Chapter 1 Financial Accounting Standards
Standard Setters • Securities and Exchange Commission (SEC). Formed to administer the Securities Act of 1934. • Oversees the development of Generally Accepted Accounting Principles (GAAP). • Encouraged the development of the first “private” standard-setting body, the CAP (next slide). • SEC sits on FASB’s (Slide 4) Emerging Issues Task Force (EITF).
Standard Setters • American Institute of Certified Public Accountants (AICPA) • Committee on Accounting Procedure (CAP), 1939-1959; issued Accounting Research Bulletins (ARB). • Accounting Principles Board (APB), 1959-1973; issued APB Opinions (APBO).
Standard Setters • Financial Accounting Standards Board (FASB), 1973 to present. • Funded by Financial Accounting Foundation (FAF). • Benefits: smaller Board; full-time, paid members; independent; broader representation. • Wheat Committee (1972) recommended an independent standard-setting structure.
FASB Codification • FASB issues a number of pronouncements containing GAAP: Standards, Interpretations, Technical Bulletins, Implementation Guides, EITF Statements. • To organize GAAP, FASB developed the Accounting Standards Codification (ASC). • All GAAP pronouncements are organized by topic and subtopic, and make it easier to research GAAP issues.
FASB Codification • FASB issues a number of pronouncements containing GAAP: Standards, Interpretations, Technical Bulletins, Implementation Guides. • To organize GAAP, FASB developed the Accounting Standards Codification (ASC). • All GAAP pronouncements are organized by topic and subtopic, and make it easier to research GAAP issues. • You will research several issues this semester using the Codification.
International Accounting Standards Board (IASB) • The IASB issues International Financial Reporting Standards (IFRS). • The predecessor to the IASB was the International Accounting Standards Committee (IASC); the IASC issued International Accounting Standards (IAS). • Over 115 countries currently use IFRS as their primary financial reporting standard. • The U.S., through the FASB and the SEC, has been working with the IASB on a number of issues, with the goal of achieving convergence with IFRS by 2015.
Professional Reputation and Ethics • Ethical behavior is in the long-run interest of managers, stockholders, and auditors. • Many companies, universities, and professional organizations have enacted increased emphasis on ethics. • Auditors’ reputations are integral to their ability to perform their duties. High ethical conduct is imperative to their continued success. • A number of companies, and their auditors, have been exposed in recent years for their fraudulent financial reporting. Some of these ethical failures will be discussed this semester.