Financial reporting in the United States

Influences on accountancy

Although the countable regulation can differ in certain points, if the countries were to be classified, the common points between the the United States and the the United Kingdom would lead us to consider them in the same family.

It is not surprising since American accountancy developed on the basis of English system with the arrival of English professionals like Arthur Young (Ernst & Young) or James Marvick (the M of KPMG).

Regulation framework

The the United States are a federation of fifty States of which each one has a clean legislative body with a power to control on the line of business and the Fiscalité. It is the Crise of 1929 which, by showing the insufficiencies of the Information S presented by the companies, sensitized the government and the countable profession with the interest and the urgency of an improvement of the accounting practice.

Securities Act in 1933 and Securities Exchange Act in 1934 bring a first answer in particular by the creation of the SEC to make sure that the Investisseur S have the necessary informations with a relevant decision making.

However only a minority of the American companies is recorded with the SEC and must thus respect the obligations to publish annually and to establish its accounts in the respect of the US-GAAP.

The SEC limit its functions with a role of supervisor by delegating the lawful power to the countable profession via FASB. In the event of conflict between these two authorities (very rare case in the History), there is generally consensus but the decision returns always to the SEC.

The American Congress only intervenes very seldom in the countable standardization, it follows the government by leaving the initiative to the SEC.

Equalizers

The countable profession

The AICPA created several successive organizations responsible for the development of the Norme S (Standards) countable.

the Commitee one Accounting Procedures (1938 - 1959) whose work and opinions were published in the form of Accounting Research Bulletins, around fifty on the whole.
the Accounting Principles Board which takes over in 1959 CAPE and will have as a role until in 1971 stating a whole of coherent principles; its studies took the form of Accounting Research Studies . Its most important publication, the APB Statement 4, is entitled BASIC Concepts Underlying Corporate Financial Statements, document in which is proposed a rather exhaustive inventory of the accounting policies.

Financial Accounting Board Standards

It is one only, but the main thing, of the three bodies of the American device of standardization; the two others are the Financial Accounting Foundation and the Financial Accounting Standards Advisory Council . The FAF is financed by several professional organizations representing the producers and the countable users of information. The FAF finances the FASAC and the FASB, and designates their members, at least 20 for the FASAC, 7 for FASB. It is with the FASB that returns the establishment of the countable standards; the FASAC being restricted to advise it as for the nature and with the urgency of the problems to be treated.

The Due-Process Procedure

Different the Norme S prepared by FASB is matured according to a ritual procedure which, precisely, is supposed to allow the various parts concerned which have the means of them of appearing; it is about a political procedure of search for adhesion.

Designation of an group of expert to write a memorandum on the problem which calls a Norme and exposes the possible solutions.
Diffusion and provision during 60 days.
Hearing by the members of FASB of the representatives of the organizations concerned.
Development of a Exposure-Draft and diffusion.

At the conclusion of this social procedure of maturation, the project is accepted, amended or rejected; on this last assumption, the development of the Norme can be abandoned or simply delayed.

The conceptual framework

Many attempts made of 1930 to 1972 to count, state and classify the basic principles of accountancy were going especially to reveal that they could lead to standards of contradictory applications. From where required it of a normative theory what it is agreed to call a conceptual framework (Conceptual Framework). In fact the FASB was charged to undertake these studies ( Statements One Financial Accounting Concepts )

Description of the fundamental objectives of the financial Reporting
Definition of the quality of the financial information (Relevance and Reliability)
Definition of the principal countable concepts (Active, debts, stockholders' equity etc)
Definition of the criteria of taking into account and evaluation of information appearing in the Financial statements

Contents of the annual accounts

Assessment ( Balance Sheet )
Income statement ( Income Statement )
Table of flows of treasury ( Statements off cash flows )

Accounting policies

Evaluation of the tangible fixed assets.

The credits are evaluated at their cost historical and amortized over their real lifespan ( useful lives ).

Evaluation of the goods in leasing ( leases ).

Activation of the goods and assembling royalties carried in the passive. A provision for depreciation can be last if the current value is lower than the cost of acquisition ( impairment test ).

Evaluation of intangible fixed asset.

The credits are evaluated at their cost historical and amortized over their real lifespan ( useful lives ). Specific rules are emitted for the expenses of R & D, for software etc

Evaluations of the financial fixed assets

These credits are classified in 3 classes according to the intentions of the direction.

Non-voting shares ( held-to-maturity ), activated with their value of acquisition and deadened.
Titles immobilized for the activity of wallet ( trading ), evaluated with their right value.
Transferable security of placement ( available-for-dirty ), evaluated with their right value.

Inventories

Use of method LIFO ( last-in-first-out ).

Consolidation

Concept of group

A group of companies is composed of a parent company and several subsidiary companies. It is thus characterized by the existence of participations in capital between the companies which form part of it.

The US-GAAP establish a clear presumption in favor of the presentation of group accounts since a company holds directly and or indirectly interests in other companies, the difficulty being of defining the perimeter of consolidation IE the choice of the companies to be consolidated, those having sometimes various legal forms.

Treatment of the Goodwill

One calls goodwill the difference between the " just valeur" of a company - acquired - and the accounting value of the credits and passive which compose it. The goodwill represents the value of the company which is not recognized by the traditional accounting policies (of prudence and historical cost, mainly): the immaterial capital, the human capital, goodwills,… Until 2001 (in the USA) and 2005 (standards IFRS), the goodwill could be deadened over one duration being able to go up to 40 years. Since 2001, at the USA (news standards FAS 141 and 142) and 2005 in Europe ((IFRS 3), the goodwill is not redeemable any more, in the group accounts, but must on the contrary be the subject of a test of depreciation (impairment test). The annual test of value to which must be subjected the goodwill must be done within the framework of generating units of treasury (UGT) because the goodwill, as intangible assets, cannot be tested independently of the group of credits of which it forms part. According to standard IAS 36, the depreciations of the goodwill are irreversible and cannot consequently be the subject of a later recovery.

To that

The report/ratio of the listeners ( Report off independent auditors ) is an important information source for the users of the financial information. An important difference with the English or Continental Listeners (FRA, All) lies in the term “right” ( fairly ), the listeners commit themselves certifying right accounts whereas Europeans insist on a faithful image of the company or group ( true and to fair view ).

In 2002, the congress as a voter the Sarbanes-Oxley Act (SOX), increased the responsibility for the listeners, in particular by the obligation of certification of the reliability of the financial statements. Since 2003, it is the Public Company Accounting Oversight Board which has set the standards of audit at the place of the AICPA holding this role for 60 years.

Differences with standards IFRS

Difference in nature of standardization

A big number of groups publishes their group accounts according to the US-GAAP or IAS/IFRS, the divergences between these two systems are thus important from the point of view of the comparability of the financial statements. However, these two systems divide the same conceptual framework, and have joint definitions for the objectives of the financial statements like for the principal accounting policies.

The basic difference lies in the nature of the standardization, by the rule for the FASB, the principles for IASB.

Some correspondences between US-GAAP and IAS/IFRS

External bond

Random links: