![]() The United States controls some $15 trillion in foreign assets, and the global capital markets depend on a constant flow of useful and understandable financial information from U.S. Moreover, this need applies across the international landscape of our increasingly global economy. Today, the need for relevant comparable financial reporting is greater than ever. Today, the FASB remains at the forefront of fulfilling the SEC’s mandate on behalf of the U.S. Throughout its history, the SEC has relied on the private sector to create and implement accounting standards. Today owners of municipal bonds, members of citizen groups, legislators, and oversight bodies rely on this financial information to shape public policy and make wise investments. In 1984, the Government Accounting Standards Board (GASB) was formed under the FAF umbrella to issue standards and other communications that result in decision-useful information for users of government financial reports. Through the FAF, the FASB in 1973 became the designated standard-setter in the private sector for setting standards that govern the preparation of corporate financial reports along with not-for-profit organizations. Following a detailed study, the accounting profession in 1972 recommended creation of a new body, the Financial Accounting Foundation, to serve as the nation’s accounting standard-setting authority. SEC Commission, 1936 (Courtesy, SEC Historical Society)īy the 1970s, market participants’ thinking about accounting standard setting evolved, as they came to believe in the importance of an independent standard-setting structure, separate and distinct from the accounting profession-so that the development of standards would be insulated from the self-interests of practicing accountants and their clients. Shortly thereafter, passage of the Securities Act of 1934 chartered the Securities and Exchange Commission, and gave the SEC the power to oversee accounting and auditing methods.įor nearly 40 years, the SEC looked to bodies established by the accounting profession to develop and establish accounting standards. In 1930, the American Institute of Accountants (known as the AICPA since 1957) and the New York Stock Exchange began an attempt to revise financial reporting requirements. Many market participants felt that poor accounting and reporting procedures helped cause the downturn. on the need for comprehensive accounting reform. The pivotal economic event of the 20th century, the Great Depression, focused the U.S. This type of analysis ushered in a new system of data reporting that benefited GM, its investors and the highly competitive automobile industry. As a result, the company could adapt more quickly to market changes and make better decisions regarding investments. ![]() General Motors, by presenting its financial information in the form of ratios such as return on investment and return on equity, was able to provide the market with more detailed and useful metrics. automobile industry in the 1920s can partially be attributed to accounting modernization. That information must be clear, concise, comparable, relevant and representationally faithful.įor many years, public companies themselves took the lead in accounting innovation. Citizens can use this information to decide where public officials are spending tax dollars. Donors, including foundations and grantors, can use this information to decide where to donate. ![]() Investors and lenders can use this information to decide where to supply resources or lend money. GAAP.Ĭompanies, not-for-profits, governments, and other organizations use accounting standards as the foundation upon which to provide users of financial statements with the information they need to make decisions about how well an organization or government is managing its resources. Generally Accepted Accounting Principles-or U.S. Those rules are known collectively as U.S. The accounting standards developed and established by the FAF’s standard-setting boards-the Financial Accounting Standards Board and the Governmental Accounting Standards Board-are the rules that determine how that language is written. ![]() Financial reporting-balance sheets-income statements-financial notes and disclosures-is the language we use to communicate information about the financial condition of a company, public or private, a not-for-profit organization, or a state or local government. ![]()
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