Essay PreviewMore ↓
The Zeff article is an assessment of the path of accounting standards setting over the last 75 years. It repeatedly offers examples of instances in which the standard-setting body at the time was pressured or threatened by the SEC. In such occasions, the standard-setting bodies had to find ways to survive these actions. In many situations they had to simply give in to the SEC’s rulings. In other situations the standard-setting body that existed at the time was forced into taking action. I will briefly discuss one example of each of these predicaments.
Since its creation, the SEC has insisted on historical cost accounting, believing it results in the least misleading information. The first standard-setting body, the AIA’s Committee on Accounting Procedure (CAP), knew that in order to maintain credibility with the SEC and keep standard setting in the private sector it had to reaffirm the SEC’s core beliefs. In 1947 to 1949, the CAP received ample pressure from major companies to allow the use of inflation-adjusted depreciation expense. Allowance of this practice would deviate from historical cost accounting and likewise would upset the SEC. The CAP, acting in a reserved manner, rejected this proposal, only allowing this practice to be used in supplementary disclosures. Moreover, the CAP knew that the SEC would not allow companies to use inflation-adjusted depreciation in determining income even if it had approved of the practice. Basically, the CAP wanted to retain the function of creating standards and didn’t want to test the SEC.
How to Cite this Page
"Fasb Standard Developments." 123HelpMe.com. 25 May 2019
Need Writing Help?
Get feedback on grammar, clarity, concision and logic instantly.Check your paper »
- On February 25, 2016, the FASB issued a new accounting standard with respect to the financial reporting of leases. Under the new standard, lessees will need to report all leases with a long-term on the balance sheets. The new standard purports to increase the comparability and transparency among different companies and provide investors of a more faithful representation with more accurate information on company liabilities. The new financial reporting standard will retain capital leases and operating leases.... [tags: Financial statements, Balance sheet]
1244 words (3.6 pages)
- To help accounting professionals easily navigate through 50-plus years of unorganized US generally accepted accounting principles (GAAP) and standards the Trustees of the Financial Accounting Foundation approved the Financial Accounting Standards Board (FASB) Accounting Standards Codification (Codification.) By codifying authoritative US GAAP, FASB will provide users with real-time and accurate information in one location. Concurrently, FASB developed the FASB Codification Research System; a web-based system allowing registered users to electronically research accounting issues.... [tags: Accounting]
946 words (2.7 pages)
- In 2010 and 2013, the FASB, in connection with the IASB, released exposure drafts outlining upcoming changes to lease accounting standards. This draft was in direct response to the SEC’s 2005 report outlining the problems associated with off-balance sheet transactions (FASB and IASB, 2013). The SEC’s main concern was that business managers are intentionally negotiating lease terms that do not actually meet FASB bright-line rules for capitalization, but in all other aspects, should be capitalized.... [tags: Balance sheet, Asset, Lease, Liability]
701 words (2 pages)
- The purpose of this report is to provide relevant background information on the history and status of international IFRS convergence. The history of international IFRS Convergence displayed the significant growth of convergence over time from the 1960’s till now. With many major players such as IASB, FASB AASB agreeing to work collaboratively with each other to improve and converge to international standards. The report ought to further highlight the current developments in the relationship between these major players in International Financial Reporting Standards.... [tags: standards, new strategies]
1057 words (3 pages)
- This report explores the theoretical concepts associated with tourism, leisure and hospitality developments in Blackpool. It also looks at the economic, social, political and environmental impacts of tourism. There are a variety of reasons why Blackpool has been developed as a tourist resort, and it has many historical sites of interest including the beach and Blackpool Tower. It also has a variety of leisure activities. Blackpool also offers a wide range of accommodation and restaurant options.... [tags: Tourism, Hospitality, Blackpool, development, econ]
4169 words (11.9 pages)
- In corporations around the world there is one thing that will be used in a daily basis, which is inventory. The inventory is a very important part of the business operation to include current asset in the balance sheet. (Kokemuller, 2016) The management of the inventory in a cost-efficiently is crucial for the corporation to ensure its generating higher revenues, profit, and minimize losses to have a successful fiscal year. (Kokemuller, 2016) There is United States generally accepted accounting principles (GAAP) and international financial reporting standard (IFRS) that are mostly used to deal with inventory of a corporation.... [tags: International Financial Reporting Standards]
1235 words (3.5 pages)
- Standard 1: Learner Development One of the most significant pieces to the first standard is the focus on individualization and adjustment to a student’s needs (1a,e). The teacher should always be willing to assist with the specific necessities of a student, which will eventually improve their knowledge and strategy of learning (1b). An excessive amount of consideration must be taken throughout all courses to accept diverse cultures within the classroom and the teacher must also be willing to adjust to languages in order to converse with all students (1g).... [tags: Education, Learning, Culture, Teacher]
