Accounting and reporting standards in the USA, as elsewhere, are environmentally based. An understanding of these influences is necessary to facilitates financial statement analysis and interpretation when dealing with US-based companies.

While financial statements in the USA are intended to be general purpose, they are heavily influenced by the information needs of private investors, who are the principal providers of external finance in a predominantly free-market economy. Thus financial reports prepared by management seek to provide information that is useful to investors in assessing the amounts, timing and uncertainty of future cash flows that are of interest to them. This contrasts sharply with financial reports that are aimed at complying with statutory reporting requirements of government or fiscal authorities.

Accounting and reporting standards are promulgated largely through the efforts of private professional bodies and enforced through public sector actions. The primary objective is to provide a commercial, as opposed to legalistic, framework for accounting prescriptions. To be effective, they must prove acceptable to the major users of accounting information, with variations in the application of accounting standards being revealed primarily through full and fair disclosure. The major standard-setting body at present is the Financial Accounting Standards Board (FASB); other important bodies include the Financial Accounting Foundation (FAF), which appoints members of the FASB, funds their activities and exercises general oversight, and the Financial Accounting Standards Advisory Council (FASAC), which consults the FASB on major issues and organizes working task forces.

The US approach to promulgating accounting standards is a direct consequence of its unique reporting environment. Accounting measurements embodies in US accounting standards differ from those formulated elsewhere for similar reasons. Asset valuation is less conservative and more pragmatic than elsewhere, for example, and the use of discretionary reserves is not permitted, as it is in Germany, Japan, Sweden and Switzerland.

Independent auditors provide a credibility check on management's financial representations by rendering an opinion as to the reliability and fairness of those representations. They are legally liable to third parties if found negligent in performing their duties. The threat of lawsuits may be viewed as a free-market response to real or perceived audit failures in the USA.

Accounting and financial reporting in the USA are heavily influenced by the information needs of capital suppliers. This contrasts sharply with financial reports that are designed to serve more macro-oriented needs. In the face of international differences in accounting and reporting, demands for increased accounting uniformity are appealing. Statement readers, however, should not be fooled by international standards that paper over reporting differences that are environmentally-based. While accounts which conform to German, US or other codes can be restated to conform to some internationally accepted nor, the resulting measures could mislead rather than inform.