accounting memo
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2.pptxAccounting Standard Setting
Private Sector
The Development of Financial Accounting and Reporting Standards
The Great Depression created pressure on the accounting profession to establish a uniform accounting standard.
Congress created the 1933- Securities Act: Setting of requirements for initial offerings of securities
1934- Securities Exchange Act- setting of requirements of sale of stocks and bond sold on the secondary market.
Congress established the Securities Exchanges commission; Congress gave the SEC both the power and responsibility for setting accounting and reporting standards to the private sector.
BETA -FASB No. 1.0
1939-1959 Committee on Accounting Procedure (CAP)
Issued 51 Accounting Research bulletins for specific accounting and reporting issues.
Failed to create framework for financial reporting
Dealt with issues on a per-problem basis
1957- American Institute of Certified Public Accountants (AICPA)
1959- 1973 Accounting Principle Board replaces CAP (APB)
Issued 31 Accounting Principles Board Opinions (APBOs), which many have not been superseded and still represent authoritative GAAP
Created APB Standards No. 4 “Basic Concepts and Accounting Principles Underlying financial statements of Business Enterprises.
APB was composed of 18-21 members of the accounting profession which were supported by their employer; therefore, were perceived to lack independence.
FASB
1973- Financial Accounting Standard Board (FASB)
Seven full time members
Members are comprised from multiple professional environment; Private sector, Public Sector, Accounting Educators, and Government officials
Provided Conceptual Framework for Financial Reporting
1972- Financial Accounting Foundation (FAF)
Is responsible for selecting members of the FASB and its Advisory Council
Ensuring Adequate funding of FASB activities
General oversight of FASB activities
1984- FASB creates, Emerging Issues Task Force (EITF)
Was formed to provide more timely responses to emerging financial reporting issues.
Membership included 15 individuals from public and private sectors
They identify financial reporting issues and attempts to resolve them without involving FASB
The Establishment of Accounting Standards- A Political Process
Since FASB created the conceptual financial reporting framework any changes to this framework is known to be a called a political process
Before adopting any changes, FASB must consider potential economic consequences of a change in an accounting standard or the introduction of a new standard.
Example in changes in Accounting Standards
Accounting for postretirement employee health care benefits.
Accounting for Business combinations; allowing two separate and distinct methods of accounting for business combinations; the pooling method of interest, and the purchase method. debate related to goodwill, an intangible asset that arises only in business combinations accounted for using the purchase method.
Standard Setting Process
How does FASB provided a Financial Framework for companies that operates globally?
1973- FASB created International Accounting Standards Committee
Developed Global Accounting Standards
Promoted the Standards
Converted National Accounting to International Standards
IASC issued 41 International Accounting Standards, Six Standards are known as International Financial Reporting Standards.
APB Option no. 2
Investment Tax Credit
Issued December 1962
Established only one method for accounting for ITC
“Cost Reduction” method
Opposing method
“Flow Through” method
Controversy
APB and SEC first political encounter
“Big 8”
Four of the big 8 companies disagreed
Three of the firms announced they would not follow.
SEC announcement in Accounting Series release
Opinion no. 2 discontinued
APB Opinion no. 4
Issued in March 1964
APB amending option 2
Either method of accounting of the ITC is accepted
Brought leniency to corporations
Changes in Accounting (Leases)
Why develop a new change?
Include Assets & Liabilities
When did it take place?
FASB & ISAB => ASC 842
What takes into place?
Major Change
Operating Leases
US GAAP Rule
Periodical Expense
FASB and the Accounting Standard Update for Leasing Transactions.
Capital Leases under FASB
Considered Capital Lease if:
Lease life exceeds at least 75% of asset’s life
Transfer of ownership
Option to purchase
Lease payments > 90% FMV
Bibliography
Durr, With Dr. Kenneth, and With Dr. James Stocker. "Securities and Exchange Commission Historical Society." (Investment Credit Fiasco) | Galleries | Virtual Museum and Archive of the History of Financial Regulation. SEC Historical, n.d. Web. 18 Jan. 2017.
"FASB, Financial Accounting Standards Board." Leases. N.p., n.d. Web. 18 Jan. 2017.
Jarnagin, Bill D. 2009 U.S. Master GAAP Guide. Chicago, IL: CCH, 2008. Print.
Lobbying Behavior: Evidence from Proposed Changes in Lease Accounting. N.p., n.d. Web.
