Policy making is more than a polarized process in which a decision of “for or against” is reached. The accounting historian should seek an under standing of the “political” considerations involved in the establishment of a financial accounting standard and the particular alternatives and more subtle points that were considered during the deliberations. The APB was created in 1959 by the American Institute of Certified Public Accountants (AICPA) as a successor to the Committee on Accounting Procedure (CAP). The CAP, which had been in existence since 1939, was dissolved due to concerns about its lack of formal standard-setting procedures and the perceived need for a more authoritative body to govern accounting principles.

International comparability vs. convergence

The FASB is governed by seven full-time board members, who are required to sever their ties to the companies or organizations they work for before joining the board. Board members are appointed by the FAF’s board of trustees for five-year terms and may serve for up to 10 years. Realizing the need to reform the APB, leaders in the accounting profession appointed a Study Group on the Establishment of Accounting Principles (commonly known as the Wheat Committee for its chairman Francis Wheat). This group determined that the APB must be dissolved and a new standard-setting structure created.

Although the federal government’s Securities and Exchange Commission (SEC) has the legal authority to establish accounting standards for public companies, the SEC has historically looked to the private sector to set accounting standards. The GASB, which is similar in function to the FASB, was established in 1984 to set accounting and financial reporting standards for state and local governments across the United States. The Financial Accounting Standards Board (FASB) is a private standard-setting body1 whose primary purpose is to establish and improve Generally Accepted Accounting Principles (GAAP) within the United States in the public’s interest. The Securities and Exchange Commission (SEC) designated the FASB as the organization responsible for setting accounting standards for public companies in 1973 fasb was replaced with in the U.S. The FASB replaced the American Institute of Certified Public Accountants’ (AICPA) Accounting Principles Board (APB) on July 1, 1973. The APB served an important role in its time, laying the foundation for GAAP, the set of accounting standards and procedures that are intended to ensure consistency, transparency, and integrity in U.S. corporate financial statements.

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

It is responsible for selecting members of the FASB, raising money to fund the FASB’s operations, and providing general oversight of the FASB to assure that it is performing its mission. The foundation is composed of a sixteen-member board of trustees that represent the majority of the groups interested in, or affected by, the accounting standard-setting process. Largely as a result of criticisms concerning the perceived lack of independence of the APB and the part-time involvement of its members, a major reconsideration of the standard-setting structure in the United States occurred in the early 1970s. This led to the creation in 1973 of a new standard-setting body designed to be independent of all other business and professional organizations.

Convergence with International Financial Reporting Standards

1. Established in 1959, the APB was a key player in the development of accounting standards and principles during its 14-year tenure.
2. The foundation is composed of a sixteen-member board of trustees that represent the majority of the groups interested in, or affected by, the accounting standard-setting process.
3. Over the years, accounting standards have evolved to meet the ever-changing needs of the business environment.
4. The board was responsible for researching and issuing accounting principles known as Accounting Research Bulletins (ARBs) and APB Opinions.
5. In 2006, the FASB began working with the International Accounting Standards Board (IASB) to reduce or eliminate the differences between U.S.

The United States Securities and Exchange Commission (SEC) was created as a result of the Great Depression. The SEC encouraged the establishment of private standard-setting bodies through the AICPA and later the FASB, believing that the private sector had the proper knowledge, resources, and talents. Currently, the SEC works closely with various private organizations setting GAAP, but does not set GAAP itself. During its existence, the APB issued 31 Accounting Research Bulletins (ARBs) and four APB Opinions.

After completion of initial research by the staff and consideration of comments on a Discussion Memorandum or Preliminary Views, if one of those documents is issued, the board members begin deliberating the issues in earnest. This process can take anywhere from a few months to several years, depending on the number and complexity of the issues involved as well as the strength of the convictions of individual board members. Once at least five board members agree on an overall answer, the board issues an Exposure Draft (ED) of a proposed standard for public comment. An independent group, the Financial Accounting Foundation, oversees the activities of the FASB.

The charter gives the FASB exclusive authority to set its own agenda and establish accounting standards. The London-based International Accounting Standards Board (IASB), founded in 2001 to replace an older standards organization, is responsible for the International Financial Reporting Standards (IFRS), which are now used in many countries throughout the world. In recent years, the FASB has been working with the IASB on an initiative to improve financial reporting and the comparability of financial reports globally. Those standards began to be developed by the APB, which was charged with creating guidelines for accounting and issuing pronouncements related to accounting theory and practice. Its membership consisted of between 18 and 21 representatives of accounting firms, corporate executives, and academics. The FASB has a professional staff of approximately forty-five persons; once a project is added to the agenda, staff members are assigned to begin research on the topic.

How should a change in accounting principle be recorded and reported?

1. The FASB is governed by seven full-time board members, who are required to sever their ties to the companies or organizations they work for before joining the board.
2. For example, pronouncements on topics such as accounting for employee stock options, postretirement health care benefits, and derivative financial instruments were strongly opposed by many corporations and other affected parties.
3. However, it appears that the APB could not keep pace with the growing complexity of transactional activity that required financial reporting.
4. It also includes relevant Securities and Exchange Commission (SEC), guidance that follows the same topical structure in separate sections in the Codification.
5. Today’s financial reporting landscape is built upon the foundation established by the APB and its commitment to improving accounting practices in the United States.
6. It also may be appropriate to present certain historical analysis in a letter of response to a discussion memorandum or exposure draft.

It is also possible for the discussion memorandum and public hearings to be eliminated entirely. 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. Since a discussion memorandum is oriented to decision issues, an historical study that focuses on the relevant issues raised in the past and which analyzes past reporting practices could be of assistance in framing current issues.

The Codification is effective for interim and annual periods ending after September 15, 2009. All existing accounting standards documents are superseded as described in FASB Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. S-Ox provided for funding through support fees assessed against issuers of securities.(15) While subscriptions and publications provide about one-third of FAF revenues, the substantial majority comes from support fees. This has freed the FAF from its fundraising efforts and helped further assure the Board’s independence from the preparer and audit communities.

It was replaced in the early 1970s by FASB, a private, non-profit organization led by seven full-time board members. The Financial Accounting Standards Board (FASB) publishes and maintains the Accounting Standards Codification (ASC), which is the single source of authoritative nongovernmental U.S. (15) Section 978 of The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 provided for similar accounting support fees for the GASB, expected to begin in 2012. Other influential organizations include the Government Finance Officer’s Association (GFOA), American Accounting Association, Institute of Management Accountants, and Financial Executives Institute. While FASB proposals were often controversial, the FAF itself occasionally was embroiled in controversy.