Different organizations have different responsibilities for financial reporting. Company management prepares the statements, and the board of directors oversees management. An independent auditor examines evidence and expresses an opinion on the statements. The auditor does not take over management's responsibility.
The Financial Accounting Standards Board (FASB) establishes accounting standards for US nongovernmental entities. The Securities and Exchange Commission (SEC) regulates US securities markets and requires disclosures from companies within its reporting scope. The Public Company Accounting Oversight Board (PCAOB) oversees audits of public companies and SEC-registered brokers and dealers, which conduct securities transactions. Setting accounting standards, enforcing reporting requirements, and overseeing audits are separate responsibilities.
Follow the authority
Suppose an expense was left out of a company's financial statements. Management is responsible for correcting the statements. If the statements were audited, the audit work may also need examination. Those are separate questions: what went wrong in preparing the statements, and whether the audit met its requirements. Evidence of one failure does not by itself establish the other.
When assessing a reporting problem, identify the action in question and the organization responsible for it. An accounting standard setter does not prepare the company's ledger, and a regulator's oversight does not guarantee that every published statement is correct.
Put the concept to work
Understand this concept
- Explain how companies, standard setters, regulators, auditors, and audit oversight bodies contribute to financial reporting.
Analyze this concept
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Financial reporting institution — Understand
To analyze this concept: Required. Tracing accountability requires first separating each institution's role and source of authority.
- Financial statements — Understand
To understand this concept: Helpful. The learner should know what reports these institutions help define, oversee, audit, distribute, or use.
Lessons
Worked examples and cases
Practice
Common mistaken ideas
Sources
- About the Financial Accounting Standards Board
- About the Public Company Accounting Oversight Board
- IFRS Foundation: who we are
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Related concepts
Use this idea next
- Authoritative accounting guidance — Understand
Required level here: understand. Helpful. Authority depends on which institution has a recognized role in the stated reporting system.
- Chief operating decision maker — Understand
Required level here: understand. Helpful. The learner should distinguish an internal decision function from standard-setting and regulatory authority.
- Financial reporting institution — Analyze
Required level here: understand. Required. Tracing accountability requires first separating each institution's role and source of authority.
Used in these readings
These chapters explain or apply this concept. The label states how the chapter uses it.