Question

The Securities and Exchange Commission (SEC) has the legal authority to regulate the form and content of financial statements. However, the SEC relies on the following organizations for implementation:

Financial Accounting Standards Board (FASB). Industry Committees of the American Institute of Certified Public Accountants (AICPA.)Principles and Practices Board of the Healthcare Financial Management Association (HFMA). Should the preparation and presentation of financial accounting data be regulated?

References

Answer 1

Yes, preparation and presentation of financial accounting data should certainly be regulated. Accounting and financial reports are used by various stakeholders of a company for the purpose of decision making and they rely on the accounting and financial data presented in a company’s annual reports and quarterly reports to make certain decisions. For instance lenders, financial institutions and banks will look at a company’s debt servicing ability through ratio like times interest ratio, investors will look at metrics like EBITDA growth and free cash flow growth etc.

It is hence important that financial accounting data is prepared in a manner so that it is able to provide a fair presentation of a company’s financial condition and state of affairs. To ensure uniformity in presentation and to ensure that financial accounting data provides true and fair presentation of financial health of a company it is essential to regulate the preparation as well as presentation of financial accounting data.

References:

1. https://www.aicpa.org/content/dam/aicpa/research/standards/compilationreview/downloadabledocuments/ar-c-00070.pdf
2. http://public.kenan-flagler.unc.edu/faculty/bushmanr/Bushman_and_Landsman_ABR_3-2010.pdf