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.


  • 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

  • IRS Due Process Collections - Placing a Velvet Glove on the Wrecking Ball
    Due process is, according to Black’s Law Dictionary, “a course of legal proceedings … which have been established … for the enforcement and protection of private rights.” Anyone facing an IRS federal tax lien or levy has already experienced the preliminary due process following the IRS determination that more taxes are owed.
  • Whistleblowers Helping the Public By Exposing Fraud
    The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted to assist the government with discovering financial fraud. A recent SEC whistleblower received a $14 million dollar reward for reporting a real estate scam.
  • Internet Enables Thieves to Steal $4 Billion in Tax Refunds
    Criminals are utilizing their Internet connection to file false tax returns that help them steal refunds from the innocent. In 2013, fraudulent returns saw almost $4 billion sent into the hands of scam artists. Making things worse is the fact that the Internal Revenue Service is having a hard time stopping the fraud from happening in the first place.
  • Transfer Agents in the Going Public Process
    Transfer agents play a key role in the going public process. Transfer agents are the record keeper for a company’s securities when it goes public. Share ownership is reflected on the issuer’s shareholder list. In addition, transfer agents issue and cancel certificates to reflect changes in the ownership of securities and act as an intermediary for the company and its stockholders during the going public process.
  • Accredited Investors l Rule 506 Requirements
    Regulation D under the Securities Act of 1933,as amended (the “Securities Act”), sets forth a safe harbor from the registration statement requirements of the Securities Act for certain private placements of securities. In connection with these exemptions, offerings made in reliance upon Regulation D, Rule 504, 505 and 506 can be made to up to 35 non-accredited investors and an unlimited number of “accredited” investors.
  • Section 4(1) Exemption
    Rule 144 (“SEC Rule 144”) under the Securities Act of 1933 (“Securities Act”) provides a safe harbor from the registration provisions of the Securities Act for resales of restricted and control securities by persons other than the issuer if all conditions of the rule are complied with.
  • Form 8K Reporting of Reverse Mergers
    The Securities and Exchange Commission (“SEC”), Division of Corporate Finance frequently notes disclosure deficiencies in the disclosure of reverse merger transactions in on 8-K Filed. This post summarizes SEC staff comments in response to reports on Form 8-K reporting of reverse mergers with public shell companies or similar transactions that result in a public company no longer being designated as a shell company.
  • US Listings For Foreign Issuers
    Typically, foreign companies seeking to raise capital attempt to obtain public company status. Foreign companies that go public in the U.S. may complete a public offering by registering securities with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended (the “Securities Act”) or by registering a class of securities under the Securities Exchange Act of 1934 (the “Exchange Act”).
  • OTCMarkets OTCQX l Dual List USA
    The OTCMarkets OTCQX offers foreign issuers seeking to go public in the U.S. an appealing alternative to listing on a stock exchange. Foreign issuers whose securities are listed on a foreign stock exchange that qualify for the exemption from the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
  • Private Placement Memorandums 101
    A private placement memorandum (“PPM”) is also referred to as a confidential offering circular or memorandum. PPM’s are typcially prepared by securities lawyers who assist private companies with their going public transactions. PPM’s are used to raise capital by selling either debt or equity in an exempt offering that has not been registered with the SEC. These exempt offerings are often called private placements.