Ethical and Legal Obligation Paper

Introduction

Ethical and legal obligations in financial reporting has made its way into the public spot light in the United States over the last several years. The accountants who do financial reporting should be expected to act in the highest standards of legal and ethical business conduct. Unethical financial reporting can cause major problems, not only within an organization, but also for the economy. As seen in the Enron scandal unethical financial reporting affects individuals, investors, companies and the economy as a whole.

The Relationship among the FASB, SEC, and PCAOB

There are organizations who watch over accounting practices to ensure companies are providing fair and balanced account reporting. The three main organizations who watch over the financial reporting of corporate America are the Financial Accounting Standards Board (FASB), the U. S. Securities and Exchange Commission (SEC), and the Public Company Accounting Oversight Boards (PCAOB). The Financial Accounting Standards Board (FASB) is responsible for developing Generally Accepted Accounting Principles (GAAP) for the accounting profession in the United States. The FASB was created in 1971 and is the organization within the private sector which establishes standards of financial accounting and reporting. The FASB (Financial Accounting Standards Board) has declared their mission is "to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors and users of financial information" (www.fasb.org). The FASB is comprised of a seven member appointed board and approximately seventy staff members. After the stock market crash in 1929 congress passed the Securities Act of 1933 and the Securities Exchange Act of 1933 in order to restore investor confidence in the financial market by providing some government oversight. The SEC consists of 5 commissioners appointed by the president of the United States and affirmed by the senate who serve 5 years terms. The SEC has approximately 31,000 staff members. The U. S. Securities and Exchange Commission (SEC) set the standards for financial statement disclosures for publicly held companies. The SEC was created in Organizations are expected to meet the standards set by the SEC or they will have to pay fines and penalties. The goal of the SEC is to protect investors. The SEC website states, " the SEC requires public companies to disclose meaningful financial and other information to the public, which provides a common pool of knowledge for all investors to use to judge for themselves if a company's securities are a good investment". The Public Company Accounting Oversight Board (PCAOB) was created by the Sarbanes-Oxley act of 2002 and is responsible for setting the generally accepted auditing standards for public companies. The SEC appoints the board members of the PCAOB. The PCAOB oversees the auditors of public companies in order to protect the interest of investors. The PCAOB makes sure that auditors are doing their jobs and the financial statements which are released from companies are accurate. All three of these agencies work together and strive to make sure there is fair and accurate financial reporting in America.

Explanations of basic accounting, theories, assumptions, and principles

Accounting has basic assumptions, theories and principles that is operates by which helps with the ethical aspect. There are three main assumptions accounting operate by. First, the going concern concept refers to the assumption that an entity will continue to operate in the future. Second, is the cost principle which refers to the assumption that transactions are recorded at their original cost when recorded in dollars. Third, is the assumption that accountant use objectivity when recoding financial information. This means accountants would record a transaction the same way in all different situations.

There are also several principles which are very important in financial reporting. First is consistency. It is essential