Regulation and Standards in Financial Accounting

Question 1

Securities and Exchange Commission (SEC)

Answer 1

The federal government agency that regulates the sale if securities and the operations of securities exchanges. This agency also has overall responsibility for the format and content of financial statements.

Question 2

Financial Accounting Standards Board (FASB)

Answer 2

A private organization whose mission is to establish and improve the standards of financial accounting and reporting for private businesses.

Question 3

Government Accounting Standards Board

Answer 3

The identical responsibilities as the FASB agency but is for businesses that are partially or totally funded by the government.

Question 4

American Institute of Certified Public Accounting (AICPA)

Answer 4

The professional association of public (financial) accounts.

Question 5

Name one standard setting organization

Answer 5

FASB

Question 6

Generally Accepted Accounting Principles (GAAP)

Answer 6

The set of guidleines that has evolved to foster the consistent preparation and presentation of financial statements.

Question 7

What is the final step in the financial statement quality assurance process?

Answer 7

external audit

Question 8

Unqualified Opinion

Answer 8

“clean bill of health” in the auditors view the financial statements conform to GAAP

Question 9

Qualified Opinion

Answer 9

The auditor has some reservations about the statement

Question 10

Adverse opinion

Answer 10

The auditor believes that the statements do not present a fair picture of the financial status of a business.

Question 11

Sarbanes-Oxley Act (SOX)

Answer 11

measure to improve transparency in financial accounting and to prevent fraud

Question 12

Why are widely accepted principles for the measurement and recording of economic events

Answer 12

The GAAP rules are important for consistency, transparency, reliability, and decision making.

Question 13

What entities are involved in regulating the development and presentation of financial statements?

Answer 13

SEC
FASB
Government Accounting Standards board
AICPA
Sox

Question 14

What does GAAP stand for, and what is the primary purpose?

Answer 14

GAAP stands for Generally Accepted Accounting Principles. It is the set of rules for financial statement preparation.

Question 15

What is the purpose of the auditor’s opinion?

Answer 15

The auditors opinion verifies that someone other than a member of the organization looked at the financial statement and declares if it is either an unqualified, qualified, or adverse opinion.

Question 16

What is the purpose of the Sarbanes-Oxley Act (SOX), and what are some of its provisions.

Answer 16

SOX is a measure set to improve transparency in financial accounting and to prevent fraud.
-There is a board to oversee the audit process.
-Auditors cannot consult for the same organization they audit
-auditors must rotate company’s every 5 years
-managers involved in audits cannot have been employed by the auditing firm during one year preceding the audit.
-The CEO or CFO must certify that the financial statements are complete and accurate.