Sarbanesâ€Oxley Act

01. picSarbanesOxley doing Sen. crownwork letter of Minnesota Sarbanes (DMD) and Rep. Michael G. Oxley (ROH-4), the co-sponsors of the SarbanesOxley Act. The SarbanesOxley Act of 2002 (Pub. L. 107-204, 116Stat. 745, enacted July30, 2002), in like manner cognize as the ordinary Company accounting Reform and Investor Protection Act (in the Senate) and incorporated and Auditing Accountability and Responsibility Act (in the Ho use up) and commonly c tot entirelyyed SarbanesOxley, Sarbox or SOX, is a fall in States federal official law enacted on July 30, 2002, which set new or enhanced types for all U. S. world company advances, likement and public craft relationship firms.It is conjured later sponsors U. S. Senator capital of Minnesota Sarbanes (D-MD) and U. S. Representative Michael G. Oxley (R-OH). The act was approved by the House by a take of423 in favor, 3 opposed, and 8 abstaining and by the Senate with a vote of99 in favor, 1 abstaining. President George W. Bus h signed it into law, stating it include the most far-reaching reforms of American business practices of Franklin D. Roosevelt. Outliness SarbanesOxley contains 11 titles that describe specific man fights and requirements for m angiotensin converting enzymetary reporting. from each one title consists of several(prenominal) sections, summarized below. . Public Company business relationship direction outgoride (PCAOB) 2. Auditor Independence 3. corporal Responsibility 4. Enhanced fiscal Disclosures 5. Analyst Conflicts of Interest 6. Commission Resources and Authority 7. Studies and Reports 8. Corporate and Criminal tommyrot Accountability 9. White Collar Crime Penalty Enhancement 10. Corporate Tax Returns 11. Corporate Fraud Accountability Criticism copulationman Ron Paul and others such as former Arkansas governor Mike Huckabee fox contended that SOX was an unnecessary and costly government intrusion into corporate management that places U. S. orporations at a competitiv e disadvantage with alien firms, driving businesses out of the united States. In an April 14, 2005 speech before the U. S. House of Representatives, Paul stated, These regulations ar minus American capital market places by providing an incentive for small US firms and foreign firms to deregister from US computer storage metamorphoses. According to a study by a researcher at the Wharton Business School, the number of American companies deregistering from public stock exchanges nearly tripled during the year by and by SarbanesOxley became law, while the New York Stock fill in had only 10 new foreign listings in all of 2004.The hesitance of small businesses and foreign firms to register on American stock exchange is easily netherstood when one considers the costs SarbanesOxley imposes on businesses. According to a survey by Korn/Ferry planetary, SarbanesOxley cost Fortune 500 companies an come of $5. 1 million in compliance expenses in 2004, while a study by the law firm o f Foley and Lardner found the Act change magnitude costs associated with being a publicly held company by one hundred thirty percent. During the pecuniary crisis of 2007-2010, critics blamed SarbanesOxley for the low number of Initial Public Offerings (IPOs) on American stock exchanges during 2008.In November 2008, Newt Gingrich and co-author David W. Kralik called on social intercourse to repeal SarbanesOxley. Praise Former Federal Reserve chair Alan Greenspan praised the SarbanesOxley Act I am surprised that the SarbanesOxley Act, so rapidly surfaceed and enacted, has functioned as well as it has the act importantly reinforced the principle that sh beh senior(a)s give birth our corporations and that corporate managers should be working on behalf of shargonholders to allocate business resources to their best use.SOX has been praised by a cross-section of financial industry experts, citing improved investor impudence and more accurate, reliable financial statements. The CE O and CFO are flat required to unequivocally take ownership for their financial statements under subdivision 302, which was non the case prior to SOX. Further, take stockor conflicts of interest provoke been addressed, by prohibiting auditors from also having lucrative consulting agreements with the firms they audit under Section 201. SEC Chairman Christopher Cox stated in 2007 SarbanesOxley financial aided restore trust in U.S. markets by increasing accountability, speeding up reporting, and making audits more independent. mavin tarradiddle uncovered by the Securities and flip-flop Commission (SEC) in November 2009 may be directly assigned to Sarbanes-Oxley. The fraud which spanned nearly 20 years and touch on over $24 million was committed by Value trace (NASDAQVALU) against its mutual fund shareholders. The fraud was get-go reported to the SEC in 2004 by the Value Line storehouse (NASDAQVLIFX) portfolio manager who was asked to sign a Code of Business Ethics as dep artment of SOX.Restitution totaling $34 million result be placed in a modal(a) fund and returned to the affected Value Line mutual fund investors. No criminal charges have been filed. Legal challenges A lawsuit (Free Enterprise Fund v. Public Company news report Oversight jury) was filed in 2006 challenging the constitutionality (legality) of the PCAOB. The commission argues that because the PCAOB has restrictive powers over the accounting industry, its officeholders should be appointed by the President, preferably than the SEC. Further, because the law lacks a severability clause, if part of the law is judged unconstitutional, so is the re main(prenominal)der.If the plaintiff prevails, the U. S. Congress may have to devise a different method of officer appointment. 02. pic full generally Accepted be principles broadly Accepted history conventions (GAAP) is a enclosure utilise to refer to the standard framework of guidelines for financial accounting used in any given jurisdiction which are generally cognise as method of accounting Standards. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of financial statements.Principles derive from tradition, such as the opinion of matching. In any report of financial statements (audit, compilation, review, etc. ), the preparer/auditor moldiness delegate to the reader whether or not the knowledge contained within the statements complies with GAAP. Principle of vogue Regularity can be defined as conformity to compel rules and laws. Principle of consistency This principle states that when a business has once glacial a method for the accounting treatment of an item, it will enter all akin(predicate) items that follow in exactly the same way. Principle of earnestness According to this principle, the accounting unit should reflect in good assent the reality of the companys financial status. Principle of the perma nence of methods This principle obtains at allowing the cohesion and comparison of the financial information published by the company. Principle of non-compensation One should show the full details of the financial information and not undertake to compensate a debt with an asset, revenue enhancement with an expense, etc. see convention of conservatism) Principle of prudence This principle aims at showing the reality as is one should not try to make things look prettier than they are. Typically, revenue should be put down only when it is authorized and a provision should be entered for an expense which is probable. Principle of continuity When stating financial information, one should assume that the business will not be interrupted. This principle mitigates the principle of prudence assets do not have to be accounted at their disposable value, but it is accepted that they are at their historical value (see depreciation and going caution). Principle of periodicity Each acco unting entry should be allocated to a given period, and split wherefore if it covers several periods. If a client pre-pays a subscription (or lease, etc. ), the given revenue should be split to the entire time-span and not counted for entirely on the date of the transaction. Principle of Full Disclosure/Materiality All information and set pertaining to the financial position of a business must be break in the records. Principle of Utmost Good Faith All the information regarding to the firm should be disclosed to the insurer before the insurance insurance policy is taken. 03. The external financial account Standards (IFRS) Many countries use or are converging on the internationalistic pecuniary Reporting Standards (IFRS), established and keep by the International Accounting Standards Board. In some countries, local accounting principles are applied for regular companies but listed or large companies must conforms to IFRS, so statutory reporting is comparable internationally , across jurisdictions.International pecuniary Reporting Standards (IFRS) are principles- ground Standards, Interpretations and the Framework (1989) adopted by the International Accounting Standards Board (IASB). Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). IAS was issued between 1973 and 2001 by the Board of the International Accounting Standards deputation (IASC). On 1 April 2001, the new IASB took over from the IASC the state for setting International Accounting Standards. During its first meeting the new Board adopted existing IAS and fixs.The IASB has continued to better standards calling the new standards IFRS International fiscal Reporting Standards comprise International financial Reporting Standards (IFRS)standards issued after 2001 International Accounting Standards (IAS)standards issued before 2001 Interpretations originated from the International financial Reporting Interpretations delegatio n (IFRIC)issued after 2001 Standing Interpretations delegation (SIC)issued before 2001 Framework for the Preparation and innovation of financial controls (1989)Requirements of IFRS IFRS financial statements consist of (IAS1. 8) a record of monetary station a Statement of Comprehensive Income or two separate statements comprising an Income Statement and separately a Statement of Comprehensive Income, which reconciles Profit or expiry on the Income statement to total comprehensive income a Statement of Changes in Equity (SOCE) a Cash Flow Statement or Statement of Cash Flows List of IFRS statements with full text linkThe following IFRS statements are currently issued IFRS 1 First time Adoption of International fiscal Reporting Standards IFRS 2 Share- found Payment IFRS 3 Business Combinations IFRS 4 restitution Contracts IFRS 5 Non-current Assets Held for Sale and Discontinued exertions IFRS 6 Exploration for and valuation of Mineral Resources IFRS 7 Financial I nstruments Disclosures IFRS 8 operate Segments IFRS 9 Financial Instruments IAS 1 Presentation of Financial Statements. IAS 2 Inventories IAS 3 Consolidated Financial Statements Originally issued 1976, efficient 1 Jan 1977. Superseded in 1989 by IAS 27 and IAS 28 IAS 4 Depreciation Accounting Withdrawn in 1999, replaced by IAS 16, 22, and 38, all of which were issued or revised in 1998 IAS 5 Information to Be break in Financial Statements Originally issued October 1976, strong 1 January 1997. Superseded by IAS 1 in 1997 IAS 6 Accounting Responses to Changing PricesSuperseded by IAS 15, which was withdrawn declination 2003 IAS 7 Cash Flow Statements IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors IAS 9 Accounting for Research and Development Activities Superseded by IAS 38 effective 1. 7. 99 IAS 10 Events After the Balance Sheet Date IAS 11 Construction Contracts IAS 12 Income Taxes IAS 13 Presentation of Current Assets and Current Liabilities Superseded by IAS 1. IAS 14 Segment Reporting (superseded by IFRS 8 on 1 January 2008) IAS 15 Information Reflecting the Effects of Changing Prices Withdrawn December 2003 IAS 16 holding, Plant and Equipment IAS 17 Leases IAS 18 Revenue IAS 19 Employee advances IAS 20 Accounting for Government Grants and Disclosure of Government Assistance IAS 21 The Effects of Changes in Foreign Exchange Rates IAS 22Business Combinations Superseded by IFRS 3 effective 31 March 2004 IAS 23 Borrowing Costs IAS 24 Related Party Disclosures IAS 25 Accounting for Investments Superseded by IAS 39 and IAS 40 effective 2001 IAS 26 Accounting and Reporting by Retirement Benefit Plans IAS 27 Consolidated Financial Statements IAS 28 Investments in Associates IAS 29 Financial Reporting in Hyperinflationary Economies IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions Superseded by IFRS 7 effective 2007 IAS 31 Interests in Joint Ventures IAS 32 Fin ancial Instruments Presentation (Financial instruments disclosures are in IFRS 7 Financial Instruments Disclosures, and no longer in IAS 32) IAS 33 Earnings Per Share IAS 34 impermanent Financial Reporting IAS 35 Discontinuing Operations Superseded by IFRS 5 effective 2005 IAS 36 Impairment of Assets IAS 37 Provisions, Contingent Liabilities and Contingent Assets IAS 38 intangible Assets IAS 39 Financial Instruments Recognition and Measurement IAS 40 Investment Property IAS 41 Agriculture List of Interpretations with full text link premiss to International Financial Reporting Interpretations (Updated to January 2006 IFRIC 1 Changes in Existing Decommissioning, redress and Similar Liabilities (Updated to January 2006) IFRIC 7 Approach under IAS 29 Financial Reporting in Hyperinflationary Economies (Issued February 2006) IFRIC 8 Scope of IFRS 2 (Issued February 2006)has been eliminated with Amendments issued to IFRS 2 IFRIC 9 re opinion of Embedded Derivatives (Issued April 2006) IFRIC 10 Interim Financial Reporting and Impairment (Issued November 2006) IFRIC 11 IFRS 2-Group and Treasury Share Transactions (Issued November 2006)has been eliminated with Amendments issued to IFRS 2 IFRIC 12 Service assignment Arrangements (Issued November 2006) IFRIC 13 Customer Loyalty Programmes (Issued in June 2007) IFRIC 14 IAS 19 The situate on a Defined Benefit Asset, Minimum bread and butter Requirements and their fundamental interaction (issued in July 2007) IFRIC 15 Agreements for the Construction of Real Estate (issued in July 2008) IFRIC 16 Hedges of a Net Investment in a Foreign Operation (issued in July 2008) IFRIC 17 Distributions of Non-cash Assets (issued in November 2008) IFRIC 18 Transfers of Assets from Customers (issued in January 2009) SIC 7 Introduction of the Euro (Updated to January 2006) SIC 10 Government Assistance-No Specific Relation to Ope place Activities (Updated to January 2006) SIC 12 integration-Special Purpose Enti ties (Updated to January 2006) SIC 13 Jointly Controlled Entities-Non-Monetary Contributions by Venturers (Updated to January 2006) SIC 15 Operating Leases-Incentives (Updated to January 2006) SIC 21 Income Taxes-Recovery of Revalued Non-Depreciable Assets (Updated to January 2006) SIC 25 Income Taxes-Changes in the Tax Status of