Page 374 - Encyclopedia of Business and Finance

eobf_G 7/5/06 3:03 PM Page 351

Government Role in Business

At the state and local levels, the process of govern- Act of 1890, the Federal Trade Commission Act of 1914,
ment financial reporting evolved during the twentieth and the Wheeler-Lea Act of 1938.
century. The blue book, or GAAFR, was established and
continues as the primary reference for government finan- Sherman Antitrust Act of 1890. One of the earliest pieces
cial reporting standards. The GASB was established in of legislation that had a critical effect on the business sec-
1984 and is the authority for setting those standards. The tor was the Sherman Antitrust Act of 1890. The Sherman
most common type of government financial report is the Antitrust Act was enacted in response to public outrage
CAFR. These reports are not merely stewardship reports, over a few large companies that were forcing their smaller
but also include capital assets and a management discus- competitors out of business and becoming monopolies.
sion and analysis. Since there was no competition, consumers were left with

SEE ALSO Government Accounting; Not-for-Profit higher prices and usually a lower-quality product.
Accounting The act had two main sections and attempted to pre-
vent the formation of monopolies. Specifically, section
one maintained that forming a trust or a conspiracy
BIBLIOGRAPHY
resulting in the restraint of trade was illegal. Section two
Berkowitz, S. J. (2005). Assessing and documenting internal
controls over financial reporting. The Journal of Government provided that persons monopolizing or attempting to
Financial Management, 54(3), 42–48. monopolize trade were guilty of a misdemeanor. The fed-
Government Finance Officers Association. (2005). Governmental eral government was (and is) looking for companies
accounting, auditing and financial reporting. Chicago: Author. engaging in price fixing, in dividing up the market share
Governmental Accounting Standards Board. (1999). GASB over- among different companies to control the market, or in
hauls reporting model. Journal of Accountancy, 188(2), 4. other business practices that may create a monopoly.
Hawkins, K. W., and Hardwick, K. (2005). Revised OMB Cir- The U.S. Department of Justice is the federal agency
cular A-123: SOX for federal agencies. The Journal of Govern- responsible for enforcing the act. By prosecuting individ-
ment Financial Management, 54(3), 54–61.
uals and companies violating provisions of the law, impos-
ing fines and jail time, or calling for injunctions, the
Robert J. Muretta, Jr. Justice Department prevents monopolies from forming.
The act also allows injured parties, usually other busi-
nesses, to file suit and get relief from the federal courts for
infractions of the law. The Justice Department also
GOVERNMENT ROLE IN reviews almost every large merger or acquisition that
affects the U.S. marketplace. If the Justice Department
BUSINESS
opposes a proposed merger, companies involved in the
Government regulation at the federal and state levels has transaction can try to work out an agreement to allay the
a major impact on how businesses operate in the United government’s concerns or oppose the Justice Department
States. In order to manage business activities in a complex in federal court, asking a judge to rule on the merits of the
society and to help respond to changing societal needs, case.
governments at all levels have created numerous agencies
Most companies planning a merger or takeover nor-
and regulatory acts. Although the duties and functions of
mally have their legal departments conduct exhaustive
each agency vary, all influence the day-to-day business
research in order to answer potential questions from the
activities that take place within the United States.
Justice Department. The primary reason for this research
Businesses that take a proactive stance toward under- is to avoid a long legal fight with the government that is
standing and complying with federal agencies and regula- expensive and can cause significant delays in the proposed
tory acts will minimize their chance of fines, prosecution, merger or takeover. For more information regarding the
or other action. Therefore, it is in the best interest of busi- Justice Department visit its Web site (http://www.
nesses to maintain healthy relationships with regulatory usdoj.gov).
agencies at all levels of government. Among the business
activities regulated by government are competitive prac- Federal Trade Commission Act of 1914. The Federal
tices, industry-specific activities, Internet activities, gen- Trade Commission Act of 1914 created the Federal Trade
eral issues of concern, and monetary regulations.
Commission (FTC), which consists of five members with
staggered terms of seven years each. Board members are
COMPETITIVE PRACTICES nominated by the president and confirmed or rejected by
A number of laws have been passed to protect competitive the Senate. No more than three members of the FTC can
practices. Among these laws are the Sherman Antitrust be from the same political party. One person serves as the

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 351