The definition of accounting according to Merriam-WebsterÃÂs dictionary is ÃÂthe 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 1934. The Securities Exchange Act of 1934 was created in response to the stock market crash of 1929 and the Great Depression of the 1930s. Its primary purpose is to protect investors and maintain the integrity of the securities market by amending the current laws, creating new laws and seeing to it that those laws are enforced.
From the Securities Exchange Act of 1934 came the Securities and Exchange Commission, created to protect U.S. investors against malpractice in securities and financial markets (Huddart, 2007).
Sarbanes-Oxley Act. The 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. Two congressmen, Democratic Senator Paul Sarbanes from Maryland and Republican Representative Michael Oxley from Ohio, 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...