United States of America

The financial reporting framework in the United States is established under several laws and regulations, such as the Securities Exchange Act of 1934 (the Act), the Sarbanes–Oxley Act of 2002, and the Accounting Standards Codification issued by the Financial Accounting Standards Board (FASB).

The Accounting Standards Codification, commonly known as the U.S. Generally Accepted Accounting Principles (U.S. GAAP), is developed for application by all nongovernment entities; however, only public business entities are legally required to prepare financial statements. In accordance with the FASB definition, a public business entity meets one of the following criteria:

• It is required by the U.S. Securities and Exchange Commission (SEC) to file financial statements, or does file financial statements, with the SEC;
• It is required by the Act, to file financial statements with a regulatory agency other than the SEC;
• It is required to file financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer;
• It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market; and
• It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements and make them publicly available on a periodic basis.

Although nonpublic entities are not required by law to use U.S. GAAP, there are numerous situations, such as obtaining credit or seeking investors, which require, by contract, those entities also to follow U.S. GAAP when preparing their financial statements. Recognizing the differences in the reporting needs and objectives of public and nonpublic entities, the FASB also considers through its Private Company Council the appropriate accounting treatment for these types of entities. The FASB and the International Accounting Standards Board have been working together since 2002 to achieve convergence of IFRS and U.S. GAAP; however, differences still exist.

The SEC has the authority to establish the standards for public business entities under the Act of 1934; however, it relies on the FASB to fulfill this responsibility and officially recognizes the FASB-issued U.S. GAAP through the Financial Reporting Release No. 1, Section 101, which was most recently reaffirmed in its April 2003 Policy Statement.

Banks and saving institutions are regulated by three agencies: the Federal Reserve, responsible for regulating state member institutions; the Federal Deposit Insurance Corporation, responsible for regulating non-member banks; the Office of Comptroller of the Currency, regulating national banks and savings institutions. These agencies require regulatory reporting to be conducted in accordance with generally accepted accounting principles that are also used for general-purpose external financial reporting. However, in some cases, the regulators can limit the options available under U.S. GAAP.

Similar to the preparation of financial statements, only public business entities are legally required to be audited. Nonpublic entities are not generally required to be audited. However, entities seeking funding through private placements or debt or equities securities may, in certain circumstances, be required to produce audited financial statements. Entities in regulated industries that have Government contracts, that are seeking government funding, or that have contractual or other reasons to produce audited financial statements, are expected to be audited in accordance with auditing standards generally accepted in the United States. These standards are promulgated by the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA) and constitute what is known as the U.S. Generally Accepted Auditing Standards. The ASB has completed its clarity project whereby all auditing standards have been redrafted using the format of the IAASB and where possible based on ISA and ISQC 1.

Per the Sarbanes–Oxley Act of 2002, auditing standards for public business entities are established by the Public Company Accounting Oversight Board (PCAOB) and approved by the SEC. The PCAOB requires the use of the AICPA Statements on Auditing Standards, as in existence of April 16, 2003 (also referred to “Interim Standards”) as well as 18 Audit Standards issued by the PCAOB. The standards differ from ISA. The PCAOB requires that auditors of public business entities be subject to external and independent oversight. Firms auditing public business entities are required to be registered with the PCAOB and to adhere to all PCAOB rules and standards in those audits.

The regulation of professional accountants in the United States is primarily carried out by the state boards of accountancy, which coordinate through the National Association of State Boards of Accountancy, and the Public Company Accounting Oversight Board (PCAOB) for firms auditing public business entities. The professional accountancy organizations—the American Institute of Certified Public Accountants (AICPA) and the Institute of Management Accountants (IMA)—each have self-regulatory practices for their respective members.

Each state board has the authority, in its respective jurisdiction, to regulate all licensed accounting professionals—certified public accountants (CPA) or public accountants—and the services these professionals are authorized to perform. The state boards also set initial professional development (IPD) and continuing professional development (CPD) requirements, ethical requirements, carry out the investigation and disciplinary processes, and require quality assurance reviews for auditors that are to be conducted by the PCAOB for auditors providing services to public business entities and the AICPA for auditors engaged in public practice for nonpublic entities. Certain regulated services are restricted to licensed accountants who are either owners or employees of registered public accounting firms. Only CPAs can perform the mandatory audits of public business entities.

The Sarbanes–Oxley Act of 2002 requires that auditors of U.S. public business entities be subject to external and independent oversight by the PCAOB. Its mandate includes registration of accounting firms that audit public business entities trading in the United States securities markets, brokers, or dealers; inspection of registered accounting firms; establishment of standards for auditing, quality control, ethics, and independence, as well as attestation, for registered accounting firms; and investigation and discipline of registered accounting firms and their associated persons for violations of law or professional standards. Firms auditing public business entities are required to be registered with the PCAOB and to adhere to all PCAOB rules and standards in those audits.

