Accounting -- Standards Setting Process

Who Sets Accounting Standards? The Financial Accounting Standards Board (FASB), American Institute of Certified Public Accountants (AICPA), Securities and Exchange Commission (SEC), and the International Accounting Standards Board (IASB) or! together to create ne and amend older standards in order to establish and maintain a common language for communicating financial information" The #assage of the Sarbanes$%xle& Act and the creation of the Public Com#an& Accounting %'ersight Board (PCA%B) signals man& signficant forthcoming changes in (AAP and the current standards setting #rocess" Sarbanes$%xle& Act of )**) American Institute of Certified Public Accountants (AICPA) Financial Accounting Standards Board (FASB) Securities + Exchange Commission (SEC) International Accounting Standards Board (IASB) Public Com#an& Accounting %'ersight Board (PCA%B) (enerall& Acce#ted Auditing Standards ( (AAS) (o'ernment Accounting Standards Industr& Accounting Practices Sarbanes$%xle& Act of )**)" The S$% Act as #assed as a direct result of a series of ma,or cor#orate financial accounting scandals" This legislation directl& im#acts accountants and attorne&s, officers and o ners of #ublicl& traded com#anies, as ell as bro!ers, dealers, in'estment ban!ers, and financial anal&sts" The Act, P- .*/$)*0, established the Public Com#an& Accounting %'ersight Board (PCA%B), res#onsible for registering, monitoring, in'estigating, and disci#lining the acti'ities of #ublic accounting firms, including establishing the guidelines for the conduct of se'eral !e& auditing #rocedures nd delineating the t&#es of ser'ices that CPAs are #rohibited from #ro'iding to audit clients" The Act additionall& sets forth a number of re1uirements for cor#ortions, their officers and Board members, b& redefining or!ing and re#orting relationshi#s ith their internal audit committee members and #ublic accounting firms, creating changes in internal controls #rocedures and enhancing financial disclosures" AICPA" %riginall&, the AICPA, the memberhi#s association for CPAs, as the bod& res#onsible for defining accounting standards"

.232$.242 $ issues Accounting 5esearch Bulletins (A5B) .242$.2/3 $ Accounting Princi#les Board (APB) issues series of o#inions .2/3 $ Accounting Princi#les Board disol'ed and standards setting res#onsibilit& is tranferred to FASB" The AICPA continues its role as authoritati'e bod& for establishing auditing standards (Statement of Auditing Standards, SAS)

In .2/3, the AICPA shifted its focus to su##orting it membersh# and constituenc& and bringing to the attention of the FASB and SEC issues that it determined im#ortant to the accounting and auditing #rofessional communities" 6hile the AICPA continued issuing auditing standards, this

res#onsibilit& is no being assumed b& the Public Com#an& Accounting %'ersight Board (PCA%B), a bod& created b& the Sarbanes$%xle& Act of )**)" The %'ersight Board7s recent authori8ation to become directl& in'ol'ed ith issues auditing standards could ha'e significant im#act on the current standards setting #rocess" FASB" Since .2/3 the FASB has been the organi8ation designated to establish authoritati'e financial accounting and re#orting standards (Statements of Financial Accounting Standards, SFAS) for business and other #ri'ate$sector entitites" Its mission is to be res#onsi'e to the entire economic communit& and to o#erate in full 'ie of the entire communit& through a due$#rocess s&stem" SEC" 9nder the Securities and Exchange Act of .230, the SEC has statutor& authorit& to establish financial accounting and re#orting standards for #ublicl&$held com#anies" 5ecent accounting$related scandals, such as Enron, #rom#ted the SEC and Congress to get more directl& in'ol'ed in the o'ersight of the standards setting #rocess and the monitoring of cor#orate go'ernance" In August )**), as #art of the Sarbanes$%xle& Act, the SEC7s Public Com#an& Accounting %'ersight Board (PCA%B) as created to crac! do n on cor#orate accounting scandals" Authori8ed to conduct ins#ections and disci#line accountants, the o'ersight board su##lants the self$regulation of CPAs ho audit #ublic com#anies" IASB" Formed in :anuar& )**., the ISAB re#laced its #redecessor, the International Accounting Standards Committee (IASC), as the international standards setting bod&" -oo!ing to ards greater formali8ation of international accounting standards, IASB is structured similarl& to the FASB" It is currentl& the focus of the IASB, in collaboration ith the FASB and other accounting focused organi8ations, to ;con'erge; standards and de'elo# a single, uni'ersall& acce#ted set of biding international accounting standards" The IASC, and no IASB, issue a series of standards !no n as International Financial 5e#orting Standards (IF5S), formerl& called International Accounting Standards (IAS)" PCAOB" Formed in )**) to o'ersee the audit of #ublic com#anies that are sub,ect to the securities la s in the #re#aration of informati'e, fair and inde#endent audit re#orts" The Board7s authorit& includes< ""5egistering #ublic accounting firms that #re#are audit re#orts for issuers ""Conducting ins#ections of registered #ublic accounting firms ""Conducting in'estigations and disci#linar& #roceedings and im#ose a##ro#riate sanctions ""Enforcing com#liance b& registered #ublic accounting firms relating to the #re#aration and issuance of audit re#orts and the obligations and liabilities of accountants ""Establishing auditing, 1ualit& control, ethics, inde#endence, and other standards relating to the #re#aration of audit re#orts for issuers Other Accounting Standards" Follo ing are the other ma,or accounting industr& standards" (enerall& Acce#ted Auditing Standards ((AAS)" Established b& the AICPA, thse stnadards go'ern the conduct of external audits b& #ublic accountants" The Statement of Auditing Standards (SAS) #ro'ide guidelines for the auditors7 field or! and financial re#orting" The&

frame the format and contents of the Auditor7s 5e#ort or %#inion, hich is the formal ex#ression of their examination of a com#an&7s financial statements" In =a& )**3, the PCA%B as gi'en the official go$ahead to assume res#nosibilit& for establishing (AAS" It remains to be seen exactl& ho the PCA%B7s ne role ill #la& out, its im#act on the AICPA7s res#onsibilities, and the form in hich the t o entities ill co$exist" (o'ernmental Accounting Standards ((AS)" 6hile (AAP defines the accounting for #ublic and #ri'ate business entities, there also exist standards s#ecific to go'ernmental organi8ations" %rgani8ed in .2>0 to establish standards of financial accounting and re#orting for state and local go'ernmental entities, the (o'ernmental Accounting Standards Board ((ASB), began issues these standards to guide the #re#aration of external re#orts for these t&#es of organi8ations" Industr& Accounting Practices" Some industries ha'e created their on accounting #ractices to fill ga#s not co'ered b& floors .$0 of (AAP" Thse #ractices are often a'ailable in #rint #ublications issued b& the o'erseeing industr& association" %n occastion the& are also #osted on the assoications eb site" Exam#les of industries hich ha'e ado#ed their o n #ractices are healthcare and insurance"