GAAP PowerPoint #1
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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
 AICPA
 FASB
 SEC
◦Define: Security
◦Securities Act of 1933
◦Securities Act of 1934
 GASB
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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
Financial Accounting Standards
Board
 Established in 1973
 Establishes and improves standards
of financial accounting by nongovernmental entities (GAAP)
 www.fasb.org
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Securities and Exchange Commission
Created by the Securities Act of 1933 and the
Securities and Exchange Act of 1934
Holds the primary responsibility for:
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Enforcing federal securities laws
Regulating the securities industry
Regulating the stock market and
Preventing corporate abuse of investors
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Enforcement authority granted by Congress
Bring civil enforcement actions against
individuals and companies who:
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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
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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
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notes
stock
treasury stock
security future
bond
debenture
certificate of interest
participation in any profit-sharing agreement
Referred to as the Truth in Securities
Law
 Two basic objectives:
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◦ Requires that investors receive
financial/significant information
concerning securities offered for public
sale
◦ Prohibits deceit, misrepresentations, and
fraud in the sale of securities
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Empowers the SEC with broad authority over the
securities industry
Includes the power to register, regulate, and
oversee
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Brokerage firms
Transfer agents
Clearing agencies
Self-regulatory organizations
 New York Stock Exchange
 American Stock Exchange
 NASDAQ
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Empowers SEC to require periodic reporting by
companies with publicly traded securities (GAAP)
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
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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.