The Important Rules of Accounting Finance

Rules are as important in finance as they are in any other area of business. Accounting finance involves the voluntary effort of the business to compile their financial paperwork, as well as the mandatory consideration of rules that are regulated by organizations that have standardized these accounting methods.

It has been around for a long time to help businesses organize their financial information. If no regulation existed, financial statements would have no commonality, and would be too difficult to read and manage. The accounting standards that exist today have evolved over time to the system of rules that exists today.

In 1973, the Financial Accounting Standards Board (FASB) was established to take the place of the Accounting Principles Board (APB) in order to review and analyze the problems that are brought to their attention in the field of accounting. The process of reviewing these issues is long and tedious but necessary to the maintenance of the standard rules for accounting finance. FASB makes pronouncements to the approach of these issues which are referenced by accountants so that solutions can be found.

FASB is not a government agency and is financed on a private basis. One of the financial supporters of FASB is 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 their behavior when conducting business.

The code that FASB established for financial statement preparation is called the Generally Accepted Accounting Principles (GAAP). Countries outside of the United States have their own guidelines which are comparable to GAAP and FASB, and globally, moves are being made to create a standardized method of compliance to financial statement principles which may take years to implement.

As a standardized set of guidelines for the preparation of financial statements, GAAP provides users of those statements a definitive method of determining how reliable those statements are. Users of financial statements know that statements that do not follow the GAAP are less likely to be reliable data to determine the profitability of a business by. Businesses that choose to stray from the GAAP guidelines should inform their readers that they do not follow GAAP.

Publicly traded companies are also bound by the rules and guidelines of the Securities Exchange Commission (SEC) which ensure the protection of investors. The SEC is creating their own standards also.

Executive level pay is based upon company performance. If the performance of a company is not reported in a proper manner, executives make money that far exceeds what the business is capable of and creates a false picture of a company’s performance.

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