The Financial Accounting Standards Board

The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board (PCAOB) to assume the responsibility of overseeing the auditors of public companies. The PCAOB is a private-sector, non-profit corporation. It was established to "protect the interests of investors and further the public interests in the preparation of informative, fair, and independent audit reports". (The PCAOB) Although the PCAOB is a private sector organization, it has many government-like regulatory functions. The PCAOB was created in response to an increasing number of accounting restatements by public companies during the 1990s and a series of recent high-profile scandals like Enron and WorldCom. Prior to the PCAOB, the audit industry was self-regulated

Financial reports are designed for external users and follow generally accepted accounting principles (GAAP). Further, GAAP is governed by the Federal Accounting Standards Board (FASB). Consequently, this board consists of certified public accountants, attorneys, business people, and government officials. However, managerial reports are designed for internal users and are created based upon the information the organization’s leadership wants to review or analyze.

In October 3, 2014 the Financial Accounting Standard Board (FASB) issued proposed updates to the disclosure framework for the board decision process. This disclosure framework is meant to improve the effectiveness of disclosures in notes to financial statements. According to the disclosure framework effectiveness of the financial statements could be achieved by enhancing clarity in communication of information that is most important to users of each entity financial statements. FASB agrees that reduction in volume of the notes to financial statement is note the main objective but also does not refute the fact that concentration on the most important information in note will automatically lead to reduction in the volume of notes to financial statements (Financial Accounting Standards Board, 2014).

According to the Government Accounting Standards Board (GASB), general capital assets are required to be recorded at historical cost. If the cost of the capital asset is unknown, then an estimated cost can be used. Also if the cost of a capital asset are donated, they are recorded at their fair value at the time of receipt, plus ancillary charges.

Congress created the Public Company Accounting Oversight Board (PCAOB) or known as the Board, a nonprofit corporation in 2002 after Sarbanes- Oxley Act. The PCAOB purpose is to keep watch over audits of public companies in order to protect investors. Their responsibilities are broken into three main parts besides registering public accounting firms, the first one which is setting auditing standards by establishing what they need to do for audits, establishing quality controls, ethics, and independence. Second, Inspecting registered public accounting firms by conducting inspections and investigations of registered accounting firms and third is enforcement of the Sarbanes-Oxley.

When it comes to the rules of accounting, the Financial Accounting Standards Board, or FASB, is in charge mostly. Their main responsibilities include making changes to the rules of accounting they think is crucial for key people and businesses as well as inform them of the changes made. To make sure the rules are understandable by the people and businesses, FASB change and update them to fit what is in today’s capabilities. One of the most important recent changes happened in the first month of twenty-sixteen: many known as “Standard Update 2016-01”.

The national Financial Accounting Standards Board (FASB) and The International Accounting Standards Board (IASB) came together and jointly issued a newer revenue recognition standards. This will change the effects of the current revenue guided under US GAAP and IFRS. It will take not much of the time to be used as the date is set to have effects from 2017. All of the firms had to work under the rules and regulations set. There is enough of the time left to understand and work on the changes. On dated 28th May, 2014 the new revenue standards were issued for contracts with customers. It has the power to give limitations and new rules are to be followed by various industries. It also includes those industries which have their own policies

On February 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (Update) on Leases (Topic 842) to communicate changes to the FASB Codification. In this Update it defines the term, Leases and also explains why FASB is issuing this Update, who will be affected by the amendments, how do the main provision differ from current Generally Accepted Accounting Principal (GAAP) and why are they an improvement, as well as explaining the transition and when the amendment will be effective.

Accountants have used whatever tactics they could to place a positive spin on the financial statements. Over the years, there was a need for improvements in financial reporting. In 1999, the Governmental Accounting Standards Board (GASB) issued Statement No. 34; which caused a major change in the reporting requirements of the government (Fischer, Cheng, & Taylor, 2009). This also led to a very comprehensive accounting process. GASB 34 made big improvements in how the government views their financial statements.

Financial information is seen to be relevant is it has ‘confirmatory value, predictive value, or both’ (Maynard, 2013, pp14). There are also four enhancing characteristics, which improve the usefulness of financial information. One of these characteristics is understandability which means that the information in an annual report should be ‘classified, characterised and presented clearly and concisely in order to make it understandable’ (Maynard, 2013, pp16). Other characteristics include comparability, verifiability and timeliness (Appendix 1). As there are many characteristics to satisfy in order to meet the demands of the users, the annual report is said to obscure important information and include ‘clutter (which) undermines the usefulness of annual reports and accounts’ (Financial Reporting Council, 2011). This then gives an unclear understanding of the issues a company actually faces, and raises the question as to whether these characteristics are right, as relevant information becomes more difficult for users to analyse a company’s progress.

‘US GAAP’ is the term used to indicate the body of authoritative literature that comprises accounting and reporting standards in the US. Rules and interpretative releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.

The materiality concept has been addressed by The International Accounting Standards Committee (IASC), as well as by accounting bodies in the United States such as the American Institute of Certified Public Accountants (AICPA), the Securities and Exchange Commission (SEC), the Financial Accounting Standard Board (FASB), and the General Accounting Office (GAO). Materiality was defined by FASB Concepts Statement No. 2, Qualitative Characteristics of Accounting Information (Para. 132, 1980) as follows: “The magnitude of an omission or mis-statement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or mis-statement”(Juma 'h, 2009).

At the beginning of the 21th century, the Financial Accounting Standards Board (FASB) started to realize the importance of fair value accounting as for a new measurement basis for asset and liability. The FASB believed the primary objective of financial reporting is to provide relevant and useful information about the future cash flow to current and prospective investors and creditors (Whittington, 2008). Since the historical cost accounting usually gives information about past transaction, not information about the future, to existing shareholders or creditors, FASB thought financial statements based on historical cost accounting could not be relevant and useful to prospective investors, which makes them difficult to achieve the main

International Standards on Auditing (ISA) 320 defines materiality as 'the amount or amounts set by the auditor as an error, an inaccuracy or an omission that may lead to annual misstatements, as well as the fairness of the results, of the financial statements and the enterprise 's patrimony. The IASC declares that for information to be material, its omission or misstatement can have an influence on economic or financial decisions based on the financial statements. It depends heavily on item size and or error as determined in certain circumstances of their misstatement or omission. Materiality thus gives the threshold instead of being the primary characteristic that useful information has to posses. Financial Accounting Standards Board (FASB) puts it that materiality represents the magnitude of a misstatement or omission of information in a financial statement which a reasonable individual making a decision based on the financial statements would be influenced by. Various reference points can be used in determining materiality e.g. turnover, net result and equity capital (Joldos, et. al. 2010).

During Transnet’s 2015 financial year they recognised revenue under IAS 18: Revenue. During the same financial year a new standard to account for revenue was issued namely IFRS 15: Revenue from contracts with customers. The reasons for issuing a new standard was because IAS 18 was broad and therefore lead to confusion and inconsistencies in the treatment of similar transactions. The new standard results in different accounting implications in the annual financial statements of Transnet. To evaluate the accounting implications of IFRS15 it must be compared with IAS 18. One major implication is the change from recognising revenue from services rendered by using the percentage of completion method that is stated in IAS 18. IFRS 15 recognises revenue either over-time or at a point in time.