Financial Reporting Manuals

Written by Patricia Tunstall
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Publicly owned companies are subject to many requirements regarding financial analysis and financial reporting. Accountants or controllers should have financial reporting manuals consisting of the company's "critical accounting policies and practices." This Securities and Exchange Commission (SEC) phrase was recently emphasized and reiterated in order to reaffirm accepted standards of accounting.

Generally accepted accounting principles (GAAP) comprise the thousand-page book published by the Financial Accounting Standards Board (FASB). This private-sector Board establishes GAAP for the SEC, which has the actual statutory authority to oversee the financial operations of companies. GAAP should be the foundation of accounting practices, and of financial reporting manuals.

Legislation after Scandal

After the recent indictments in the accounting and financial world, Congress passed the Sarbanes-Oxley Act of 2002. As a direct result of the increase in "pro forma" (non-GAAP) financial information from companies, this Act implements measures to ensure proper accounting and auditing practices to protect investors. The clear legislative demand for auditor independence should remind accountants and controllers of the need to base their reports on conforming financial reporting manuals.

In addition to federal oversight and authority, the American Institute of Certified Public Accountants (AICPA) joins the FASB in supervising the private sector. Even today, all relevant agencies are working to improve adherence to GAAP, and to add preventive rules. For example, the effect of stock options on expenses is an addition to the financial reporting requirements.

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