This led to the establishment of the Financial Accounting Standards Board (FASB), with non-accountants as members. The GAAP has been tempered by political and business lobbying. Moreover, accounting rules for taxation purposes and applied to companies quoted on stock exchanges are not always consistent with the GAAP.
Accountants who do not follow the rules are disciplined.
American accountants are among the best educated and best-trained in the world. Those who wish to be recognized as auditors of significant enterprises must be CPAs. Thus, they must have obtained at least a finance- related bachelor's degree and then have passed a five-part examination that is commonly set, nation-wide, by the American Institute of Certified Public Accountants (AICPA). To practice publicly, they must be licensed by the state in which they live or practice. To remain a CPA, each must abide by the standards of conduct and ethics of the AICPA, including a requirement for continuing professional education.
Most other countries have comparable rules. Probably the closest comparisons to the USA are found in the UK and its former colonies.
Q: Can you briefly compare the advantages and disadvantages of the GAAP and the IAS? A: It is asserted that the GAAP tend to be "rule-based" and the IAS are "principle-based." GAAP, because they are founded on the business environment of the USA are closely aligned to its laws and regulations. The IAS seek to prescribe how credible accounting practices can operate within a country's existing legal structure and prevailing business practices.
Alas, sometimes the IAS and the GAAP are in disagreement. The two rule-making bodies - FASB and IASB - are trying to cooperate to eliminate such differences.
The Inter-American Development Bank, having reviewed the situation in Latin America, concluded that most of the countries in that region - as well as Canada and the EU aspirants - are IAS-orientated. Still, the USA is by far the largest economy in the world, with significant political influence. It also has the world's most important financial markets.
Q: Can accounting cope with derivatives, off-shore entities, stock options - or is there a problem in the very effort to capture dynamics and uncertainties in terms of a static, numerical representation? A: Most, if not all, of these matters can be handled by proper application of accounting principles and practices.
Much has been made of expensing employee stock options, for instance. But an FASB proposal in the early nineties was watered down at the insistence of US company lobbyists and legislators.
How to value stock options and when to recognize them is not clear. A paper on the topic identified sixteen different valuation parameters. But accountants are accustomed to dealing with such practical matters.