Thestandard setting process is composed of three organizations, the Securities andExchange Commission (SEC), the Financial Accounting Standards Board (FASB), andthe American Institute of Certified Public Accountants (AICPA). This paper willdiscuss each organization’s role today and how the three organizations interactwith one another. TheSEC is a federal agency that was established after the Great Depression; it’spurpose was to promote and standardize financial information presented tostockholders. Confidence in the stock market had plummeted and the SEC set outto provide standards that stockholders would regain their trust in.
The SEC thoughtthat the private sector had the best resources to achieve the task of settingstandards. Because of this, accounting standards have originated in the privatesector either by the AICPA or the FASB. In fact, the SEC depends on the FASB todo the heavy lifting of developing accounting standards. One of the SEC’sstrict rules is that all participators are to abide by the generally acceptedaccounting principles (GAAP). The SEC’s involvement in standard setting variesfrom approving/rejecting proposed standards, pushing the private sector to makequicker decisions, or communicating problems to the FASB. The SEC has the powerto issue a “stop order” if there is prolonged disagreement with irregularitywithin the financial statements of a company.
TheAICPA, by the urging of the SEC designated the Committee on Accounting Procedurein 1939. This organization was composed of 51 CPAs. After 1959 the AccountingPrinciples Board was organized to provide a framework that would assist inproblem solving and to research issues that came up. The APB struggled to beproductive and act quickly on accounting issues that needed swift and properresolutions. Because of this, and some other issues, the FASB replaced the APBin 1973.
The AICPA has had significant impact on the development of GAAP,through its various programs. TheFASB’s mission is to institute and advance standards of financial accountingand to report accurately for the greater education of the public. Five majorfactors separate FASB from the APB: 1) Smaller membership, 2) Full-time,remunerated membership, 3) Greater autonomy, 4) Increased independence, &5) Broader representation. The FASB routinely announces two major types ofmessages; these are accounting standards updates and financial accountingconcepts. Within FASB is the Emerging Issues Task Force (EITF) that handlescontroversial accounting problems. Throughthe years, AICPA has influenced GAAP, but lately has taken a very small role insetting accounting standards.
What we know as GAAP in the modern world camefrom influences of the SEC, AICPA, and FASB. Each of these organizations tookon tasks to improve and establish standards for financial accounting. Recentlythe FASB produced a codification system that provides all informativeliterature that pertains to a financial topic, in one place. The new codificationsystem does not change GAAP, but makes information easier to access.
The FASBcreated the Codification Research System (CRS) which is an online databasemeant to give easier access to the codification. Because of the united effortfrom the SEC, FASB, and the AICPA, accounting standards have improvedtremendously throughout the years, and there is confidence in theaccounting/information system that is in place today.
