Accounting provisions of FCPA, found in Section 13(b)(2)(A) the Exchange Act in 16 U.S.C. Section 78m(b)(2)(A), are intended to ensure transparency of publicly traded companies. Provisions addressing accounting requirements are commonly called the “books and records” provisions.
These rules prohibit keeping ‘off the books’ accounts. Books and records must be accurate, they must fairly reflect transactions and dispositions of assets, and they must contain reasonable detail. Reasonable detail is defined as a level of detail sufficient to “satisfy prudent officials in the conduct of their own affairs.” Companies are also required to devise and maintain a system of internal accounting controls that is sufficient to ensure management has authority, control, and responsibility over the assets of the firm.
Accounting provisions were included in FCPA to ensure companies could not use their money to create a “slush fund” to pay bribes to foreign officials and to ensure companies did not try to hide bribes made to government entities. The accounting rules, however, do not apply only in situations where companies keep off-the-books accounts or hide bribes. The provisions apply broadly to form the backbone for the majority of accounting fraud cases and financial disclosure cases that are brought by either the Securities and Exchange Commission and the Department of Justice.