Legal Aspect of the Business Accounting
Accounting is the practice of recording or settling accounts in financial transactions and determining income and expenses for tax and other financial purposes. In a legal setting, it is often used to determine the nature and extent of damages in a lawsuit, or can even be a remedy in some cases.
There are several types of accounting commonly used, which include, among others:
Accrual: the accrual method shows expenses incurred and income earned for a given period of time whether or not such expenses and income have been actually paid or received by that time.
Cash: the cash method records income and expenses only when monies have actually been received or paid out.
Completed Contract: the completed contract method reports gains or losses on certain long-term contracts. Gross income and expenses are recognized in the tax year the contract is completed.
Installment: the installment method of accounting is a way regulated utilities calculate depreciation for income tax purposes.
The accounting profession, which is largely self-regulated, suffered through a series of scandals since the late 1990's. These controversies required the FASB and the SEC, as well as other regulatory organizations, to consider new rules designed to improve financial reporting. Between 1996 and 2002, investors lost an estimated $200 billion in earnings restatements and stock meltdowns following failures in auditing processes.
Accounting Legal Aspects
- Accountancy - Definition
Accountancy is the process of communicating financial information about a business entity to users such as shareholders and managers. The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management; the art lies in selecting the information that is relevant to the user and is reliable.
- Accounting and Auditing Enforcement Releases
The list below provides links to financial reporting related enforcement actions concerning civil lawsuits brought by the Commission in federal court and notices and orders concerning the institution and/or settlement of administrative proceedings. This list only highlights certain actions and is not meant to be a complete and exhaustive compilation of all of the actions that fall into this category.
- Accounting Terminology Guide
The NYSSCPA has prepared a terminology glossary as an educational tool for journalists who report on and interpret financial information.
- Ethical and Legal Obligations for Accounting
The SEC was established in 1934 by Congress to help ensure stability in the market and protect investors. The Securities Exchange Act was also established in 1934, both of which were used to protect investors and help keep the securities market ethical.
- Financial Accounting Standards Board (FASB)
The mission of the Financial Accounting Standards Board (FASB) is to establish and improve standards of financial accounting and reporting that foster financial reporting by nongovernmental entities that provides decision-useful information to investors and other users of financial reports.
- Governmental Accounting Standards Board (GASB)
The mission of the Governmental Accounting Standards Board is to establish and improve standards of state and local governmental accounting and financial reporting that will result in useful information for users of financial reports and guide and educate the public, including issuers, auditors, and users of those financial reports.
- IFRS Foundation
The IFRS Foundation is an independent, not-for-profit private sector organization working in the public interest to develop a single set of international financial reporting standards through its standard-setting body, the International Accounting Standards Board (IASB).
- Malpractice: Tax/Accounting Style - PCAOB
The Public Company Accounting Oversight Board (PCAOB) is a private-sector, nonprofit corporation created by the Sarbanes-Oxley Act of 2002 to oversee the auditors of companies in order to protect investors and the public interest by promoting informative, fair, and independent audit reports.
- Occupational Outlook Handbook - U.S. Department of Labor
The Bureau of Labor Statistics of the U.S. Department of Labor is the principal Federal agency responsible for measuring labor market activity, working conditions, and price changes in the economy. Its mission is to collect, analyze, and disseminate essential economic information to support public and private decision-making. This handbook was published by the Bureau.
- Office of the Chief Accountant
The Office of the Chief Accountant is responsible for establishing and enforcing accounting and auditing policy to enhance the transparency and relevancy of financial reporting, and for improving the professional performance of public company auditors in order to ensure that financial statements used for investment decisions are presented fairly and have credibility.
- U.S. GAAP Codification of Accounting Standards
In the U.S., generally accepted accounting principles, commonly abbreviated as US GAAP or simply GAAP, are accounting rules used to prepare, present, and report financial statements for a wide variety of entities, including publicly-traded and privately-held companies, non-profit organizations, and governments. Generally GAAP includes local applicable Accounting Framework, related accounting law, rules and Accounting Standard.
