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Chapter 1: Q21Q. (page 23)

What are the sources of pressure that change and influence the development of GAAP?

Short Answer

Expert verified

The sources of pressure that change and influence the development of GAAP include individual firms, governmental agencies, industry associations, accounting practitioners, academicians, professional accounting entities, and public opinion.

Step by step solution

01

Meaning of GAAP

Generally Accepted Accounting Principles, also referred to as GAAP, is a collection of practices and conventions used by firms for the preparation of financial statements and accounting reports. The standards are formulated by the Financial Accounting Standards Board (FASB). The motive of GAAP standards is to confirm that the financial information supplied to the regulators and investors is error-free, authentic, and compatible with one another.

02

Sources of pressure that change and influence the development of GAAP

The business put pressure on the Financial Accounting Standard Board (FASB) to replace the existing rules with the newly developed ones. It also exerts pressure on Financial Accounting Standards Board (FASB) to change GAAP. Such organizations comprise Certified Public Accountants (CPAs) and accounting firms, the American Institute of Certified Public Accountants (AICPA), Academicians, Investing public, the financial community (bankers, analysts), compilers (Financial Executives Institute), industry associations, and Government (SEC, IRS, other agencies).

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Most popular questions from this chapter

Briefly explain the meaning of decision-usefulness in the context of financial reporting.

Question: CA1-12 GROUPWORK (GAAP Terminology) Wayne Rogers, an administrator at a major university, recently said, 鈥淚鈥檝e got some CDs in my IRA, which I set up to beat the IRS.鈥� As elsewhere, in the world of accounting and finance, it often helps to be fluent in abbreviations and acronyms.

Instructions

Presented below is a list of common accounting acronyms. Identify the term for which each acronym stands, and provide a brief definition of each term.

(a) AICPA (e) FAF (l) FASB(b) CAP (f) FASAC (j) SEC(c) EITF (g) GAAP (k) IASB(d) APB (h) CPA

If you had to explain or define 鈥済enerally accepted accounting principles or standards,鈥� What essential characteristics would you explain in your explanation?

Presented below are three models for setting GAAP.

  1. The purely political approach, where national legislative action decrees GAAP.
  2. The private, professional approach, where GAAP is set and enforced by private professional actions only.
  3. The public/ private mixed approach, where GAAP is basically set by private-sector bodies that behave as though they were public agencies and whose standards to a great extent are enforced through governmental agencies.

Instructions

  1. Which of these three models best describes standard-setting in the United States? Provide justification for your answer.
  2. Why do companies, financial analysts, labor unions, industry trade associations, and others take such an active interest in standard-setting?
  3. Cite an example of a group other than the FASB that attempts to establish accounting standards. Speculate as to why another group might wish to set its own standards.

(FASB Role in Rule-making) A press release announcing the appointment of the trustees of the new Financial Accounting Foundation stated that the Financial Accounting Standards Board (to be appointed by the trustees)鈥濃�ill become the established authority for setting accounting principles under which corporations report to the shareholders and others鈥� (AICPA news release July 20,1972).

Instructions

  1. Identify the sponsoring organization of the FASB and the process by which the FASB arrives at a decision and issues an accounting standard.
  2. Indicate the major types of pronouncements issued by the FASB and the purpose of each of these pronouncements.
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