In financial transactions, trust is an essential ingredient. The financial reporting process helps people to create trust. However, these financial statements have to be trusted. The financial reporting process is a mean of increasing the trust placed by people in the entities which they deal through the financial statements which are prepared by accounting profession. This paper will discuss the accounting principles and theories, the creation of accounting governing organization, and public perception of CPAs in today's society, pitfalls that they may encounter, and consequences they may face should they fall short.
Accounting Theories and Principles
What is accounting? Accounting is a process to identify measure and communicate the economics information about a company, an organization, or an entity (Marshall, McManus & Viele, 2004). The major reason for studying accounting is to acquire the knowledge and skills to participate in important economic decisions. Because it is important that users who receive accounting reports be able to interpret them, a set of practices has developed that provides guidelines for financial accounting.
This set of guidelines is called generally accepted accounting principles or GAAP. GAAP arise from wide agreement on the theory and practice of accounting at a particular time. These principles are developed by accountants and businesses to serve the needs of decision makers, and they can be changed or altered as better method evolved or as circumstances change. It is important to understand that accounting is a discipline that is always growing, changing and improving. Among the organizations that influence te formulation of GAAP are the Financial Accounting Standard Board, the American Institute of Certified Public Accountants, the Securities and Exchange Commission, and the Internal Revenue Service.
As mentioned above, many organizations directly or indirectly influence GAAP. The most important of these organizations are the Financial Accounting Standards...