Accounting is commonly considered the language of finance. A common set of principles and rules help establish accounting standards. Accountants who audit financial statements (auditors ) also adhere to a common set of audit principles and rules to examine financial statements. In the United States, accounting and auditing standards are promulgated and regulated by various federal, state, and self-regulatory agencies. Accounting and auditing standards are also influenced by practitioners from businesses, nonprofits, and government entities (federal, state, and local). Congress has allowed financial accounting and auditing practitioners to remain self-regulated while retaining oversight responsibility. At certain times, Congress has sought to achieve specific accounting- and auditing-based policy objectives by enacting legislation such as the Sarbanes-Oxley Act of 2002 (SOX) and the Federal Credit Reform Act of 1990 (FCRA). This report examines the U.S. accounting and auditing regulatory structure. It first provides background on why different accounting standards exist between the private and public sectors. The next three sections of the report discuss how accounting and auditing standards are created and regulated in the private sector, the federal government, and state and local governments. Some of the common concepts that affect accounting and auditing standards across all sectors are discussed in detail in the private-sector segment of the report. Then, the report discusses the relationship between (1) international accounting and auditing standards and (2) the United States Generally Accepted Accounting Principles (U.S. GAAP) and Generally Accepted Auditing Standards (U.S. GAAS). Next, the report discusses the newly emerging Sustainability Accounting Standards for the private sector. Lastly, this report has three appendixes. Appendix A provides a table of acronyms that are common to the accounting and auditing profession and used throughout this report. Appendix B provides a glossary that explains the various financial statements listed in Table 1 . Appendix C provides the American Institute of Certified Public Accountants' (AICPA) Principles of Professional Conduct for Certified Public Accountants (CPAs). The informational needs of stakeholders differ between the private and public sectors. As a consequence, different accounting and auditing standards have evolved in these sectors to address stakeholders' specific needs. In the private sector, financial statements communicate to stakeholders such as investors, creditors, company employees, regulators, and others how the company used its resources to generate profit and expand its business, or how the company incurred loss and the likelihood the business will survive over the long run. Public-sector entities such as the federal, state, and local governments issue reports to communicate how tax revenues were used to benefit citizens. Their intended audience is usually taxpayers, Congress, or the state and local legislatures. State and local governments have standards distinct from those of the federal government. Thus, accounting and auditing standards can be classified into three areas: (1) private industry standards, (2) federal government standards, and (3) state and local government standards. Figure 1 provides an overview of the accounting and auditing standard-setters for the different segments that will be discussed in this report. In the private sector, financial statements provide economy-wide benefits to firms and investors through the dissemination of accurate information. One way these benefits are realized is through the efficient allocation of capital between investors and firms. Investors rely on financial statements to make informed decisions on how best to invest their savings. Financial statements are a primary means by which firms communicate with capital markets, investors, creditors, regulators, the public, and others. Figure 2 illustrates the range of private-sector stakeholders. The private sector includes public and private companies as well as not-for-profit organizations, though this report focuses on public companies. The accounting and auditing standards created for publicly traded firms are subject to the Securities and Exchange Commission's (SEC's) oversight. Congress created the SEC in 1934 to protect investors and to maintain fair, orderly, and efficient markets. However, Congress has oversight over the SEC and annually appropriates its funding. Accountants and auditors, in addition to adhering to accounting and auditing standards, are also subject to the ethical requirements of their affiliated membership organizations, such as CPAs' Principles of Professional Conduct (see Appendix C ). Accounting is a process by which an entity identifies, measures, and communicates financial information about its economic activities to stakeholders by adhering to a common set of practices, known as Generally Accepted Accounting Principles (GAAP). The primary way for an entity to communicate its financial performance to its stakeholders is through financial statements. In simple terms, accounting standards are agreements among practitioners (i.e., accountants, auditors, and regulators) on how each line item on the financial statement should be valued and reported. One of the powers Congress gave the SEC is the statutory