FASB Accounting Standards

Chapter 5

 

From this chapter:

According to most accounting experts (e.g., Robert May, et al. Accounting), financial statements that a U.S. business publishes and distributes to outsiders must conform to professional standards called Generally Accepted Accounting Principles (GAAP). Before the mid-1930s, GAAP consisted of a relatively few foundation elements that had evolved over several centuries. Considerable judgment was required to apply GAAP to individual businesses and circumstances. In fact, managers of U.S. firms made most judgments regarding what constituted GAAP and how financial statements were to conform. After the stock market crash of 1929 and the ensuing Great Depression, however, many abuses of the system were discovered. Although the crash and depression were not caused by accounting abuses, such abuses apparently were considered contributing factors. In the mid-1930s, the U.S. government passed the Securities Act of 1933 and the Securities and Exchange Act of 1934. Both acts gave the newly formed Securities and Exchange Commission (SEC) the authority to set accounting standards for financial statements filed with the SEC, affecting virtually all publicly owned U.S. corporations. The SEC turned to the accounting profession, represented by the American Institute of Certified Public Accountants (AICPA). The AICPA's Committee on Accounting Procedure (CAP) and later its Accounting Principles Board (APB) set standards for financial statements until 1973. In 1973, the Financial Accounting Standards Board (FASB), a new body independent of the AICPA, was formed to bring representatives of businesses and users of financial statements, as well as CPAs, directly into the standard-setting process.




FASB Accounting Standards