Page 79 - The Handbook: Law and Accounting Networks and Associations 2019
P. 79
Law and Accounting Networks and Associations
In 1933, Congress passed the Securities Act. The law mandated that public companies would be audited. The
Securities and Exchange Commission was created to write and enforce regulations. They placed the
government in direct confrontation with the self-made rules of the accounting profession.
On one hand the accounting firms saw the regulations as a boon to business. The law required that they be
engaged to audit companies. The audit requirement meant that the company’s overseas operations required
auditing. This led to the expansion of the Big 8 and ultimately to the 40 networks that now exist.
On the other hand, the standards established by the SEC were very strict. Accounting firms that did not follow
the letter and spirit of the law could find themselves in serious trouble. After each scandal the SEC set
additional and sometimes stricter standards.
In the accounting profession there are many different organizations that regulate accountants and accounting
networks. Some are official government bodies, as discussed in Chapter 2, while others are self-regulatory
organizations that seek to harmonize accounting standards. The current debate on the accounting standard is
between the Financial Standards Accounting Board,331 which establishes the Generally Accepted Accounting
Principles (GAAP) and rules found in the International Accounting Standards Board’s332 International
Financial Reporting Standards (IFRS).333 There is also the Public Company Accounting Oversight Board
(PCAOB) created by the Sarbanes-Oxley Act, a private-sector, nonprofit corporation to oversee the audits of
public companies and other issuers in order to protect the interests of investors and further the public interest
in the preparation of informative, accurate, and independent audit reports.334 The PCAOB has a very sizable
budget of more than $250 million for fiscal year 2014.335 The SEC would like to see one set of quality
standards.336
Accounting firms have become increasingly subject to governmental and association regulations. Many of the
regulations are self-regulations in that governments do not require them. These rules have implications as to
how network members can provide services to their clients ranging from quality control standards to conflicts
of interest. They also affect how accounting firms can compete among themselves for particular types of work.
The International Federation of Accountants (IFAC)337 is an independent accounting organization covering 2.4
million accountants in one self-regulatory body. Under its regulations the accounting firms created the Forum
of Firms and Transnational Auditors Committee in 2002. There are currently 27 members.338 The purpose is
to set standards for firms wishing to accept international audits. They agree to promote International Standards
on Auditing (ISA). They must support the convergence of national standards and adopt the IFAC’s code of
331 The Financial Accounting Standards Board (FASB) is a private, not-for-profit organization whose primary purpose is to develop generally accepted
accounting principles (GAAP) within the United States in the public's interest. The Securities and Exchange Commission (SEC) designated the FASB
as the organization responsible for setting accounting standards for public companies in the U.S. It was created in 1973, replacing the Committee on
Accounting Procedure (CAP) and the Accounting Principles Board (APB) of the American Institute of Certified Public Accountants (AICPA). Financial
Accounting Standards Board, WIKIPEDIA, en.wikipedia.org/wiki/Financial_Accounting_Standards_Board.
332 IFRS, www.ifrs.org/The+organisation/IASCF+and+IASB.htm. The International Accounting Standards Board (IASB) is an independent, privately-
funded accounting standard-setter based in London, England. The IASB was founded on April 1, 2001 as the successor to the International Accounting
Standards Committee (IASC). It is responsible for developing International Financial Reporting Standards (the new name for International Accounting
Standards issued after 2001), and promoting the use and application of these standards. International Accounting Standards Board, WIKIPEDIA,
http://en.wikipedia.org/wiki/International_Accounting_Standards_Board.
333 Id.
334 Public Company Accounting Oversight Board, WIKIPEDIA, en.wikipedia.org/wiki/Public_Company_Accounting_Oversight_Board.
335 Michael Cohen, PCAOB to Focus on Accounting Firms Growing Consulting Practices, ACCOUNTING TODAY (Nov. 23, 2013),
www.accountingtoday.com/news/PCAOB-Focus-Accounting-Firms-Growing-Consulting-Businesses-68855-1.html.
336 Press Release, SEC, SEC Approves Statement on Global Accounting Standards (Feb. 22, 2010) (www.sec.gov/news/press/2010/2010-27.htm).
337 International Federation of Accountants, WIKIPEDIA, en.wikipedia.org/wiki/International_Federation_of_Accountants.
338 BDO, Constantin Associates Network, Crowe Horwath International, Deloitte Touche Tohmatsu Limited, Ernst & Young Global Limited, Grant
Thornton International Ltd., HLB International , IECnet, INPACT Audit Limited, JHI, JPA International, KPMG International Cooperative, Kreston
International, Mazars, Moore Stephens International Limited, PKF International Limited, PricewaterhouseCoopers International, RSM International
Limited, Russell Bedford International, SMS Latinoamérica, Talal Abu Ghazaleh & Co. International, UHY International Limited. Forum of Firms,
INT’L FED. OF ACCOUNTANTS, www.ifac.org/Forum_of_Firms/; www.ifac.org/system/files/uploads/TAC-FoF/Fact-Sheet-FoF-TAC.pdf.
