Ethics in Business: Accounting Standards Accounting Standards

Ethics in Business: Accounting Standards

Accounting Standards

Ethics in Business

Accounting Standards

The objective of this work is to address the relationship among the FASB, SEC, and PCAOB and to provide explanations of basic accounting theories, assumptions and principles; and finally to evaluate the role of ethics in accounting.

Victor, G. & Levitin, M. (2004) Current SEC and PCAOB Developments -- September 2004. The national conference of the AICPA in relation to recent SEC developments convened in Washington D.C. And boasted more than 2,000 attendees from "accounting firms, private industry, and government" while representatives from the SEC, Public Company Accounting Oversight Board (PCAOB), FASB International Accounting Standards Board (IASB) and AICPA shared their knowledge on various issues. Key was ethical standards among items on the agenda of the professional attending the meeting." (Victor and Levitin, 2004)

AICPA

AICPA SEC Practice Section (SECPS) effectively changed its name and is now known as the Center for Public Company Audit Firms effective January 1, 2004. The focus of the AICPA is the development of technical and educational information for SEC- and PCAOB- related development for members of the firm; Provision of a forum for discussion of issues impacting public company audits inclusive of comments on rulemaking proposals; and finally AICPA assumes the role of liaison to both the SEC and PCAOB on behalf of member firms ... [as well as] ... administrate ring the peer review program applicable to member firms' private company audit practices." (Victor & Levitin, 2004)

PCAOB

The PCAOB was created by the Sarbanes-Oxley Act and is a non-profit organization that oversees the auditors of public companies, from the perspective of the investor's best interest. Victor & Levitin (2004) state: "The PCAOB is also charged with promulgating audits and related attestation and ethics standards for audits and review of public companies." The PCAOB is a non-profit, private-sector organization. CPA firms that intend to audit publicly held companies are required to register with PCAOB and firms that possess more than 100 public company clients is subject to inspection on an annual basis while other firms undergo inspection only one time every three years. The PCAOB auditing standard identified the following 13 key provisions:

Evaluating management's assessment.

Obtaining an understanding of internal control over financial reporting, including performing walkthroughs.

Identifying significant accounts and relevant assertions.

Testing and evaluating the effectiveness of the design of controls.

Testing operating effectiveness.

Timing of testing.

Using the work of others.

Evaluating the results of testing.

Identifying significant deficiencies.

Forming an opinion and reporting.

No disclosure of significant deficiencies.

Material weaknesses that result in adverse opinion on the financial statements.

Testing controls intended to prevent or detect fraud.

One thing that is commonly agreed upon is that the rules have become far too complicated in accounting. One such statement is that of Walter P. Scheueze, Charter member of PSAOB who states: "The rules for financial accounting and reporting in the U.S.A. have become vastly too voluminous, too detailed, too complex and too abstruse. . . . The volume and complexity of those pronouncements have become overwhelming"(Pollock, 2005) Further stated is: "The existence of an organization -- the FASB -- whose sole reason for being is to generate accounting rules naturally guarantees that there will be a continuous production of more rules, and that these rules and their interpretations will grow in complexity because of an inevitable internal dynamic. ... The phrase "generally accepted accounting principles" (GAAP) has come in time to mean the opposite of its original and apparent meaning. When introduced in the 1930s, the term actually meant what it seems to mean: those principles which are subscribed to and used by the majority of knowledgeable, reputable practitioners. It was bottom-up and descriptive in the common law mold. Now GAAP means those rules that are mandated by the FASB, whether or not they are generally accepted and even if they are generally opposed. This is top-down and prescriptive in the manner of statute law. The original meaning has disappeared, as the rules-based approach has become dominant." (Pollock, 2005)