an Entity or its Shareholders (Updated to January 2006) SIC 27 Evaluating the affectionateness of Transactions Involving the Legal Form of a Lease (Updated to January 2006) SIC 29 Disclosure-Service Concession Arrangements (Updated to January 2006) SIC 31 Revenue-Barter Transactions Involving Advertising Services (Updated to January 2006) SIC 32 Intangible Assets-Web Site Costs (Updated to January 2006) SIC 33 Consolidation and equity method Potential voting rights and allocation of ownership interests 04. The International Accounting Standards Board (IASB)The International Accounting Standards Board (IASB) is an independent, privately-funded acc ounting standard-setter based in London, England. The IASB was founded on April 1, 2001 as the supremacyor to the International Accounting Standards deputation (IASC). It is responsible for developing International Financial Reporting Standards (the new name for International Accounting Standards issued after 2001), and promoting the use and application of these standards. tooshie of the IASB In April 2001, the International Accounting Standards committal bum (IASCF), since renamed as the IFRS Foundation, was create as a not-for-profit corporation incorporated in the US state of Delaware.The IFRS Foundation is the parent entity of the International Accounting Standards Board (IASB), an independent accounting standard-setter based in London, England. On 1 March 2001, the IASB assumed accounting standard-setting responsibilities from its forerunner body, the International Accounting Standards Committee (IASC). This was the culmination of a restructuring based on the recommenda tions of the report Recommendations on Shaping IASC for the Future. The IASB organise has the following main features the IFRS Foundation is an independent organization having two main bodies, the Trustees and the IASB, as well as a IFRS consultatory Council and the IFRS Interpretations Committee (formerly the IFRIC).The IASC Foundation Trustees appoint the IASB members, exercise attention and raise the funds needed, but the IASB has responsibility for setting International Financial Reporting Standards (international accounting standards). IASB Members The IASB has 15 Board members, each with one vote. They are selected as a group of experts with a mix of experience of standard-setting, preparing and use accounts, and academic work. 2 At their January 2009 meeting the Trustees of the Foundation concluded the first part of the second Constitution Review, announcing the creation of a Monitoring Board and the magnification of the IASB to 16 members and giving more consideration to the geographical composition of the IASB. The IFRS Interpretations OF Committee has 14 members.Its brief is to provide timely guidance on issues that start in practice. A unanimous vote is not necessary in order for the publication of a Standard, exposure draft, or final IFRIC Interpretation. The Boards 2008 delinquent Process manual stated that approval by nine of the members is required. Funding The IFRS Foundation raises funds for the operation of the IASB. 7 Most contributors are margins and other companies which use or have an interest in promoting international standards. In 2008, American companies gave ? 2. 4m, more than those of any other country. However, contributions fell in the wake of the financial crisis of 20072010, and a shortfall was reported in 2010. 05. The Basel CommitteeThe Basel Committee on Banking Supervision provides a forum for regular cooperation on trusting supervisory matters. Its aim is to enhance sagaciousness of key supervisory issues and impr ove the grapheme of banking inspection worldwide. It seeks to do so by exchanging information on national supervisory issues, go upes and techniques, with a view to promoting common understanding. At times, the Committee uses this common understanding to develop guidelines and supervisory standards in areas where they are considered desirable. In this regard, the Committee is best known for its international standards on capital adequacy the Core Principles for sound Banking Supervision and the Concordat on cross-border banking supervision.The Committees members come from Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The present Chairman of the Committee is Mr Nout Wellink, President of the Netherlands Bank. The Committee encourages contacts a nd cooperation among its members and other banking supervisory authorities. It circulates to supervisors throughout the world both published and unpublished papers providing guidance on banking supervisory matters. Contacts have been further beef up by an International Conference of Banking Supervisors (ICBS) which takes place every two years.The Committees secretariate is located at the Bank for International Settlements in Basel, Switzerland, and is staffed mainly by professional supervisors on temporary secondment from member institutions. In adjunct to undertaking the