1.01 Generally Accepted Accounting Principles – Definition and Governing Bodies GAAP PowerPoint #1.

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Presentation transcript:

1.01 Generally Accepted Accounting Principles – Definition and Governing Bodies GAAP PowerPoint #1

What is GAAP? Generally Accepted Accounting Principles Defined as the set of accepted industry rules, practices and guidelines for financial accounting Includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of financial statements

Governing Bodies of GAAP AICPA FASB SEC Define: Security Securities Act of 1933 Securities Act of 1934 GASB

AICPA American Institute of Certified Public Accountants (CPA) Founded in 1887 Sets ethical standards for the CPA profession Sets U.S. auditing and GAAP standards Develops and grades the Uniform CPA Examination http://www.aicpa.org Information for this slide was obtained from the AICPA website at www.aicpa.org

FASB Financial Accounting Standards Board Established in 1973 Establishes and improves standards of financial accounting by non- governmental entities (GAAP) www.fasb.org Information for this slide was obtained from the FASB website at www.fasb.org

SEC Securities and Exchange Commission Created by the Securities Act of 1933 and the Securities and Exchange Act of 1934 Holds the primary responsibility for: Enforcing federal securities laws Regulating the securities industry Regulating the stock market and Preventing corporate abuse of investors Information for this slide was obtained from the SEC website at www.sec.gov

SEC Authority Enforcement authority granted by Congress Bring civil enforcement actions against individuals and companies who: Commit accounting fraud Provide false information Engage in insider trading Violate securities laws Bring criminal enforcement actions to prosecute individuals and companies for criminal offenses Information for this slide was obtained from the SEC website at www.sec.gov

SEC Objectives Maintains fair, orderly and efficient security markets Ensures that securities industry professionals deal fairly with their customers Ensures that corporations make all material information about themselves public Facilitates capital formation for corporations www.sec.gov Information for this slide was obtained from the SEC website at www.sec.gov

Securities notes stock treasury stock security future bond debenture certificate of interest participation in any profit-sharing agreement Information for this slide was obtained from the SEC website at www.sec.gov The stock certificate was obtained from http://www.radioing.com/collins/pix04.html

Securities Act of 1933 Referred to as the Truth in Securities Law Two basic objectives: Requires that investors receive financial/significant information concerning securities offered for public sale Prohibits deceit, misrepresentations, and fraud in the sale of securities Information for this slide was obtained from the sec website at www.sec.gov

Securities Act of 1934 Empowers the SEC with broad authority over the securities industry Includes the power to register, regulate, and oversee Brokerage firms Transfer agents Clearing agencies Self-regulatory organizations New York Stock Exchange American Stock Exchange NASDAQ Empowers SEC to require periodic reporting by companies with publicly traded securities (GAAP) Information for this slide was obtained from the sec website at www.sec.gov

GASB Governmental Accounting Standards Board Established in 1984 To establish and improve standards of state and local governmental accounting and financial reporting (GAAP) www.gasb.org Information for this slide was obtained from the GASB website at www.gasb.org

Questions for Understanding and Discussion What is meant by GAAP? Why should all companies follow GAAP in reporting to external users of financial information? Explain the roles of each of the governing bodies in the setting of accounting standards.