Tuesday, March 12, 2019

A Historical Look at U.S. GAAP Essay

ABSTRACTThis paper discusses the historical development of gener every last(predicate)y accepted report principles through its contributing sources from 1930 to the pre displace. U.S. Businesses had been using double entering account since the 1800s yet no uniform account statement chastens had been introduced until the American found of Accountants (AIA) recommended to the New York Stock flip-flop in 1932, five broad principles of story which have won fairly general acceptance, (Zeff, 2005, para. 4). In which, the legal injury fairly present and in consent with were first used followed up with generally accepted accounting principles.Later, a sixth principle was approved. These recommendations were ground on the three assumptions that all rail line transactions were apart from the vocation owner, all transaction currencies measured in the US dollar, the assumption of prison term and the matching principle. Thus establishing a foundation of which all future accounting principles are based.The AIA formed the Committee on report Procedures ( lie) to publish method of 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 explanation Principles scorecard (APB) that issued Opinions between 1959 and 1973. The pecuniary chronicle Standards Board (FASB) has been the source for privy sector generally accepted accounting principles since 1973. Input by the orphic sector has been crucial to the development of GAAP since 1930. Historically, GAAP is influenced by the condescension condition and public interest.The Great Depression left the public with elflike faith in the private sector. Although the knowledge and experience of businesses would be consulted for standards businesses were not trusted to set and regulate accounting standards. A common utilisation in the 1920s was to adjust asset values up ward to the r isqueest trade value arguably misleading investors prior to the 1929 crash (Zeff, 2005, para. 10). In response, CAP and the SEC strongly mandated historical make up accounting as the refreshing basis of inform.Shortly after, the U.S. was brought into WWII directing the CAPs focus to issues pertaining to war time accounting. In addition, the CAP address the issues of the exclusion of unrealized dough from income, the use of capital surplus to offset losses, and notes and accounts receivable from officers, employees, and affiliated companies. The approximately notable item during the CAPs tenure summed up was its ARBs issued in response to congresss decision permitting companies to use the LIFO blood line method. This was a rare instance that tax policy influenced GAAP and was initially directed to companies purchasing natural metals because the FIFO method was equated to higher income taxes everywheredue to the time lapse between the assets acquisition and exchange (Zeff, 2 005). The method was available to all industries in 1939.While CAP was praised for addressing funny reporting practices prior to the crash it was mostly labeled as scant(p) by critics for failing to set a uniform accounting modeling 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 produce to restate all Accounting Research Bulletins and eliminate all superseded ARBs. The research driven APB published 31 opinions. The first few answered reporting questions regarding the investment recognize per the taxation 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 tabular array concluded that the credit may be recorded as an offset to net income over the assets life or as a reducing in acquisition cost during the period it occurred. This is important because it is a conceptual precursor to todays section 179 and bonus depreciation ascribe of which most small and medium sized businesses depend on and remove when determining capital investments. All opinions regarding credits and other tax reporting issues were later superseded by the FASBs statement number 109, Accounting for Income Tax. some of the APBs remaining opinions dealt with emerging issues brought about by the postindustrial economy.For instance, the shape up developed guidelines for intangible assets such as goodwill, the equity 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 implicit in(p) Financial Statements of Business Enterprises. The boards issuance of this as a non- dogmatic standard rather than opinion was met with negative criticism as it failed to move to any conceptual framework solutions and reaffirmed the fundamental disagreement among members on this topic.The board was soon after dissolved and replaced by the FASB with new, independent members in 1973. virtually 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 mail service in setting accounting standards. The FASB does not have the authority to utilise standards. The responsibility has always been with managers to prepare 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 go away increasingly crucial in the post Enron era.The F ASB remains committed to addressing any deficiencies in the reporting process and meeting regularly with the PCAOB and SEC to stop 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), chairman of the FASB, high profile controversy relating to the determination of the fair value of assets and liabilities in an illiquid merchandise prompted the issuance of FAS 157, Fair Value Measurements. Effective November 2007, the standard expanded disclosure 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 team within the FASB to assist with statement implementation. The FASB works to harmonize the antecedently mentioned standards and all others with 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 actuate the FASB to deliberate a strategic plan for international activities. In 2002, the FASB and IASB started collaborating to receive US GAAP and International Accounting Standards. A memorandum of spirit 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 symmetry 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=id&blobwhere=1175820900137&blobheader=application%2Fpdf&blobcol=urldata&blobtable=MungoBlobs Financial Accounting Standards Board. (2006). Summary of Statement No. 157. Fair Value Measurements. Retrieved from http//www.fasb.org/ compendium/stsum157.shtml Financial Accounting Standards Board. (2012). International Convergence of Accounting Standards Overview. IASB-FASB Update Report. Retrieved from http//www.fasb.org/jsp/FASB/ page/SectionPage&cid=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 slow Professional Standards. The CPA Joural, Retrieved from http//www.nysscpa.org/cpajournal/2005/105/infocus/p18.htm

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