issues. According to FASB website, “The mission of FASB is to establish and improve standards of financial accounting and reporting that foster financial reporting by nongovernmental entities that provides decision-useful information to investors and other users of financial reports. That mission is accomplished through a comprehensive and independents process that encourages broad participation, objectively considers all stakeholder views and is subject to oversight by the Financial Accounting Foundation’s Boards of Trustees.” (Facts about FASB) The FAF has established a review process to see if the FASB followed the correct process procedures when they issued standards and whether those standards are having the right effect. The FAF also has tried to hear directly from the stakeholders regarding the standards. The SEC monitors the FASB and the FAF to ensure that they continue to meet the SEC expectations and criteria that were set by the Sarbanes-Oxley act. FASB accounting standards have numerous inadequacies to business activities. First, accounting standards significantly influence the decision-making processes of companies as they dictate how firms demonstrate specific events on their financial statements. Second, financial accounting involves inflexible plans that make compliance with rules and regulations difficult for many companies. Normally, different companies experience difficulties in their attempts to comply with FASB rules and regulations. Therefore, financial accountants should manage the businesses’ financial experiences to adjust with the accepted accounting standards. Common mistakes such as imperfectly marking down the value of an inventory can result in understated ending inventory entry on the company’s financial records (Buthe & Mattli, 2005). The use of accounting standards that have been set by FASB is costly for most businesses to comply with rules and guidelines. Amendments to contain newly formulated standards require businesses to adjust decisions to cater for the requirements of the newly combined standards. As a result, businesses end up changing action plans to meet the usage costs of the standards. Furthermore, the provisions of FASB sometimes result in exaggeration of financial accounts. Jones and Cainas (2013) reveal that FASB presents some traditional accounting standard values for sales, profits, and possessions, which are below the minimum financial thresholds. This situation has lowered revenues and business possessions. Accounting standards have numerous paybacks that enable organizations to realize their targets. Buthe and Mattli (2005) advance that accounting standards are key players in any political economy, whether domestic or global. Perhaps, the greatest protection offered to businesses in the United States is the establishment of universal accounting principles. The board expects businesses to accept the set principles to minimize audits by the Internal Revenue Service and fines imposed by the SEC due to the violation of business regulations and rules. Second, the rules and regulations protect businesses from accounting problems and inadequacies. Spiceland (2011) Consider that the accounting standards serve as a tool for identifying and responding to problems that come from financial accounting. Owing to the integrity of the accounting standards, it has become possible for accountants around the world to identify and report common accounting issues to FASB for investigation, modification, or, maybe, formulation of new rules and regulations in favor of the businesses. Third, accounting standards protect businesses and stakeholder communities by providing suitable guidance to bookkeeping. FASB assumes the responsibility of reporting any new issues that arise in the field of accounting. The board creates awareness to accountants on matters that concern accounting standards to enable them maintain appropriate records of financial events (Spiceland., 2011). For instance, the financial world is in par with the development of technology. Development of financial software has led to accounting systems that have risen from technological innovations such as internet transactions. FASB protects businesses from such changes by assessing the necessities of the financial statements and business responses prior to formulation of any new accounting standards. Therefore, financial accountants benefit from the fact that the accounting standard passes through proper search to ensure that it satisfies the needs of every business. Lastly, FASB protects business operations in the United States to ensure that they operate on internationally accepted accounting standards (Jones & Cainas, 2013). Therefore, the universally accepted rules and regulations have eased financial reporting by improving the efficiency and fairness of reporting between different players who operate their businesses on both domestic and international arena (Spiceland, 2011). The FASB is an organization that appoints accounting standards. It is made up of 7 board members and 68 staff members. Having these standards are important because it allows investors to make informed decisions. Financial information must be reliable, consistent and transparent. FASB has been part of a structure that’s independent of all other business and professional organizations.

References
Buthe, T., & Mattli, W. (2005). Accountability in Accounting? The Politics of Private Rule-Making in the Public Interest. An International Journal of Policy, Administration, and Institutions, 18(3), 399-429

Spiceland, J. D., Sepe, J. F. & Nelson, M.W. (2011). Intermediate Accounting (6th ed.). New York, N.Y.: McGraw-Hill Irwin.

Tran, Lisa, Winter, 2012, http://www.willamette.com/insights_journal/12/winter_2012_2.pdf www.accountingfoundation.org Congress and the Accounting Wars. (1995). Retrieved from PBS: http://www.pbs.org/wgbh/pages/frontline/shows/regulation/congress/

Demski, J. S. (2003). Corporate Conflicts of Interest. The Journal of Economic Perspectives, 17(2), 51-72.

Facts about FASB. Retrieved from Financial Accounting Standards Board: www.fasb.org

John R. Haring, J. (1979). Accounting Rules and "The Accounting Establishment". The Journal of Business, 52 (4), 507-519.

Karimi, S. (2008, December 1). Why Is GAAP Important to Financial Statements. Retrieved from eHow: http://www.ehow.com/about_4623892_why-gaap-important-financial-statements.html

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