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Magazine Chapter 1: Q10CA (page 25)
Some accountants have politicization in the development and acceptance of generally accepted accounting principles (i.e., rule-making) is taking place. Some use the term 鈥減oliticization鈥� in a narrow sense to mean the influence by governmental agencies, particularly the securities and Exchange Commission, on the development of generally accepted accounting principles. Others use it more broadly to mean the compromise that results when the bodies responsible for developing generally accepted accounting principles are pressured by interest groups (SEC, American Accounting Association, businesses through their various organizations, Institute of Management Accountants, financial analysts, bankers, lawyers, and so on).Instructions
(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 first two indicate an increasing politicization (as the term is used in the broad sense) of accounting standard setting? Explain your answer by indicating how the CAP, the APB, and the FASB operated or operate. Cite specific developments that tend to support your answer.
(b) What arguments can be raised to support the 鈥減oliticization鈥� of accounting rule-making?
(c) What arguments can be raised against the 鈥減oliticization鈥� of accounting rule-making?
Short Answer
- The committee on Accounting Procedure (CAP) was set up as a result of the criticism faced by the accounting profession. It resolved certain accounting issues and topics instead of developing generally accepted accounting principles.
The purpose of the Accounting Principles Board (APB) was established primarily to rectify the inadequacy of the CAP.
Financial Accounting Standards Board (FASB) is accountable for setting up of GAAP in entity showing the varied interest groups afflicted by the use of GAAP. - Arguments for politicization of the accounting rule -making process are dependency of accounting entirely on public confidence for its success as well as by the way of actual compromise, the economic community has confidence in the righteousness and purpose of rule-making of accounting.
- Arguments against the politicization of the accounting rule-making process are the complicated events that occur in the firms would need that skilled accountant enhance the right accounting norms and the use of agreement to enhance accounting rules would lessen the accountant鈥檚 professional position.
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