A Historical Look at U.S. GAAP Essay Example for Free

A Historical Look at U.S. generally accepted accounting principles EssayABSTRACTThis account discusses the historical development of generally accepted score principles through its contributing sources from 1930 to the present. U.S. Businesses had been using double entry accounting since the 1800s yet no homogeneous accounting practices had been introduced until the American Institute of Accountants (AIA) recommended to the New York Stock Exchange in 1932, five broad principles of accounting which have won fairly general acceptance, (Zeff, 2005, para. 4). In which, the terms fairly present and in accordance with were first workoutd followed up with generally accepted accounting principles. Later, a sixth principle was approved. These recommendations were found on the three assumptions that all business transactions were apart from the business owner, all transaction currencies measured in the US dollar, the assumption of time and the co-ordinated principle. Thus establishing a foundation of which all future accounting principles are based.The AIA formed the Committee on accountancy Procedures (CAP) to publish Accounting Research Bulletins (ARB) on GAAP under the authority of the Security and Exchange Commission (SEC) created by the Securities Act of 1934. The CAP was later reorganized into the Accounting Principles Board (APB) that issued Opinions between 1959 and 1973. The pecuniary Accounting Standards Board (FASB) has been the source for buck private sector generally accepted accounting principles since 1973. Input by the private sector has been crucial to the development of GAAP since 1930. Historically, GAAP is influenced by the business condition and public interest.The Great Depression left the public with little faith in the private sector. Although the knowledge and contract of businesses would be consulted for standards businesses were not trusted to set and regulate accounting standards. A common practice in the 1920s was to adjust asset values up(a) to the highest market value arguably misleading investors prior to the 1929 crash (Zeff, 2005, para. 10). In response, CAP and the SEC strongly mandated historical cost accounting as the unobjectionable basis of reporting.Shortly after, the U.S. was brought into WWII directing the CAPs focus to issues pertaining to war time accounting. In addition, the CAP addressed the issues of the exclusion of unrealized profit from income, the use of capital surplus to offset losses, and notes and accounts receivable from officers, employees, and affiliated companies. The most notable item during the CAPs tenure summed up was its ARBs issued in response to intercourses decision permitting companies to use the LIFO inventory method. This was a rare instance that tax policy influenced GAAP and was initially directed to companies purchasing cancel metals because the FIFO method was equated to higher income taxes due to the time lapse between the assets scholarship and sale (Zeff, 2 005). The method was available to all industries in 1939.While CAP was praised for addressing questionable reporting practices prior to the crash it was mostly labeled as weak by critics for failing to set a uniform accounting framework to mitigate comparability issues. At the advice of the AIA, now known as the AICPA, the Accounting Principles Board replaced the CAP. ARB 43 was quickly published to fictionalize all Accounting Research Bulletins and eliminate any superseded ARBs. The research driven APB published 31 opinions. The first few answered reporting questions regarding the investment credit per the tax revenue Act of 1962 allotting businesses a credit for a specified percentage of the cost of certain depreciable assets placed into service after 1961 (FASB, 1962, para.1).The board concluded that the credit whitethorn be recorded as an offset to net income over the assets life or as a reduction in acquisition cost during the period it occurred. This is important because it is a conceptual precursor to todays section 179 and bonus depreciation credits of which most small and strong point sized businesses depend on and consider when determining capital investments. All opinions regarding credits and other tax reporting issues were later superseded by the FASBs literary argument number 109, Accounting for Income Tax. Many of the APBs remaining opinions dealt with emerging issues brought about by the postindustrial economy.For instance, the board developed guidelines for intangible assets such as goodwill, the truth method of accounting for common stock, accounting for employee stock options, the reporting of extraordinary items in the income statement, and set the criteria to use pooling of interest or the purchase method in business combinations. The most controversial accomplishment of the APB was its 1970 publication Basic Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises. The boards issuance of this as a no n-authoritative standard rather than opinion was met with negative criticism as it failed to commit to any conceptual framework solutions and reaffirmed the fundamental disagreement among members on this topic.The board was short after dissolved and replaced by the FASB with new, independent members in 1973. Nearly all APB Opinions were superseded by FASB statements (FAS) at different points in time. The FASB remains the authoritative source for private sector accounting practices today. The Sarbanes Oxley Act of 2002 restated the FASBs position in setting accounting standards. The FASB does not have the authority to enforce standards. The responsibility has always been with managers to groom and file financial statements in accordance to GAAP with the SEC. Auditors, overseen by the Public Company Accounting Oversight Board (PCAOB), issue opinions on the conformity and accuracy of the financial statements. The role of auditors has become increasingly crucial in the post Enron era .The FASB remains committed to addressing any deficiencies in the reporting process and meeting on a regular basis with the PCAOB and SEC to prevent future financial disasters. Probably the most serious issues to date addressed by the FASB resulted from the subprime mortgage crisis and the subsequent financial crisis of 2008. According to Leslie Seidman (2011), hot seat of the FASB, high profile controversy relating to the determination of the fair value of assets and liabilities in an illiquid market prompted the issuance of FAS 157, Fair Value Measurements. Effective November 2007, the standard expanded manifestation for fair value measurements and included changes in fair value practice for certain entities (FASB, 2006, para. 1).The FAS 133 released in January 2008 provided new and additional guidance on derivatives and designated a aggroup within the FASB to assist with statement implementation. The FASB works to harmonize the previously mentioned standards and all others wi th international Financial Reporting Standards (IFRS). Discussion of international accounting principles has occurred for decades and an International Accounting Standards Committee (IASC) has existed since 1973.It was not until the 1990s when globalization motivated the FASB to deliberate a strategic plan for international activities. In 2002, the FASB and IASB started collaborating to converge US GAAP and International Accounting Standards. A memorandum of understanding was released by the two boards in 2006 and amended in 2008. In 2011, the FASB sent a letter to the IFRS Foundation Trustees describing its views on many key issues. The FASB continues to balance long term IASB projects with its work on issues relating to US GAAP.REFERENCESFinancial Accounting Standards Board. (1962). APB 2 Accounting for the Investment Credit. Retrieved from http//www.fasb.org/cs/BlobServer?blobkey=idblobwhere=1175820900137blobheader=application%2Fpdfblobcol=urldatablobtable=MungoBlobs Financial A ccounting Standards Board. (2006). Summary of Statement No. 157. Fair Value Measurements. Retrieved from http//www.fasb.org/summary/stsum157.shtml Financial Accounting Standards Board. (2012). International Convergence of Accounting Standards Overview. IASB-FASB modify Report. Retrieved from http//www.fasb.org/jsp/FASB/Page/SectionPagecid=1176156245663 Seidman, L.F. The Role of the Accounting Profession in Preventing Another Financial Crisis. U.S. Senate Banking, Housing, and Urban Affairs Subcommittee on Securities, Insurance, and Investment Testimony. FASB. April 6, 2011. Zeff, S. A. (2005). The Evolution of U.S. GAAP The Political Forces so-and-so Professional Standards. The CPA Joural, Retrieved from http//www.nysscpa.org/cpajournal/2005/105/infocus/p18.htm