Accounting is a critical part of any company. In a sense, it qualifies the company’s performance in a manner that allows others to gauge the company’s present performance and future prospects. Accounting is also important for the company top management to make growth and development forecasts and achieve them. It is interesting though that irrespective of which domain your company works in the accounting must remain the same. This can be quite challenging as every business has a different model, a different market dynamic. To standardize these, a specific set of rules and regulations have been developed that need to be adhered to, by any company while making the financial statements. These are called the Generally Accepted Accounting Principles (GAAP). Given the goal that GAAP tries to achieve, there are always some disputes on certain rules and practices. Nonetheless, GAAP is considered to be the common set of theories and practices accepted by the accountants
It is clear that GAAP is a complex set of rules that requires a specialist to understand and implement. Such specialists are called Certified Public Accountants (CPA). The CPAs are licensed professionals that are legally allowed to practice accountancy. They are very important to the financial system because they are the neutral, unbiased, third party that can conduct audits of the company’s financial statements. These audits are means of ensuring that the financial statements have been prepared in accordance with the GAAP. Given their generality, it is interesting to note that GAAP is a set of principles open to interpretation by the accountants. The audits are vital for government to find out whether the companies are paying the correct taxes. For publicly listed companies, the shareholders rely heavily on the financial statements to speculate the company’s performance and invest accordingly. Hence, a neutral CPA is required to ensure that the company is not practicing “creative accountancy” and cooking its financial books. This is the reason that CPAs must be independent third party with no vested interests in the company.
The main duty of the accountant is to certify that the financial statements have been created as per the GAAP guidelines, hence not all audit reports need to have loads of errors. Remember the aim of the audit is only to verify that the company’s books are in order, as they are important for the shareholders and government; not the audit report.
As stated above, the GAAP principles and their interpretations can be a case for serious disputes or disagreements among the accountants. As a result, they keep changing regularly and there are many organizations that influence these changes. The American Institute of Certified Public Accountants (AICPA) is a national professional association of CPAs in the United States and hence has a significant say in shaping the GAAP guidelines. Besides these, a host of other US organizations like the Financial Accounting Standards Board (FASB), Securities and Exchange Commission (SEC), Governmental Accounting Standards Board (GASB), etc. that are major bodies in their respective spheres of accountancy operations also have a great deal of influence on GAAP principles.
The main job of the CPA is to ensure that all the companies conform to these changing GAAP standards while disclosing their financial statements. An important aspect that most companies try to exploit is means of getting tax breaks to reduce the taxes they pay to the government. As an auditor, the CPA needs to verify that the company is not carrying out any malpractices to boost its books by showing incorrect tax breaks. Scanning for such irregularities requires high ethical standards. This is one of the reasons why companies need to get audited by third party CPAs with no vested interests in them.
Given the importance of ethics in such cases, the CPA associations and bodies like the AICPA have published the Professional Ethics and the Code of Professional Conduct. AICPA has a Professional Ethics Executive Committee that enforces these ethics guidelines for all accountants to follow. With the CPAs, the question is not just about the reputation and credibility of their firm (which in no way is unimportant), but also about the trust that general public and government have on their reports on financial matters. Hence this profession has very explicit and comprehensive set of ethical standards to follow. In this regard, accountants need to maintain excellent integrity and moral standards while carrying out their duties. Accountants cannot have any interests – financial or otherwise – in the company that they are auditing, this could influence them to follow some unethical practices which would go against their moral duties.
In conclusion, accounting is an important profession with great significance, in the modern day, to the government and the general public alike. Hence, CPAs must also maintain highest levels of integrity in carrying out their duties, apart from following the GAAP guidelines.