Ethical and Legal Obligations Paper

Ethical and Legal Obligations Paper

Accountants have been working since the early 1900’s to establish rules and regulations pertaining to the accounting profession. But it was not until 1933 that the Securities and Exchange Commission obtain the authority to establish accounting principles for companies whose securities had to be registered with the SEC, from that point on other entities were created such as the Financial Accounting Foundation (FAF) which established the Financial Accounting Standards Board also known as FASB. Furthermore, the Sarbanes-Oxley Act of 2002 created the Public Company Accounting Oversight Board (PCAOB) after the scandals this country had faced with the public auditing firms. (Marshall, McManus, Viele, 2005).

First, let’s take a detail look at each entity. The Financial Accounting Standards Board (FASB) has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports. They are officially recognized as authoritative by the Securities and Exchange Commission (Financial Reporting Release No. 1, Section 101 and reaffirmed in its April 2003 Policy Statement) and the American Institute of Certified Public Accountants (Rule 203, Rules of Professional Conduct, as amended May 1973 and May 1979). Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors and others rely on credible, transparent and comparable financial information (FASB, par. 1, 2005).

The mission of the Financial Accounting Standards Board (FASB) 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. Accounting standards are essential to the efficient functioning of the economy because decisions