This article discusses the continued development and progression of the accounting industry in response to various economical events from the early 1970’s to the present day. Intermediate accounting theory is presented along with a discussion of the necessity of accounting regulations and standard-setting organizations.
Upon completion of this article, the reader will have a greater understanding of the evolution of the accounting standard setting organizations and the establishment of Generally Accepted Accounting Procedures (GAAP).
Formation of the Financial Accounting Standards Board (FASB)
In response to the controversy about the APB, the AICPA formed the Wheat Committee in 1971. This committee was formed to study the establishment of financial accounting principles. Named after it’s chairman, Francis Wheat, the Wheat Committee conducted research which resulted in the recommendation that the APB be dissolved and the Financial Accounting Standards Board (FASB) be created. The AICPA accepted the recommendations and in 1973, implemented the FASB. FASB would be created from members of all organizations to ensure adequate representation within the industry. The AICPA selected the following eight organizations to form the FASB:
American Accounting Association
AICPA
The Association for Investment Management and Research
The Financial Executives Institute;
The Government Finance Officers Association
The Institute of Management Accountants
The National Association of State Auditors, Comptrollers and Treasurers
The Security Industry Association.
Some of the major differences between the FASB and the APB include:
Smaller Membership – the FASB has only seven members instead of 17-21
Full-time Membership – unlike the APB, where members were part-time and unpaid, members of the FASB would be full-time, paid members.
Statements of Financial Accounting Concepts (SFAC) – SFAC’s are used to form the Conceptual Framework which is the underlying foundation for financial accounting. They do not create GAAP (Generally Accepted Accounting Principles)
Statements of Financial Accounting Standards (SFAS) – SFAS’s are releases that do create GAAP. Sometimes they are modifications of previous pronouncements issued by prior regulatory bodies.
FASB Interpretations – FASB interpretations are modifications of previous pronouncements issued by prior regulatory bodies. For example, an update or clarification to an APB could be classified as an interpretation.
Technical Bulletins – Technical Bulletins address specific issues arising in the accounting industry. They do not create GAAP and are used primarily for very specific events addressing implementation problems.
The FASB created another organization known as the Emerging Issues Task Force (EITF). The purpose of this organization is to directly address issues and problems that require immediate action. For example, shortly after the September 11, 2001 attacks, the EITF issued statements indicating how to account for financial losses resulting from the attacks. (Brune, 2001). If necessary, the EITF takes the issues to the FASB who, upon a consensus of voting FASB members, implements the changes as part of GAAP.
GAAP and the Global Environment
Generally Accepted Accounting Principles (GAAP) are principles that have “substantial authoritative support” (Kieso, 2004). GAAP only applies within the United States. Other countries have their own standards of accounting known as International Financial Reporting Standards. Within the United States, GAAP has become the standard for financial accounting that all CPA’s must follow. GAAP is formed from previous pronouncements, principles, bulletins and other issued statements from the FASB and their predecessors.
As business continues to expand globally with international business becoming the norm, new challenges surface for accountants and business regarding international accounting standards and GAAP. In continuing with the evolution of accounting standards and reporting, International Accounting regulatory bodies are working closely with U.S. regulatory bodies to come up with a uniform, global accounting standard. The International Accounting Standards Board (IASB) is undergoing a major convergence program with the FASB to incorporate and combine principles from both accounting standards into a single global standard (Journal of Accountancy, 2007).
Business For Thought 
Posted on 2011/10/03
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