Additionally, the Securities and Exchange Commission and other federal government agencies may, under federal law or regulation, discipline CPAs who provide services to entities under their respective supervision.

The AICPA sets ethical as well as IPD and CPD requirements for its members; develops and grades the Uniform CPA Examination; conducts quality assurance reviews for its members engaged in public practice for nonpublic entities; and establishes an investigation and discipline system to monitor and enforce members’ compliance with the profession’s technical and ethical standards. The IMA also represents management accounting professionals. Qualified members of the IMA hold the designation of Certified Management Accountant. The IMA sets ethical as well as IPD and CPD requirements for its members, and it maintains an investigation and discipline system to enforce ethical requirements.

Audit oversight in the United States is performed by the Public Company Accounting Oversight Board (PCAOB). PCAOB is a private-sector, nonprofit corporation created by the Sarbanes-Oxley Act of 2002 to oversee the auditors of public business entities in order to protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports.

The mandate of the PCAOB includes registration of accounting firms that audit public business entities trading in the United States securities markets, brokers, or dealers; inspection of registered accounting firms; establishment of standards for auditing, quality control, ethics, and independence, as well as attestation, for registered accounting firms; and investigation and discipline of registered accounting firms and their associated persons for violations of law or professional standards. The PCAOB is a member of the International Forum of Independent Audit Regulators.

In addition, individuals that offer auditing services may voluntarily join the American Institute of Certified Public Accountants (AICPA) and become subject to its regulations which are further described in the

The American Institute of Certified Public Accountants (AICPA)

The AICPA is a voluntary member association representing the accounting profession, with members in 144 countries. Founded in 1887, the AICPA represents the CPA profession nationally regarding rule-making and standard-setting, and serves as an advocate before legislative bodies, public interest groups, and other professional organizations. The AICPA develops standards for audits of nonpublic entities; sets initial professional development (IPD), continuing professional development (CPD) and ethical requirements for its members; provides educational guidance materials to its members; develops and grades the Uniform CPA Examination; conducts quality assurance reviews for its members engaged in public practice for nonpublic entities; and establishes an investigation and discipline system to monitor and enforce compliance with the profession’s technical and ethical standards.

The AICPA, together with the Chartered Institute of Management Accountants, formed the Association of International Certified Professional Accountants (the “Association”). Qualified members of the Association hold the designation Chartered Global Management Accountant.

In addition to being a member of IFAC, the AICPA is also a member of the Confederation of Asian and Pacific Accountants and the Institute of Chartered Accountants of the Caribbean.

The Institute of Management Accountants (IMA)

The IMA is a voluntary membership association focused on addressing the needs of management accounting professionals. Qualified members of IMA hold the designation of Certified Management Accountant (CMA). Founded in 1919, the IMA states in its mission that its role is to provide a forum for research, practice development, education, knowledge sharing, and the advocacy of the highest ethical and best business practices in management accounting and finance. The IMA sets ethical as well as IPD and CPD requirements for CMAs, and maintains an investigation and discipline system to enforce ethics requirements.

The National Association of State Boards of Accountancy and the American Institute of Certified Public Accountants have developed a Uniform Accountancy Act to be a single comprehensive piece of legislation to be adopted by the state boards to unify requirements and regulations. The adoption across the state boards remains pending to date.

The Sarbanes–Oxley Act of 2002 grants the Public Company Accounting Oversight Board (PCAOB) authority to establish a mandatory quality assurance (QA) review system for auditors of public business entities.

The PCAOB conducts regular inspections of audit firms that issue audit reports on the financial statements of public business entities. The PCAOB inspects each firm either annually or triennially, depending upon whether the firm provides audit reports for more than 100 public business entities (annual inspection) or 100 and fewer (triennial inspection).

ISQC 1 and ISA 220 have not been adopted by the PCAOB. The PCAOB, in December 2019, issued a release that proposed updating quality control standards with the IAASB’s quality management standards. As of May 2022, the PCAOB has not concluded the process.

The state boards of accountancy require QA reviews for auditors of nonpublic entities in 53 of the 55 U.S. territories. These territories require auditors of nonpublic entities to participate in the peer-review system operated by the American Institute of Certified Public Accountants (AICPA). The AICPA reports that the AICPA’s Peer Review Program fulfills all the requirements of SMO 1.

In June 2022, the Auditing Standards Board (ASB) of the AICPA issued quality management standards based on the IAASB’s quality management standards. The quality management standards have an effective date of December 15, 2025.