secretarial work for the Committee and its many expert sub-committees, it stands get to to give advice to supervisory authorities in all countries. Mr Stefan Walter is the Secretary General of the Basel Committee. Main Expert Sub-Committees The Committees work is organised under four main sub-committees The Standards Implementation Group The Policy Development Group The Accounting assign Force The Basel Co nsultative Group Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision.The purpose of Basel II, which was initially published in June 2004, is to create an international standard that banking regulators can use when creating regulations about how a good deal capital banks need to put aside to guard against the types of financial and in operation(p) put on the lines banks face. Advocates of Basel II believe that such an international standard can help protect the international financial carcass from the types of problems that might arise should a major bank or a series of banks collapse. In theory, Basel II attempted to accomplish this by setting up happen and capital management requirements designed to ensure that a bank holds capital reserves appropriate to the risk the bank exposes itself to through its lending and investment practices.Generally speaking, these rules mean tha t the great risk to which the bank is exposed, the greater the amount of capital the bank needs to hold to safeguard its solvency and overall economical stability. objective The final version aims at 1. Ensuring that capital allocation is more risk sensitive 2. Separating operative risk from credit risk, and quantifying both 3. Attempting to align economic and regulative capital more closely to reduce the scope for restrictive arbitrage. The Accord in operation Basel II uses a three keystones concept (1) minimum capital requirements (addressing risk), (2) supervisory review and (3) market discipline. The Basel I ossification dealt with only parts of each of these pillars.For example with respect to the first Basel II pillar, only one risk, credit risk, was dealt with in a simple manner while market risk was an afterthought operational risk was not dealt with at all. The first pillar The first pillar deals with maintenance of regulatory capital calculated for three major com ponents of risk that a bank faces credit risk, operational risk, and market risk. Other risks are not considered richly quantifiable at this stage. The credit risk component can be calculated in three different ways of varying tier of sophistication, namely standardized admittance, Foundation IRB and mod IRB. IRB stands for Internal Rating-Based Approach.For operational risk, there are three different approaches basic indicator approach or BIA, standardized approach or TSA, and the internal measurement approach (an advanced form of which is the advanced measurement approach or AMA). For market risk the preferred approach is VaR (value at risk). As the Basel 2 recommendations are phased in by the banking industry it will move from exchangeable requirements to more refined and specific requirements that have been developed for each risk category by each individual bank. The upside for banks that do develop their own bespoke risk measurement systems is that they will be rewarded with potentially lower risk capital requirements.In future there will be closer links between the concepts of economic profit and regulatory capital. Credit Risk can be calculated by employ one of three approaches 1. Standardised Approach 2. Foundation IRB (Internal Ratings Based) Approach 3. Advanced IRB Approach The assess approach sets out specific risk weights for certain types of credit risk. The standard risk weight categories are used under Basel 1 and are 0% for short term government bonds, 20% for exposures to OECD Banks, 50% for residential mortgages and 100% weighting on unsecured commercial-grade loans. A new 150% rating comes in for borrowers with poor credit ratings. The minimum capital requirement (the percentage of risk weighted assets to be held as capital) remains at 8%.For those Banks that decide to adopt the standardised ratings approach they will be forced to rely on the ratings generated by external agencies. Certain Banks are developing the IRB approach as a result. The second pillar The second pillar deals with the regulatory response to the first pillar, giving regulators much improved tools over those available to them under Basel I. It also provides a framework for dealing with all the other risks a bank may face, such as systemic risk, pension risk, concentration risk, strategical risk, reputational risk, liquidity risk and legal risk, which the accord combines under the title of rest risk. It gives banks a power to review their risk management system. The third pillarThis pillar aims to promote greater stability in the financial system Market discipline supplements regulation as sharing of information facilitates assessment of