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FASB (Financial Accounting Standards Board) The Financial Accounting Standards Board (FASB) is a seven-member quasi-governmental board to whom the U.S. Securities and Exchange Commission looks to establish standards for financial accounting and reporting for publicly traded companies in the U.S. The FASB is independent of all other business and professional organizations. The body of rules and auditing standards created by the FASB is called Generally Accepted Accounting Principles (GAAP). Independent Certified Public Accountants (CPAs) follow GAAP rules when auditing a company before issuing an opinion about the accuracy of the financial statements prepared by their client. Some privately held companies may also ask their independent CPA firm to certify that their financial statements comply with GAAP, but there is no statutory requirement that privately held companies undergo such a rigorous audit. Companies and their accountants have considerable discretion within GAAP to prepare financial statements. Accounting professionals are often able to subtly manipulate financial statements to highlight the company's financial strengths and downplay its weaknesses even when those statements are subject to an audit conducted by a CPA firm. While a CPA firm is in theory completely independent from the company under audit, the client generates revenues and profits for the CPA firm. Disputes between the auditor and the client company are frequently resolved through negotiation and compromise, and the client company always has the option of firing the CPA firm if it believes the independent auditors are not exercising a certain amount of discretion in their comments, requests, and criticisms. Thus, even audited financial statements that include an Unqualified Opinion Letter from a CPA firm are subject to some degree of manipulation. Source: "Credit and Collection Manager's Manual" edited by Michael Dennis and Steven Kozack. |
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