day 26 accounting professionalism v5

Day 26 accounting - Professionalismof Accountants JamesGong LearningObjectives Accountingstandards Voluntaryaudit Auditorliabilities Scandalsin20

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Professionalism of  Accountants James Gong
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Learning Objectives Accounting’s role in corporate governance Recent history of accounting profession Accounting standards Voluntary audit Professional competition Revised business model of audit firms Auditor liabilities Scandals in 2002 Financial crisis 2008 Challenges facing the accounting profession
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Corporate Governance and  the Agency Problem The Dutch and the British East India  Companies chartered as joint stock companies  four centuries ago to gather large amounts of  capital for trade with the East The agency problem: money of some people  managed by others risks shirking and  malfeasance Recent major corporate failures highlight the  imperfections of our governance system Rethink our system of corporate governance— especially accounting, and auditing
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4 Accounting Elements of the  US Corporate Governance Accounting rules Organization to set accounting rules Audit requirement with oversight of audit  quality Involvement of the board of directors in  audit and financial reporting A fifth related element: executive  compensation
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5 Accounting Rules The law requires publicly held  corporations to prepare and publish  financial reports Much of content of format is voluntary Law requires internal controls and  accounting system Minimum standards of disclosure, detail,  definitions, and measurement— collectively referred to as accounting  rules
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6 Organization to Set  Accounting Rules The statutory authority lies with the Securities  and Exchange Commission (SEC) The SEC delegates the task to privately  finance Financial Accounting Standards  Board, retaining the right to overrule the  Board All public corporations are required to comply  with these accounting rules International Accounting Standards Board is  knocking at the door—kept out so far
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7 The Audit Requirement SEC requires the publicly-held corporations to  obtain a certificate from a CPA on fair  representation of their financial performance  and status Auditors held liable to shareholders and third  parties for negligence in certification American Institute of CPAs’ audit standards July 2002 law to set up a new oversight board
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8 Directors and Executive  Compensation New York Stock Exchange requires its listed  companies to have a majority of the members  of the board to be independent Audit and compensation committees must  consist of independent directors Significant parts of executive compensation  are made to be contingent on financial  performance as measured by accounting and  stock prices, especially stock options
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This note was uploaded on 11/08/2011 for the course ACCY 301 taught by Professor Staff during the Spring '08 term at University of Illinois, Urbana Champaign.

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Day 26 accounting - Professionalismof Accountants JamesGong LearningObjectives Accountingstandards Voluntaryaudit Auditorliabilities Scandalsin20

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