Auditors: An independent third party - neither an employee of the company nor an investor in the company - that provides an opinion regarding whether the company's financial statements comply with GAAP.
Certified Public Accountant (CPA): An individual licensed by a state to provide audit services.
Ethics: A set of criteria used to evaluate right and wrong. Accountants frequently face ethical dilemmas.
A company called Enron was caught committing fraud in 2001. It's auditor, Arthur Andersen, failed to detect the fraud.
In response to Enron - as well as other accounting scandals - congress passed the Sarbanes-Oxley Act in 2002.
Proponents: Principles-based accounting will prevent companies from abusing standards by following the technical rules as they are written.
Detractors: Because principles-based accounting lacks specific rules, it opens the door for abuse.
GAAP is rules based while IFRS (i.e., international GAAP) is principles based.