Follow the Magical Accounting Rules

To make sure that financial statements are easy to understand, there is a set of rules and practices that is established, which is known as the Generally Accepted Accounting Principles (GAAP). This has been developed to provide a basic guideline for the rules of accounting because it can get confusing at times. Basically, it is a set of theories that accountants come to accept, and there are always controversies with some methods between accountants like any other fields of study.

Accounting is a discipline that is always growing and changing so it is a good idea to keep up to date with all the trends that are going on. Since the management prepares the financial statements of a company it is possible that a financial statement can be altered to give a company a particular boost. So, that is why the companies that sell their ownership to the public needs to get their financial statements audited by a Certified Public Accountant (CPA).

A CPA is licensed through the state for the same exact reason lawyers and doctors are, so they can protect the public by providing the highest quality of professional service possible. The reason why CPAs are used is because they have no connection with the company and are independent. They have zero financing ties with the company.

Some firms that employ a lot of CPAs include Deloitte & Touch, KPMG, and PricewaterhouseCoopers. An accountant with no strings attached or is independent commonly performs an audit, which is evaluating a company’s financial statements, product, accounting systems, and records. The main purpose of an audit is to make sure that the financial statements have been properly prepared according to the excepted accounting rules.

Since accounting is not a precise science it has room for interpretation according to the GAPP. An accountant can decide only when the financial statements conform to the guidelines of GAAP. In the past creditors, banks, and investors tend to favor an auditor when they are deciding to invest in a company or give loans, because of their independence.

The individualistic audit is an extremely crucial factor in the growth of financial markets internationally. Also, many organizations can directly or indirectly influence a GAAP. The Financial Accounting Standards Board (FASB) is the most critical body for the development and issuing of rules on accounting practice.

This independent body issues the Statements of Financial Accounting Standards. The American Institute of Certified Public Accountants (AICPA) is the official professional association for certified accountants. It is the largest CPA organization that exists in America and heavily influence accounting practices through its senior committees.

The Securities and Exchange Commission (SEC) is the agency of the federal government that has legal power to set and execute accounting practices for companies that sell security to the public, and it has a large impact on accounting practice. Next, the Governmental Accounting Standards Board (GASB) is critical for accounting because its main job is to issue the standards for accounting to the local and state governments in the United States. However, a lot of these organizations are focused on the rules and regulations in the United States.

There are a lot of businesses and accountants internationally so that is why the International Accounting Standards Board (IASB) was formed. It was approved by more than 25 international agencies. The United States laws that analyze the revenues for the cost of operating a business can also affect accounting practice.

It is no question that the major provider for income for the government comes from income tax. The income tax rules are heavily applied by the Internal Revenue Service (IRS).