Legal Aspect of the Business Accounting


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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.

Financial Statements

A financial statement (or financial report) is a formal record of the financial activities of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form that is easy for a reader to understand. A financial statement, also sometimes referred to as a "balance sheet," reports a company's assets, liabilities, and ownership equity at a given point in time. For large corporations, these statements are often complex and may include an extensive set of notes describing each item. While often used for a similar purpose, financial statements are less formal or thorough than a full audit of a company's financial records. The resources below further describe the practical and legal considerations of the financial statement.
  • 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

  • Georgia Court of Appeals Denies Grading Contractors' Claims
    A grading subcontractor was not paid for putting in the roads in a new subdivision; after the construction lender foreclosed upon the project developer, the subcontractor sought payment from the bank. After the trial court awarded the subcontractor its full claim plus attorneys fees, the Georgia Court of Appeals reversed. Some very important lessons for subcontractors and lien claimants are made clear in the ruling.
  • Willfulness and the Civil FBAR Penalty
    In 2008, when it was revealed that wealthy individuals around the world were utilizing accounts and trusts in Liechtenstein to evade taxes, the United States initiated a coordinated effort with foreign governments to combat tax evasion through the use of offshore trusts and accounts. The U.S. Department of Justice (DOJ) has since launched criminal investigations of several foreign banks, many of which are ongoing.
  • Class Action Lawsuit Against Life Partners Will Move Forward Following Judge’s Ruling
    A Texas judge has rejected a motion by Life Partners Holdings, Inc. to toss a class action lawsuit filed by investors who allege they were misled by the life settlements company. Three Life Partners executives were also named in the lawsuit, which alleges that the company fraudulently misrepresented the nature of life settlements that were sold to investors, making them appear more valuable than they actually were.
  • Managing Retirement Benefits of Trust or Trusteed IRA
    Congratulations on making the decision to plan for your retirement accounts through a trust or trusteed IRA. You’ve selected a cost-effective, responsible plan for your future. Now the question is, “What do I do in this plan?”
  • IRS Changing Terms for Offshore Account Holders
    U.S. taxpayers hiding assets abroad should take note of the Internal Revenue Service’s plan to sharply increase penalties for such acts, while those who unintentionally fail to disclose offshore accounts will experience much more leniency.
  • Planning for the Million Dollar Balance Retirement Account
    A million dollar retirement account sounds like a significant sum. If something tragic were to happen, a retirement account of this size would seem to financially care for it’s beneficiaries for a long time. However, studies have shown that a typical inheritance is spent within 17 months.
  • Divorce and Credit Card Debt – Known and Unknown
    More and more couples are racking up excessive amounts of debt. To make matters worse, some debt, especially credit card debt, is hidden from the other spouse. Some blame this phenomenon on the fact that more marriages consist of two-income couples. Each spouse may find it difficult to relinquish control of his or her own money. But when divorce is on the horizon, how is this debt ultimately divided?
  • Protect your Financial Security During and After Divorce
    A growing number of people are divorcing late in life. No matter what the reason it is imperative to protect your financial security throughout and after the divorce process. You have accumulated a lot of things during the marriage—now is the time to retain as many as possible. There are savings and investment accounts, real estate and other personal and in some cases business assets to consider. An estate plan must be updated, health and other insurance replaced and the list goes on.
  • Extra! Extra! Read All About It! IRS Commissioner Announces That Changes Are In the Offing For OVDP 2012
    On June 3, 2014 the new IRS Commissioner, John A. Koskinen, gave a speech before the International Business - OECD International Tax Conference. His speech covered the history of the offshore enforcement initiative since the UBS debacle in 2009. His remarks acknowledge what most professionals in the tax community have recognized since the inception: that OVDP needs more tweaking in order to meet the overall goals of enforcement and fairness.
  • U.S. District Court Upholds Multiple Willful FBAR Penalties Against Taxpayer
    In a case that has raised eyebrows in the tax community, a jury in the Southern District of Florida has sustained the IRS’s assessment of multiple willful FBAR penalties against an American business man and bank director.

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