Politicalization of Accounting Standards

Topics: Financial Accounting Standards Board, Great Depression, Wall Street Crash of 1929 Pages: 2 (658 words) Published: February 25, 2013
• Case 1-3 Politicalization of Accounting Standards
Some accountants have said that politicalization in the development and acceptance of generally accepted accounting principles (i.e., standard setting) is taking place. Some use the term politicalization in a narrow sense to mean the infl uence by governmental agencies, particularly the SEC, on the development of generally accepted accounting principles. Others use it more broadly to mean the compromising that takes place in bodies responsible for developing these principles because of the infl uence and pressure of interested groups (SEC, American Accounting Association, businesses through their various organizations, Institute of Management Accountants, fi nancial analysts, bankers, lawyers, etc.). a. The Committee on Accounting Procedure of the AICPA was established in the mid- to late 1930s and functioned until 1959, at which time the Accounting Principles Board came into existence. In 1973, the Financial Accounting Standards Board was formed, and the APB went out of existence. Do the reasons these groups were formed, their methods of operation while in existence, and the reasons for the demise of the fi rst two indicate an increasing politicalization (as the term is used in the broad sense) of accounting standard setting? Explain your answer by indicating how the CAP, APB, and FASB operated or operate. Cite specific developments that tend to support your answer. Yes, the reasons for the demise of the Committee on Accounting Procedure (CAP) of the AICPA and the Accounting Principles Board can be related to a growing influence by governing bodies, “politicalization”, such as the SEC. After investors lost life savings due to the stock market crash of 1929, the Securities Act of 1933 and Securities Act of 1934 were established. Since the SEC’s initiation, the organization has continued to set accounting standards, while providing oversight to auditing and accounting firms. With the increasing need for more...
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