Financial Management: Federal Role in Setting and Enforcing Accounting and Auditing Standards Which Affect the Private Sector - GAO Report
|Date:||Feb. 20, 1985|
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Independent regulatory commissions
Pursuant to a congressional request, GAO discussed its review of federal entities which set accounting and auditing standards affecting publicly held companies. GAO believes that a comprehensive set of standards is necessary to ensure that companies follow the same rules and concepts in preparing financial reports and disclosures; however, questions have been raised regarding how well the auditing profession carries out its role. GAO found that most auditing standards are generalized, do not provide specific audit techniques or methodologies, and are not planned and conducted to identify fraud or illegal acts. The Securities and Exchange Commission (SEC) sets the rules for public reporting and requires audits of all public companies in accordance with certain standards. Its accounting rules, which were set up by the Financial Accounting Standards Board, and its auditing standards, which were set up by the Accounting Principles Board of the American Institute of Certified Public Accountants (AICPA), have become benchmark standards for public reporting and disclosure in the securities markets. However, some federal agencies involved with banking and financial institutions have a greater impact on financial reporting in some areas: (1) their accounting differs from the generally accepted rules; (2) each banking institution performs examinations on its loan portfolio, which is the largest single asset in a financial institution's statement; and (3) the positions taken by them concerning certain loan situations that banks have followed in their financial reports and auditors have accepted in their evaluations. GAO found that all of the federal organizations which were reviewed took some actions to help ensure that accounting requirements were met by the entities that report to them including requiring independent audits of company financial statements, performing bank examinations, or a combination of the two. Most federal agencies required compliance with either the standards issued by AICPA or GAO to help ensure a high degree of quality in their reviews.