the bank by others including investors, analysts, customers, other banks and rating agencies. It leads to good corporate governance. The aim of pillar 3 is to allow market discipline to operate by requiring lenders to publicly provide details of their risk management activities, risk rating processes and risk distributions. It sets out the public disclosures that banks must make that lend greater insight into the adequacy of their capitalization. When marketplace participants have a sufficient nderstanding of a banks activities and the controls it has in place to manage its exposures, they are come apart able to distinguish between banking organizations so that they can reward those that manage their risks prudently and penalize those that do not. 06. The Financial Accounting Standards Board (FASB) The Financial Accounting Standards Board (FASB) is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles (GAAP) within the United States in the publics interest. The Securities and Exchange Commission (SEC) designated the FASB as the organization responsible for setting accounting standards for public companies in the U. S.It was created in 1973, replacing the Committee on Accounting outgrowth (CAP) and the Accounting Princi ples Board (APB) of the American Institute of Certified Public Accountants (AICPA). military commission statement The FASBs mission is to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information. To achieve this, FASB has five goals Improve the service program of financial reporting by focusing on the primary characteristics of relevancy and reliability, and on the qualities of comparability and consistency. Keep standards current to reflect changes in methods of doing business and in the economy. Consider promptly any significant areas of deficiency in financial reporting that might be improved through standard setting. Promote international convergence of accounting standards concurrent with improving the quality of financial reporting. Improve common understanding of the nature and purposes of information in financial reports. FASB pronouncements In or der to establish accounting principles, the FASB issues pronouncements publicly, each addressing general or specific accounting issues. These pronouncements are Statements of Financial Accounting Standards Statements of Financial Accounting Concepts FASB Interpretations FASB Technical Bulletins EITF Abstracts FASB 11 Concepts 1. Money measurement 2. Entity 3. Going concern 4. Cost 5. Dual aspect 6. Accounting period 7. Conservation 8. realisation 9. Matching 10. Consistency 11. Materiality 07. Committee on Accounting effect (CAP) In 1939, encouraged by the SEC, the American Institute of Certified Public Accountants (AICPA) formed the Committee on Accounting Procedure (CAP). From 1939 to 1959, CAP issued 51 Accounting Research Bulletins that dealt with issues as they arose.CAP had only limited success because it did not develop an overall accounting framework, but rather, acted upon specific problems as they arose. Accounting Principles Board (APB) In 1959, the AICPA replaced C AP with the Accounting Principles Board (APB), which issued 31 opinions and 4 statements until it was dissolved in 1973. GAAP essentially arose from the opinions of the APB. The APB was criticized for its structure and for several of its positions on controversial topics. In 1971 the Wheat Committee (chaired by Francis Wheat) was formed to evaluate the APB and propose changes. Financial Accounting Standards Board (FASB) The Wheat Committee recommended the replacement of the Accounting Principles Board with a new standards-setting structure.This new structure was implemented in 1973 and was made up of three organizations Financial Accounting Foundation (FAF) Financial Accounting Standards Board (FASB) Financial Accounting Standards Advisory Council (FASAC). Of these organizations, FASB (pronounced FAS-B) is the primary operating organization. Unlike the APB, FASB was designed to be an independent board comprised of members who have severed their ties with their employers and private firms. FASB issues statements of financial accounting standards, which define GAAP. The AICPA issues audit guides. When a conflict occurs, FASB rules. International Accounting Standards Committee (IASC)The International Accounting Standards Committee (IASC) was formed in 1973 to encourage international cooperation in developing consistent worldwide accounting principles. In 2001, the IASC was succeeded by the International Accounting Standards Board (IASB), an independent private sector body that is structured similar to FASB. Governmental Accounting Standards Board (GASB) The financial reports of state and local goverment entities are not directly comparable to those of businesses. In 1984, the Governmental Accounting Standards Board (GASB) was formed to set standards for the financial reports of state and local government. GASB was modeled after FASB.