67
In 1933, Congress passed the Securities Act. The law mandated that public companies would be audited. The
Securities and Exchange Commission was created to write and enforce regulations. They placed the
government in direct confrontation with the self-made rules of the accounting profession.
On one hand the accounting firms saw the regulations as a boon to business. The law required that they be
engaged to audit companies. The audit requirement meant that the company’s overseas operations required
auditing. This led to the expansion of the Big 8 and ultimately to the 40 networks that now exist.
On the other hand, the standards established by the SEC were very strict. Accounting firms that did not follow
the letter and spirit of the law could find themselves in serious trouble. After each scandal the SEC set
additional and sometimes stricter standards.
In the accounting profession there are many different organizations that regulate accountants and accounting
networks. Some are official government bodies, as discussed in Chapter 2, while others are self-regulatory
organizations that seek to harmonize accounting standards. The current debate on the accounting standard is
between the Financial Standards Accounting Board,331 which establishes the Generally Accepted Accounting
Principles (GAAP) and rules found in the International Accounting Standards Board’s332 International
Financial Reporting Standards (IFRS).333 There is also the Public Company Accounting Oversight Board
(PCAOB) created by the Sarbanes-Oxley Act, a private-sector, nonprofit corporation to oversee the audits of
public companies and other issuers in order to protect the interests of investors and further the public interest
in the preparation of informative, accurate, and independent audit reports.334 The PCAOB has a very sizable
budget of more than $250 million for fiscal year 2014.335 The SEC would like to see one set of quality
standards.336
Accounting firms have become increasingly subject to governmental and association regulations. Many of the
regulations are self-regulations in that governments do not require them. These rules have implications as to
how network members can provide services to their clients ranging from quality control standards to conflicts
of interest. They also affect how accounting firms can compete among themselves for particular types of work.
The International Federation of Accountants (IFAC)337 is an independent accounting organization covering 2.4
million accountants in one self-regulatory body. Under its regulations the accounting firms created the Forum
of Firms and Transnational Auditors Committee in 2002. There are currently 27 members.338 The purpose is
to set standards for firms wishing to accept international audits. They agree to promote International Standards
on Auditing (ISA). They must support the convergence of national standards and adopt the IFAC’s code of
331 The Financial Accounting Standards Board (FASB) is a private, not-for-profit organization whose primary purpose is to develop generally accepted
accounting principles (GAAP) within the United States in the public's interest. The Securities and Exchange Commission (SEC) designated the FASB
as the organization responsible for setting accounting standards for public companies in the U.S. It was created in 1973, replacing the Committee on
Accounting Procedure (CAP) and the Accounting Principles Board (APB) of the American Institute of Certified Public Accountants (AICPA). Financial
Accounting Standards Board, WIKIPEDIA, en.wikipedia.org/wiki/Financial_Accounting_Standards_Board.
332 IFRS, www.ifrs.org/The+organisation/IASCF+and+IASB.htm. The International Accounting Standards Board (IASB) is an independent, privately-
funded accounting standard-setter based in London, England. The IASB was founded on April 1, 2001 as the successor to the International Accounting
Standards Committee (IASC). It is responsible for developing International Financial Reporting Standards (the new name for International Accounting
Standards issued after 2001), and promoting the use and application of these standards. International Accounting Standards Board, WIKIPEDIA,
http://en.wikipedia.org/wiki/International_Accounting_Standards_Board.
333 Id.
334 Public Company Accounting Oversight Board, WIKIPEDIA, en.wikipedia.org/wiki/Public_Company_Accounting_Oversight_Board.
335 Michael Cohen, PCAOB to Focus on Accounting Firms Growing Consulting Practices, ACCOUNTING TODAY (Nov. 23, 2013),
www.accountingtoday.com/news/PCAOB-Focus-Accounting-Firms-Growing-Consulting-Businesses-68855-1.html.
336 Press Release, SEC, SEC Approves Statement on Global Accounting Standards (Feb. 22, 2010) (www.sec.gov/news/press/2010/2010-27.htm).
337 International Federation of Accountants, WIKIPEDIA, en.wikipedia.org/wiki/International_Federation_of_Accountants.
338 BDO, Constantin Associates Network, Crowe Horwath International, Deloitte Touche Tohmatsu Limited, Ernst & Young Global Limited, Grant
Thornton International Ltd., HLB International , IECnet, INPACT Audit Limited, JHI, JPA International, KPMG International Cooperative, Kreston
International, Mazars, Moore Stephens International Limited, PKF International Limited, PricewaterhouseCoopers International, RSM International
Limited, Russell Bedford International, SMS Latinoamérica, Talal Abu Ghazaleh & Co. International, UHY International Limited. Forum of Firms,
INT’L FED. OF ACCOUNTANTS, www.ifac.org/Forum_of_Firms/; www.ifac.org/system/files/uploads/TAC-FoF/Fact-Sheet-FoF-TAC.pdf.
67
