Need to Know About the Relationship between the SEC, the FASB and GAAP
By Michael C. Dennis, MBA, CBF
Financial accounting is concerned with providing useful and accurate
information to external users of a company's financial information.
This information takes the form of financial statements, footnotes
and periodic updates of current events of interest to third parties.
Financial statements for publicly traded companies must be prepared
in accordance with generally accepted accounting principles (GAAP).
Even tough the U.S. Securities and Exchange Commission [the S.E.C.]
has statutory authority to establish financial accounting and reporting
standards for publicly held companies under the Securities Exchange
Act of 1934, the SEC relies on the Financial Accounting Standards Board
[a seven member quasi governmental entity] to develop accounting rules
and standards to keep financial reporting accurate and honest.
Putting it all together, financial statements filed with the S.E.C.
by public companies follow the GAAP accounting guidelines established
by the FASB - providing a consistent overview of the view of how companies
have performed financially at least in terms of GAAP accounting rules.