PROFESSOR: All jobs have ethics. Doctors have rules and guidelines to follow when attending to a patient. Architects have protocols in place to make sure their buildings are structurally sound. Accountants are no different. Ethics are extremely important in the financial world.

If companies could create, edit, and change their earnings without any oversight, nobody would invest in the stock market. In accounting, there are a few key terms you need to know in regard to ethics. Number one is the Sarbanes-Oxley Act, lovingly termed SOX. SOX was passed by congress to try and lower corporate scandals and unethical behavior.

SOX did a few things. It required the upper management of companies to certify the accuracy of financial information. It increased penalties for fraudulent financial activity. And it also increased the independency of outside auditors who check the accuracy of financial statements.

Aside from Congress, the accounting profession developed its own standards to follow. The standards are termed GAAP, or generally accepted accounting principles. In the United States, the Financial Accounting Standards Board, or FASB, is the one who sets up the standards for GAAP.

Outside of the US, the International Accounting Standards Board sets its own standards, called the International Financial Reporting Standards, or IFRS. Because we live in a global economy, both GAAP and IFRS have been moving closer and closer together, so that the US companies' statements can be more easily compared to the statements outside of America.

This process is called convergence. Someday, we hope that the standards of GAAP and IFRS merge completely.