authority to establish accounting standards for the private sector in the United States. Since the creation of the SEC, domestic companies have used GAAP to issue financial statements. Throughout its history, the SEC has relied on the private sector to establish and develop GAAP in the United States. Currently, the SEC recognizes the Financial Accounting Standards Board (FASB) as the designated organization for establishing GAAP for the private sector. Financial statements for publicly traded companies as well as privately held companies commonly include an income statement, a balance sheet, a statement of shareholder equity, and a statement of cash flows. Table 1 compares the different financial statements presented in annual reports of various entities in different sectors (for an explanation of different statements, see Table B-1 ). As previously discussed, as a consequence of the differences between the private sector and the public sector, the financial statements normally used in one sector might not exist in another sector. Further, financial statements within the same sector (e.g., the private sector) will communicate a qualitatively different set of information based on their underlying business activity. As an example, the financial statements for Boeing, mainly a manufacturer of commercial jetliners, defense, space, and security systems, will be qualitatively different from those of T-Mobile, a provider of cell phone service and retailer of cell phones. Federal securities laws require public companies, both domestic and foreign, to share critical information about their performance on an ongoing basis. Domestic companies are required to submit annual reports on Form 10-K, quarterly reports on Form 10-Q, and current events on Form 8-K. Form 10-K provides a comprehensive overview of the company's performance, including audited financial statements, and is required to be filed 60-90 days after the fiscal year-end based on the size of the company. Form 10-Q is required to be filed 40-45 days after quarter end. Form 8-K is required to be filed within four business days to inform shareholders of material corporate events. Companies submit their forms (reports) electronically to SEC's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. Foreign companies that participate in U.S. capital markets are required to file a different but comparable set of financial reports. Based on the expectation that the United States will eventually either adopt or converge with International Financial Reporting Standards (IFRS), the SEC in 2007 changed the requirement for Foreign Private Issuers (FPIs). Until 2007, foreign and domestic firms had similar filing requirements with the SEC. In 2007, to prevent foreign firms from potentially delisting from U.S. exchanges, the SEC authorized foreign firms to file either Form 20-F using IFRS or Form 10-K using U.S. GAAP. This ruling eased concerns that some foreign firms might delist from the U.S. exchanges due to additional costs they would incur either reconciling or converting from IFRS to U.S. GAAP. Further, SEC was still debating in 2007 as to whether the United States should converge with the IFRS or continue to follow U.S. GAAP. The annual report to shareholders is distinct from Form 10-K. The annual report to shareholders is considered a state-of-the-company report to its shareholders and potentially interested stakeholders. It usually contains a letter from the CEO, financial data, results of operations, market segment information, new product plans, subsidiary activities, and research and development on future programs. The SEC requires the annual report to be sent to shareholders. The SEC also requires listed companies to post their annual reports and proxy materials on the firm's website. Proxy materials provide the firm's shareholders with information on substantive issues related to the firm. It also provides an avenue for the shareholders to influence the decisions of the firm's board of directors and management, including the selection of the board of directors and compensation of company executives. The annual report filed with the SEC on Form 10-K might contain more detailed information about the company's financial condition than the annual report to shareholders. Companies may send their annual 10-K report to shareholders instead of creating a separate annual report. Registered FPIs are required to follow a similar set of requirements as domestic firms. Private- or public-sector stakeholders need to have reasonable assurance that the financial statements of an entity are free of material misstatement whether caused by error or fraud. In the private sector, independent assurance to shareholders and other stakeholders is provided by a qualified external party—an auditor. The auditor is engaged to give an unbiased professional opinion on whether the financial statements and related disclosures are fairly stated in all material respects for a given period of time in accordance with GAAP. As a consequence of financial accounting fraud in the early 2000s, Congress passed the Sarbanes-Oxley Act of 2002. SOX created the Public Company Accounting Oversight Board (PCAOB) as a nonprofit corporation to provide independent oversight of audits of public companies. The PCAOB also oversees the audits of brokers and dealers, including compliance reports.