Current Status: Partially Adopted

Initial professional development (IPD) and continuing professional development (CPD) requirements are established by the state boards of accountancy and the professional accountancy organizations in the United States. Each state board of accountancy has the authority to regulate licensed accounting professionals—certified public accountants (CPA) or public accountants—in their respective jurisdictions. Completion of the Uniform CPA Exam, practical experience, and mandatory CPD are generally required in all states to be licensed as a CPA and maintain the qualification.

CPAs must adhere to CPD requirements set forth by the state boards of accountancy of the state where a CPA license is held.

The American Institute of Certified Public Accountants (AICPA) sets IPD and CPD requirements for its members, and develops and grades the Uniform CPA Examination. Individuals wishing to join AICPA are required to: a minimum of 150 semester hours of education at an accredited college or university, including a bachelor's degree; completion of the Uniform CPA Exam; possess a CPA certificate issued by a state board of accountancy, professional practical experience requirement, and mandatory CPD hours (120 hours within three-years). The AICPA reports that its IPD and CPD requirements fulfill the requirements of the revised IES (2019).

The Institute of Management Accountants (IMA) sets IPD and CPD requirements for its certified members. To qualify as a Certified Management Accountant (CMA), an individual must earn a bachelor’s degree from an accredited institution, complete two years of work experience in management accounting or financial management, pass the CMA exam, and maintain 30 verifiable hours of annual continuing professional education (including a minimum of two hours in the area of ethics). The IMA reports that its Certified Management Accountant qualifications address the requirements of the revised IES (2019).

Although many of the requirements of the IES appear to have been adopted in the U.S., the full extent of adoption, particularly among all the state boards of accountancy, would benefit from further clarity and confirmation.

Current Status: Partially Adopted

The Section 13 (a) (2) of the Securities Exchange Act of 1934 and the Sarbanes–Oxley Act of 2002 require public business entities to be audited. The auditing standards to be used in the audits of the financial statements of public business entities are set by the Public Company Oversight Board (PCAOB) and approved by the Securities Exchange Commission. The PCAOB requires the use of the Statements on Auditing Standards, issued by the American Institute of Certified Public Accountants (AICPA) as in existence of April 16, 2003, as well as 18 Audit Standards issued by the PCAOB. The standards differ from ISA.

Only public business entities are legally required to be audited. Nonpublic entities are generally audited on a voluntary basis. However, entities seeking funding through private placements or debt or equities securities may be required to produce audited financial statements in certain circumstances. Entities in regulated industries that have Government contracts, seeking government funding, or that have contractual or other reasons to produce audited financial statements, are expected to be audited according to auditing standards generally accepted in the United States. These standards are promulgated by the Auditing Standards Board (ASB) of the AICPA and constitute what is known as the U.S. Generally Accepted Auditing Standards. The AICPA reports that the ASB standards are converged with the 2020 ISA.

Current Status: Partially Adopted

Ethical requirements are established by the state boards of accountancy and the professional accountancy organizations in the United States. The state boards of accountancy have the authority to set ethical requirements for licensed public accounting professionals. Each state board has ethical rules and regulations that its licensees are obligated to observe as a condition of their licensure. The provisions of the rules and regulations of many of the state boards are identical or similar to the provisions of the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct. The AICPA reports that the ethical requirements of the AICPA Code of Professional Conduct meet those of the 2016 IESBA Code of Ethics and, in some cases, are more restrictive (e.g., independence with respect to loans, related entities, staff augmentation arrangements) than those of the IESBA Code. However, not all state boards have adopted the AICPA Code of Professional Conduct, and the extent to which they incorporate all of the requirements of the IESBA Code varies.

Licensed accounting professionals and firms that provide services to public business entities are also regulated by the Public Company Accounting Oversight Board (PCAOB) in accordance with the Sarbanes–Oxley Act of 2002. The PCAOB issues ethics and independence standards in their PCAOB rules, and requires the use of the AICPA’s Code of Professional Conduct, as in existence of April 16, 2003. The IESBA staff has completed a study comparing the provisions of the International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code)—in particular the independence provisions applicable to audits of financial statements of public interest entities (PIEs)—with the relevant rules of the U.S. Securities and Exchange Commission (SEC) and the PCAOB.

The comparison concludes that the Code and the SEC/PCAOB rules address similar topics and issues. The differences between the frameworks mainly result from the different circumstances in which the frameworks operate and the global applicability of the Code. Neither the Code nor the SEC framework is entirely “rules-based” or entirely “principles-based.” Both frameworks specify the fundamental objectives (or principles) by which an auditor’s independence should be assessed. Differences between the Code’s provisions and the SEC/PCAOB independence rules might result in different outcomes in practice, especially in relation to prohibited services and relationships for audit clients.

