Rules are as important in finance because they are in any other area of business. Accounting finance involves the voluntary effort of the business to compile their financial paperwork, in addition to the mandatory consideration of rules that are regulated by organizations which have standardized these accounting methods.
It has been around for quite a while to simply help businesses organize their financial information. If no regulation existed, financial statements might have no commonality, and will be too hard to see and manage. The accounting standards that exist today have evolved over time and energy to the machine of rules that exists today.
In 1973, the Financial Accounting Standards Board (FASB) was established to take the area of the Accounting Principles Board (APB) to be able to review and analyze the problems that are brought for their attention in the field of accounting. The procedure of reviewing these issues is long and tedious but necessary to the maintenance of the conventional rules for accounting finance. FASB makes pronouncements to the approach of those issues which are referenced by accountants in order that solutions can be found. self assessment uk
FASB is not a government agency and is financed on an exclusive basis. One of the financial supporters of FASB may be the AICPA, or the American Institute of Certified Public Accountants. Many CPAs are a part of this organization, and use FASB guidelines to be mindful of the behavior when conducting business.
The code that FASB established for financial statement preparation is named the Generally Accepted Accounting Principles (GAAP). Countries outside the United States have their particular guidelines which are much like GAAP and FASB, and globally, moves are being made to create a standardized approach to compliance to financial statement principles that might take years to implement.
As a standardized group of guidelines for the preparation of financial statements, GAAP provides users of those statements a conclusive approach to determining how reliable those statements are. Users of financial statements know that statements that not follow the GAAP are less apt to be reliable data to determine the profitability of a business by. Businesses that elect to stray from the GAAP guidelines should inform their readers that they don’t follow GAAP.
Publicly traded companies may also be bound by the rules and guidelines of the Securities Exchange Commission (SEC) which ensure the protection of investors. The SEC is creating their particular standards also.
Executive level pay is based upon company performance. If the performance of a company is not reported in a proper manner, executives generate income that far exceeds what the business is effective at and creates a false picture of a company’s performance. This false reporting causes the stock market to balloon by rewarding stock to companies who do not deserve it, and these methods have a negative impact on our economy.