1. AOF Principles of Accounting
Unit 1, Lesson 3
Regulatory Agencies/GAAP
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2. There are good reasons for regulations in the accounting industry
Regulation defines and promotes standards and expectations in the industry.
Impartial regulators can ensure a “level playing field”— fairness—for those affected by accounting.
Who should enforce accounting industry regulations?
Public and private regulators ensure the standards of the accounting industry are met.

3. The IRS enforces tax laws
The Internal Revenue Service (IRS):
Collects taxes
Has powers of enforcement—can levy fines and confiscate property
The relationship between the IRS and businesses or individuals is mandatory

4. The SEC protects investors
The SEC (Securities and Exchange Commission):
Protects investors and makes markets run smoothly
Requires disclosures and has powers of enforcement
Relies on the FASB to generate ideas which become regulations

5. The FASB establishes accounting principles that public companies must follow
The Financial Accounting Standards Board (FASB) is a private nonprofit organization that develops generally accepted accounting principles (GAAP).
Includes accounting guidelines used to create laws to protect individuals
GAAP guidelines are purposefully general so they may be usable to a wide variety of companies

6. Other organizations such as the AICPA also regulate accounting
The American Institute of Certified Public Accountants (AICPA):
Creates and administers the CPA exam
Defines, monitors, and enforces audit standards and behavioral guidelines for CPAs
Provides educational materials for its members
What are the pros and cons of public and private regulatory systems?

7. Financial reports must be objective, consistent, and unbiased
There are seven principles that guide all other rules that accountants follow:
Principle of regularity or principle of consistency
Principle of sincerity
Principle of permanence of methods
Principle of non-compensation
Principle of prudence
Principle of continuity
Principle of periodicity