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Accounting History, The Accounting Historian, And The Fasb

The ARBs and APB Opinions were considered authoritative guidance for accountants and auditors, and their goal was to improve financial reporting by establishing uniform accounting principles. The first two standard-setting organizations in the United States were the Committee on Accounting Procedure (CAP), which was established in 1938, and the Accounting Principles Board (APB), which replaced the CAP in 1959. Both organizations were committees of the American Institute of Certified Public Accountants (AICPA) and included approximately twenty representatives of the accounting profession who served on a part-time basis. Pronouncements issued by those two bodies are considered to be generally accepted accounting principles (GAAP) unless they have been specifically amended or replaced by a subsequent pronouncement. The FASB was designed to be a more independent and authoritative body, with full-time members dedicated to the task of setting accounting standards. The FASB adopted a more rigorous and transparent process for standard-setting, including exposure drafts, public hearings, and greater stakeholder input.

FINANCIAL ACCOUNTING STANDARDS BOARD

These publications were aimed at providing guidance and establishing standards on various accounting issues. The APB’s work focused on topics such as revenue recognition, inventory valuation, lease accounting, and pensions. Some of the most significant APB publications include ARB No. 43, which provided guidance on inventory valuation, and APB Opinion No. 17, which addressed accounting for leases. The APB was created by the American Institute of Certified Public Accountants (AICPA), which was concerned about the lack of standardization and consistency in accounting practices at the time. The AICPA sought to bring greater uniformity to the field by creating a body that would establish authoritative accounting principles.

The Richard C. Adkerson Gallery on the SEC Role in Accounting Standards Setting

The number of comment letters received on an ED can range from a few dozen to more than a thousand, depending on how pervasive and how controversial the proposal is. Comment letters are received primarily from corporations, large public accounting firms, government regulators, academics, and financial analysts, although any interested party is free to express his or her views. After reading the letters, the board redeliberates all the issues in the ED and any additional issues that may have arisen in the comment and field-test processes. At the end of those deliberations, the board again votes; if there is sufficient support among the board members, it issues a final Statement of Financial Accounting Standards. The United States has a longstanding tradition of accounting standards being set by the private sector as opposed to the government.

The FASB is funded by revenues from the sales of its publications and by voluntary contributions, primarily from public accounting firms and corporations. The usual composition of the board is three members with extensive public accounting experience, two from a corporate background, one academic, and one financial analyst. In 2006, the FASB began working with the International Accounting Standards Board (IASB) to reduce or eliminate the differences between U.S. GAAP and the International Financial Reporting Standards (IFRS), known as the IASB-FASB convergence project.15 The scope of the overall IASB-FASB convergence project has evolved over time. The IASB and FASB issued converged standards for accounting topics including Business combinations (2008), Consolidation (2011), Fair value measurement (2011), and Revenue recognition (2014). As of 2022, the convergence project is coming to an end and no new projects will be added to the agenda.

The Evolution of Accounting Standards: A Look at the APB

1. The charter gives the FASB exclusive authority to set its own agenda and establish accounting standards.
2. This board would be slimmed down to seven members who would be full-time employees, selected by a Financial Accounting Foundation (FAF), the parent organization of the new structure.
3. While FASB proposals were often controversial, the FAF itself occasionally was embroiled in controversy.
4. While accounting standard setting remained in the private sector, the FASB’s establishment continued the steady erosion of the public accounting community’s influence over the process and the results.

Between 1959 and 1973, the Accounting Principles Board (APB) was charged with creating accounting standards and issuing pronouncements related to accounting theory and practice. Membership ranged from 18 to 21 representatives from major accounting firms, industry, and academia. The APB served an important role, as it was the first organized body to lay the foundation for GAAP that is so integral to the integrity of financial statements today. The APB itself was a successor organization to the Committee on Accounting Procedure, which was considered ineffective. However, due to its lack of resources, the APB also could not keep pace with the changes and growth of the types of transactional activity in corporate America that required financial reporting.

What are the differences between a change in accounting principle and a change in accounting estimate?

Many of the APB’s publications were subsequently superseded by FASB Statements and Interpretations, although some continue to be referenced in today’s accounting literature. The FASB was formed in 1973 to succeed the Accounting Principles Board and carry on its mission. Accounting standards are essential in the financial world, as they provide a framework for accurate and consistent financial reporting. Over the years, accounting standards have evolved to meet the ever-changing needs of the business environment. One of the key players in the development of accounting standards in the United States was the Accounting Principles Board (APB). This article will explore the history of the APB, its contributions to accounting standards, and the impact it has had on the accounting profession.

Neutrality means that accounting standards should be designed to provide in 1973 fasb was replaced with the best possible information for economic decision making without regard to how that information may affect economic, political, or social behavior. Put another way, accounting standards should not be intentionally biased for the purpose of promoting either private special interests or government policy goals. Neutrality has been reinforced by adoption and adherence to a broad set of principles called the conceptual framework. That framework was designed to produce standards that result in neutral information that is useful in decision making. No longer would the accounting standard setter consist of volunteers with full-time jobs in private practice or industry.

1. The AICPA requires public accounting firms that audit either public or private companies to express an opinion as to whether those companies’ financial statements conform with GAAPs.
2. For those projects in which a discussion memorandum is issued and the complete “due process” cycle is followed, historical studies pertaining to the problem that are available during the period that the FASB staff is preparing a memorandum could be very useful.
3. However, it raises an offsetting concern about independence from government intervention in funding and agendas.
4. It means that all its technical business is conducted in meetings that are announced in advance and are open to the public.
5. Following an FASB statement on stock options, the Financial Executives Institute (FEI) initiated proposals in 1996 that were seen by the SEC as an attempt to put the FAF, and thus the FASB, under preparers’ control.
6. This article will explore the historical context in which the APB was created, its key contributions, and how it paved the way for the FASB.

Formation of the Accounting Principles Board

Following an FASB statement on stock options, the Financial Executives Institute (FEI) initiated proposals in 1996 that were seen by the SEC as an attempt to put the FAF, and thus the FASB, under preparers’ control. For corporations based in the European Union, the International Financial Reporting Standards (IFRS) rules are the equivalent of GAAP.

The SEC had endorsed the Wheat Study Group recommendations, and in December 1973 gave the FASB its imprimatur in Accounting Series Release (ASR) No. 150. The SEC stated that, based on the evidence of private sector support for the FASB, it would continue to look to the private sector to establish and improve accounting principles. The reason for the low level of output from the APB was that its members operated on only a part-time basis.

It also may be appropriate to present certain historical analysis in a letter of response to a discussion memorandum or exposure draft. The Accounting Principles Board played a significant role in the evolution of accounting standards in the United States. Its contributions to the development of accounting principles and the establishment of a framework for financial reporting have had a lasting impact on the accounting profession. Although the APB was eventually replaced by the FASB, its legacy can be seen in the continued use of many of its accounting principles and the foundation it provided for the development of GAAP. The APB consisted of 18 to 21 members, primarily from public accounting firms, but also from industry, academia, and government. The board was responsible for researching and issuing accounting principles known as Accounting Research Bulletins (ARBs) and APB Opinions.

The output of the APB was relatively small for an organization that operated for 14 years, with only 31 opinions and four statements issued during that time. However, some of this material proved to be influential in shaping later accounting standards, and some of the opinions remain partially in force. Examples of opinions that are still used deal with the content and structure of the financial statements, such as the consolidation of financial statements, the treatment of debt, and interim financial reporting. While accounting standard setting remained in the private sector, the FASB’s establishment continued the steady erosion of the public accounting community’s influence over the process and the results.