- Balance Sheets
A balance sheet is a snapshot of a business' financial condition at a specific moment in time, usually at the close of an accounting period. This site provides a definition and description of balance sheets in basic accounting.
- Cash Flow Forecasting
Cash Flow forecasts help you to build a model of the way in which cash moves within a project or organization. They help you to predict whether the sales or income you forecast will cover the costs of operation. They also allow you to analyze whether a project will be sufficiently profitable to justify the effort put into it.
- Income Statement
An explanation of the income statement, which is one of the major financial statements used by accountants and business owners.
- SEC - Beginners' Guide to Financial Statements
This brochure is designed to help gain a basic understanding of how to read financial statements and its basic parts.
- Statement of Cash Flows
Information about Cash Flow Statements and the various regulatory requirements.
- Understanding Cash Flow Analysis
Article from Iowas State University about cash flow analysis.
Articles on HG.org Related to Finance and Taxation
- How Does U.S. Law View Offshore Bank Accounts?Perhaps you are one of the fortunate few who has achieved a level of wealth where you are legitimately concerned that the ebb and flow of the U.S. economy could have a dramatic effect on your personal finances. Or, perhaps, you have heard that there are ways to avoid certain taxes if you keep your money offshore.
- What Does the Law Say About Loaning Money to Friends and Relatives?Has someone close ever asked you for a loan? A lot of feelings and thoughts probably hit you all at once: an urge to be helpful to someone you care about, concern about getting repaid, wondering if you can afford to help this person, questions about why they are in need of a loan in the first place, and possibly even questions about the laws regarding the loan. So, what does the law say about loaning money to friends and relatives?
- A Message from Uncle Sam to Taxpayers Who Have Undisclosed Foreign Bank Accounts: the Clock Is TickingOVDI: Is the IRS playing unfair? Read on...
- Found Money – What Are My Legal Obligations?Everyone has seen a few cents on the ground, likely dropped while someone pulled a ring of keys from their pocket. While we would probably not think twice about picking up a penny, what if it was a bank envelope full of $100 bills? It may seem like a dream come true, but there are certain legal obligations when one finds misplaced money.
- How Does Venture Capital Work?When starting up a business, one thing virtually every business owner runs into is a need for funding. There are a few ways one can acquire these funds, like dipping into personal savings, taking out bank loans, or through traditional stock sales. But, for a lot of money fast, one approach that is increasingly popular in the Internet age is venture capital. But what is it and how does it work?
- Can Foreigners Buy Real Estate in the United States?As the real estate market in the U.S. has made a strong indication of recovery, some outside of the United States have begun to look again at American real estate investments as a possibility. This leads some to wonder, though, whether it is even possible for a foreigner to buy real estate in the U.S.? If so, are there any special laws to be aware of or taxes that must be paid?
- A Crash Course in the Federal Sentencing GuidelinesThe Federal Sentencing Guidelines are used by judges, prosecutors, and defense attorneys to determine the possible sentence, or the range of a possible sentence, for any federal crime. They are based on the concept that each type of offense should result in a sentence within a determined range – adjusted to the high or low end of the range – depending on certain known factors, including the defendant’s criminal history.[i]
- The Calm Before the Storm: Warning Signs that a Referral to Criminal Investigation is LoomingA criminal investigation conducted by the IRS is different from a civil investigation. Criminal investigation of taxpayer returns or fraudulent activity is conducted by the Criminal Investigation Division of the IRS (CI). CI is the heavy artillery of the IRS arsenal.
- Eggshell Audits: Keeping the Shell of the Egg From Cracking When There are Criminal Tax IssuesIn an “eggshell audit,” you must walk on eggshells to represent your client effectively in the civil examination without exposing the fraud, all the while honoring your duties to the tax system not to mislead the revenue agent.
- To File or Not to File an Amended Return to Correct an Original Return That Has Criminal Tax DimensionsYour client has filed a fraudulent return underreporting his tax liability. He now has misgivings. He comes to you and expresses great concern. What should you do?