Generally Accepted

Accounting
Principles and More
Helen Winton, Marteca Soler-Bodden & Michael Sanford
Intro to Accounting ICCI
30 November 2016

Introduction
Group project for our

Intro to Accounting
class
Reason why we chose
to present on GAAP
Our goals for this
presentation
Contents of this
presentation

History of Governance in Accounting

SEC assigned FASB to create the GAAP (PricewaterhouseCoopers, 2016)
FASBs main function is to develop and implement GAAP (Levy, 2015)
GAAP was created to ensure that companies do not mislead investors by what

they portray
All 50 states prepare their financial statements under GAAP (The Comprehensive
Guide to Understanding GAAP)
Before the GAAP, the FASB and IASB coordinated to create universal framework
(Lugo, 2008)
Investors became concerned with reporting for consolidation of business
organizations (Levy, 2015)
The businesses affected were limited partnerships and related legal
organizations such as limited liability companies (PricewaterhouseCoopers LLP,
2015)

Companies who have Lehman

violated
GAAP
Brothers
Scandal

Ernest and Young

After the collapse of Lehman Brothers, there

were over 105 repo transactions which were
seen as fraudulent (McCool, 2010)
The SEC launched an investigation which
indicated that E&Y was assisting Lehman to
remove tens of billions of dollars from their
balance sheet without triggering a report
requirement (McCool, 2010)

In 2013 E&Y agreed to pay investors $99

million to settle litigation over its auditing of
the bankruptcy of Lehman (McCool, 2010)

This is the first time the government of the

US has gone after a major accounting firm
(McCool, 2010)

E&Y was accused in court of being reckless in

the extent of not examining the investment
(McCool, 2010)

In 2015, E&Y paid $10 million in fines and

settlement to the government (McCool, 2010)

Was the largest filing in US history

Was known as the fourth largest

investment bank (BBC News, 2008)

After accused of fraud, the

investigation focused on the
manipulation of audited financial
statements by Ernest & Young

Lehman Brothers acquired Hudson

Castle Group Inc. as an alter ego
(Story & Dash, 2010)

Attorney General Andrew Cuomo

filed the charges in December 2010
claiming that the firm was guilty of
accounting fraud

Over $600 billion in assets

(Mamundi, 2008)

Lehman Brothers Fraud Explained

Accounting
Principles
The
13 different types

Consistency Principle

States that, once you adopt an accounting

principle or method, you must continue to follow
it consistently in future accounting periods unless
the new version improves reported financial
results (Basic Accounting Principles, nd)

of accounting
principles are: Accrual,
Conservatism,
Full Disclosure Principle
Consistency, Cost,
Economic entity, Full Requires a company to provide the necessary
information so that people who are accustomed
disclosure, Going
to reading financial information can make
concern, Matching,
informed decisions (Basic Accounting Principles,
nd)
Materiality, Monetary
unit, Reliability,
Revenue recognition
and time period
principle (Basic
Accounting Principles,
nd)

Outline of Auditors Roles

All public companies must disclose information about their financial performance yearly.
The role of GAAP auditors is to ensure that these disclosures are accurate (Mullin, n.d)

Internal Auditors

Primary role is to review activities related

to risk management, internal controls, and
corporate governance to ensure overall
efficiency.
This is done by:

External Auditors

Primary role is to review balance-sheets,

financial statements and financial reporting.

This is done by:

Ensuring the board of directors and

management with assurance about the
effectiveness of financial reporting,
recording transactions, and regulatory
reports.

Evaluating the accounting, operating,

and administrative controls.

Ensuring that accurately record

transactions.

Providing them with a view of the

companys financial activities

Ensuring that they comply with laws,

regulations and policies.

Ensuring that management is

addressing current and prior control
deficiencies (Internal and External
Audits, 2003)

Providing them with information useful

to directors and management in
maintaining a banks risk management
processes (Internal and External Audits,
2003).

Ethical Considerations
Misappropriation of
assets

Otherwise known as
stealing or
embezzlement
Can happen at any
level of the company
(Freedman, n.d)
Ex: The CEO might
charge a family dinner
to the company instead
of paying for it
Ex: The receptionist
could take home office
supplies for school

Disclosure

Otherwise known as

ethical omission
Just like how
intentionally recording
transactions wrongfully
is considered financial
reporting, so is failing to
disclose information to
investors (Freedman,
n.d)
If the information
withheld is significant in
the investors decisions,

Summary Slides

Summary Points
History of
Governance in
Accounting
SEC assigned
FASB to create
the GAAP
GAAP was
created to
ensure that
companies do
not mislead
investors
All 50 states
prepare their
financial
statements
under GAAP
limited
partnerships
and related
legal
organizations

Companies
who have
Violated GAAP
SEC indicated
that E&Y was
assisting
Lehman in
criminal
activities
In 2013 E&Y
agreed to pay
investors $99
million to settle
issues
The court
accused E&Y of
being reckless by
not examining
the investment
In 2015, E&Y paid
$10 million in
fines and
settlement to the
government

Accounting
Principles
There are 13
different types of
accounting
principles
Accrual,

Conservatism,
Consistency, Cost,
Economic entity, Full
disclosure, Going
concern, Matching,
Materiality, Monetary
unit, Reliability,
Revenue recognition
and time period
The principle
consistency

principle states
that once you
adopt an
accounting
principle you must
continue to follow
it
The full-disclosure
principle renquires
a company to
provide the
necessary
information

Ethical
Consideration
s

Outline of
Auditors Roles
The role of GAAP
auditors is to
Misappropriation of
ensure that
company financial assets is also known
as stealing or
disclosures are
embezzlement
accurate
Internal
and External
auditors have
different roles
Primary role is to
review activities
related to risk
management,
internal controls,
and corporate
governance to
ensure overall
efficiency
Primary role is to
review balancesheets, financial
statements and
financial reporting.

Misappropriation of
assets can happen
at any level of the
company
Disclosure is also
known as ethical
omission
If the information
withheld is
significant in the
investors decisions,
it must be disclosed

Text References
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accounting-principles
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Freedman, J. (n.d.). What is an "Ethical Issue" in Financial accounting?. InSmallbusiness. Retrieved from
http://smallbusiness.chron.com/ethical-issue-financial-accounting-57889.html
Internal and External Audits Comptrollers Handbook (2003). Retrieved from
https://www.occ.gov/publications/publications- by-type/comptrollers-handbook/2003AuditHB.pdf
Levy, H. B. (2015). Was GAAP ever 'generally accepted'? The CPA Journal, 85(5), 12-13. Retrieved from
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Image and Video References

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QjHJ1065I M%3A
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Ratigan, D. (20110). Lehman Brothers. InYoutube.com. Retrieved from
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