Do Accounting Police Exist?
It is sad but true. In today’s digital age, accounting violations are becoming more prevalent. The most common ones are fraudulent refund requests and cash discounts. You can proactively prevent these violations by implementing stricter internal controls.
Is there a police force dedicated to accounting that investigates and charges violators?
Accounting is a complicated field filled with rules and regulations. A company can be fined heavily if these rules and regulations are not followed to a tee. There is a lot of information to learn and a lot to remember. Even the process of learning and remembering can be complicated.
That is where the supposed accounting police come into the picture.
Do they exist?
They do, up to a point. Here is how it works.
The vast majority of it is done on a voluntary basis, and it functions reasonably well.
To begin, the method of accounting known as double-entry dates back to the 1200s in Italy. This indicates that it has been in use for quite some time.
Both accounting concepts and accounting standards have developed throughout the years in parallel fashion. The business community as a whole would be unable to function properly in the absence of commonality and consistency in the reporting of financial statements, which is the reason why the system is effective. It would be complete anarchy, much to how driving on the road would be if there were no rules to follow.
The fight against fraud
The job of an accountant is a noble profession, but we do hear about their roles in the frauds and scandals that hit the headlines.
As the world is turning digital, fraudsters are chasing after opportunities, and it is the accountant who has a lot to offer. With the ever-growing footprint of technology in our lives and the relative anonymity it provides, the future of cybercrime is becoming a reality.
So, who investigates these crimes?
The Accounting Principles Board in the United States was supplanted in 1973 by another board that was known as the Financial Accounting Standards Board.
The FASB is a body of specialists in financial accounting that was created in the United States in 1973. When issues pertaining to the subject of accounting are presented to the members of the FASB, they engage in a time-consuming process of analyzing and reviewing those issues.
They will, after much deliberation, release a statement explaining what they believe the new or amended way of tackling the treatment of an accounting issue should be. This statement will be made public.
The FASB developed an accounting code called the Generally Accepted Accounting Principles, or GAAP.
If a company’s financial statement is created in accordance with GAAP, then the user of that financial statement should be able to depend on or trust the information more readily than if the financial statement were not prepared in accordance with GAAP. This is the presumption.
Those companies who stray from GAAP, which is common practice for many smaller organizations, are unable to claim that their financial statements were prepared in accordance with GAAP. Rather, they must notify the reader that this is not the case. However, the buyer should use caution.
Overwhelming support for FASB
The FASB is a non-governmental organization that receives financial support from the private sector. The group has a lot of help from the American Institute of Certified Public Accountants (AICPA).
This esteemed organization has a large number of Certified Public Accountants (CPAs) as members. Those CPAs are required to behave in accordance with the organization’s policies, standards, and rules. There is no doubt that other countries have organizations that are comparable to this one that require exceptionally high norms of professional conduct from accountants. e.
Enter the SEC
The Securities and Exchange Commission is an example of a government agency that is responsible for the enforcement of laws (SEC). It is mainly concerned with public corporations since it is the role of public corporations to safeguard their shareholders from unethical business practices.
The SEC has just recently begun to take an active role in the process of setting accounting standards. These days, they have their hands full.
The IRS
The Internal Revenue Service (IRS) has the authority to audit tax returns and analyze the financial statements upon which those returns are based. This is because the vast majority of firms use their financial statements to generate their necessary income tax filings.
If you do not obey the regulations, you may run into problems with this governmental organization.
Conclusion
The idea of the accounting police is a fantastical one. Perhaps one might think that the accounting police would use the threat of a fine and a jail sentence to ensure that companies follow the rules regarding financial accounting.
Unfortunately, this is not the case. There are no accounting police. However, there are rules and regulations that companies are required to follow.
Compliance’s overriding objective is to enhance the overall quality of the financial statements by ensuring that the information is reasonably true, suitably presented, and consistently applied.
There is currently a global drive to ensure that all organizations use the same standards. This is a huge project that will take years to finish, but it is necessary and will lead to better financial reports.