The Institute of Management Accountants (IMA) sets ethical requirements for its members. The IMA indicates that the Statement of Ethical Professional Practice and other requirements are no less stringent than those of the IESBA Code of Ethics.

Current Status: Partially Adopted

In the United States, public sector accounting standards to be applied in the financial reporting at the federal and the state levels are different.

The federal government and government agencies use the Statements of Federal Financial Accounting Standards issued by the Federal Accounting Standards Advisory Board (FASAB). State Governments and local governments use the standards issued by the Governmental Accounting Standards Board (GASB).

Neither FASAB nor GASB have made a decision to adopt IPSAS; however, both the FASAB and the GASB monitor the IPSASB’s work, participate in certain IPSASB due process efforts, and share information with the IPSASB on common projects.

Current Status: Not Adopted

The state boards of accountancy across the U.S. have the authority to carry out investigative and disciplinary processes for licensed accounting professionals in their respective jurisdictions.

The American Institute of Certified Public Accountants (AICPA) and 48 out of 55 state boards have joined together to create and participate in the Joint Ethics Enforcement Program (JEEP). AICPA reports that the JEEP Manual of Procedures fulfills all the requirements of SMO 6.

In accordance with the Sarbanes–Oxley Act of 2002, the Public Company Accounting Oversight Board (PCAOB) has the authority to investigate and discipline registered public accounting firms and persons associated with those firms. Further details and clarity on the PCAOB’s mechanism and alignment with the SMO 6 benchmark/best practices are pending.

The Institute of Management Accountants (IMA) is responsible for establishing and maintaining an investigative and disciplinary system for its members. The IMA Board Policy C-400 Ethics Compliance Procedures defines the governing process for disciplining members for ethical breaches. IMA’s Committee on Ethics has the responsibility for investigating possible ethics violations. IMA reports that the investigative and disciplinary processes within C-400 is in line with the SMO 6 requirements.

Current Status: Partially Adopted

The Section 13 (a) of the Securities Exchange Act of 1934 and the Sarbanes–Oxley Act of 2002, Section 404 and 302 state that public business entities must prepare annual statutory financial statements following the Accounting Standards Codification, commonly known as the U.S. Generally Accepted Accounting Principles (U.S. GAAP). The Financial Accounting Standards Board (FASB) is the designated organization for establishing standards of financial accounting governing the preparation of financial reports by nongovernmental entities; however, only public business entities are legally required to prepare financial statements. Although nonpublic entities are not required to use U.S. GAAP, there are certain situations, such as obtaining credit or seeking investors, which require, by contract, those entities to also follow U.S. GAAP when preparing their financial statements.

As issued by the FASB, U.S. GAAP is officially recognized by the Securities and Exchange Commission (SEC) and the American Institute of Certified Public Accountants. The FASB and the International Accounting Standards Board have been working together since 2002 to achieve convergence of IFRS and U.S. GAAP, but differences still exist.

The SEC has the statutory authority to establish financial accounting and reporting standards for public business entities; while it relies on the FASB’s standards for domestic public business entities, it does permit foreign public business entities to use IFRS as issued by the IASB.

There are no plans to adopt IFRS for SMEs.

Current Status: Partially Adopted

Relevant Organizations

• American Institute of Certified Public Accountants (AICPA)
• Board of Governors of the Federal Reserve System (FED)
• Federal Accounting Standards Advisory Board (FASAB)
• Federal Deposit Insurance Corporation (FDIC)
• Governmental Accounting Standards Board (GASB)
• Institute of Management Accountants (IMA)
• International Forum of Independent Audit Regulators (IFIAR)
• National Association of State Boards of Accountancy (NASBA)
• Office of the Comptroller of the Currency (OCC)
• Public Company Accounting Oversight Board (PCAOB)
• Securities and Exchange Commission (SEC)

Relevant Legislation

• PCAOB Bylaws and Rules
• Securities Exchange Act of 1934
• Sarbanes–Oxley Act of 2002
• FASB, “Definition of a Public Business Entity,” December 2013
• Uniform Accountancy Act, Seventh Edition, May 2014

Relevant Publications

• AICPA, SMO Action Plan, August 2022.
• AICPA, “Substantive Differences Between the International Standards on Auditing and Generally Accepted Auditing Standards,” February 2014.
• IAASB, “The New Auditor’s Report: A Comparison between the ISAs and the PCAOB Reproposal,” May 2016.
• IFRS Foundation, “Jurisdictional Profile: United States of America,” April 2017.