According to Merriam-WebsterÃÂs dictionary, accounting is a system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the results.ÃÂ The purpose of accounting is to provide financial and business information to possible investors, current investors, and management so they can make accurate decisions concerning the company. The United States has laws and systems set into place to ensure the honesty and integrity of a companyÃÂs financial records. Some of these systems include the Securities Exchange Act of 1934, Sarbanes-Oxley Act, Federal Accounting Standards Advisory Board, and Generally Accepted Accounting Principles (GAAP).
Securities Exchange Act of 1934In 1934, five years after the stock market crashed and the Great Depression began, The Securities Exchange Act of 1934 was created. By changing the current laws and creating new laws, the purpose of The Securities Exchange Act was to maintain integrity of the market and to protect its investors.
The Securities and Exchange Commission was created after The Securities Exchange Act was created in order to protect United States investors from malpractice in both the securities and financial markets (Huddart, 2007).
Sarbanes-Oxley ActThe Sarbanes-Oxley Act went into effect on November 15, 2002. It is designed to deter financial malpractice and accounting scandal. Often, it is referred to as SOX, SarbOx, or SOA. Democratic Senator Paul Sarbanes from Maryland and Republican Representative Michael Oxley from Ohio, both congressmen, are the men who pushed the Act through and are credited by name. The Act generally covers governance issues, especially those dealing with trade. The Act protects ÃÂwhistleblowersÃÂ, those people who come forth with incriminating information about activities within their company. This becomes especially important with the increasing prosecution following Sarbanes-Oxley, as those who do not want to be involved will have the responsibility to come forth with information (Soxlaw, 2006).