1140 words (3.3 pages)
- Bausch + Lomb, now a division of Valeant Pharmaceuticals International, Inc. began in 1853 in Rochester, New York, as a small optical shop that grew to become a multi-billion dollar corporation with approximately 12,000 employees worldwide. Its mission is to help you see better to live better, and to protect and enhance the gift of sight. Its products consist of three different marketed goods. The first of which is its vision care segment that includes products such as contact lenses, and solution to clean and care for them with.... [tags: cooking the books]
1401 words (4 pages)
- With financial standards being somewhat confusing for certain companies to adapt to, it can prove problematic for these standards to become uniform. Ball (2006) claims that “The notion that uniform standards alone will produce uniform financial reporting seems naïve”. The reasons against the adoption of these standards, whether they are localised or globalised, are that some countries, or companies, may ‘symbolically comply’ to these standards, essentially complying to these standards on paper, whereas their practical standards do not change.... [tags: International Financial Reporting Standards]
1583 words (4.5 pages)
- Introduction: - In the present scenario, it is very hard to design a circuit using full custom methodology because of the increase in the complexity due to decrease in the feature size. So, most of companies are following the semi-custom approach to reduce the cost & time to market which are the most important parameters for any successful products. To follow the approach of semi-custom, designer need a characterized library of standard cells e.g. logic gates, data buses, sequential building blocks like F/F's etc.... [tags: Standard Cells]
1303 words (3.7 pages)
In 1950, the CAP made a move to challenge the SEC by proposing a practice that deviated from historical cost accounting. The CAP attempted to suggest an upward revaluation of assets for companies in inflationary times. Their rationale was that this practice was like the accepted accounting method of revaluing assets downward, which is today’s impairment, for companies facing severe financial and economic difficulties. Obviously, the SEC did not support this practice and made it known that they would not allow it. In response the CAP gave in to the SEC and abandoned its attempt.
During the 1960s the Accounting Principles Board (APB) set the standards that were followed in the accounting world. During this time the financial media began paying more close attention to accounting controversies. This was the result of a growing, competitive U.S. securities market and an increase in mergers between companies. In response to these conditions, the SEC began criticizing the APB for not narrowing the areas of differences in the accounting practices. The SEC suggested that if the APB didn’t do so, they would do it themselves.
As time progressed the SEC began to become inpatient with the APB’s slow progress in promoting comparability and threatened that it might strip them of their standard setting responsibilities and begin to establish accounting principles itself. This became a serious worry of leaders of the accounting profession which were united in the view that this process should remain in the private sector. Although the SEC was not a passive observer of the process, it preferred that the private sector take the initiative for establishing accounting principles.
In 1970, three of the Big Eight accounting firms at the time became very critical of the intense political lobbying of the APB. This coupled with the pressure and threats from the SEC called for action to be taken by the APB. These criticisms resulted in the AICPA’s creation of the Wheat Study Group. The purpose of this group was to study the establishment of accounting principles and recommend resolutions that would prevent SEC interference and keep standard setting in the private sector.
In 1971, the Wheat Study Group recommended that an independent, full-time standard setting body, the Financial Accounting Standards Board (FASB), should replace the APB. This would be a drastic improvement which would empower a standard setting body that was not influence by politics as heavily and had more time to devote to standard setting. Thus, reconciling the conflicts that had previously arose with the SEC.
The replacement of the APB by the FASB is a great example of how the private sector and the people in charge of standard setting have thwarted SEC action. The FASB began operations on July 1 of 1973 and is currently the standard setting body in the U.S. Its longevity is evidence of the success it has had.
The Miller article, like the Zeff article, offers insight into the development of accounting standards in the United States. Miller’s paper elaborates on an intervention by SEC Chair Arthur Levitt on an argument between the President of the Financial Executives Institute (FEI), Norman Roy, and the Chairman of the Financial Accounting Foundation (FAF), J. Michael Cook. This intervention can be viewed as a case of policy making that is lacking in formal due process. It also magnifies the fact that accounting standards are political.
The controversy was set into motion by a letter sent from Roy to Cook and Levitt. In this letter Roy proclaims that the FASB “process is broken and in need of substantive repair.” The main issue surfaced because of the controversial role that corporate executives have tried to play in the FASB’s processes. It was believed that some constituencies within this group tried to gain domination and control over the standard setter’s output. Roy’s letter not only offended FASB but also alarmed Levitt.
Levitt defended FASB against the alleged chargers that it was unresponsive to the needs of prepares. He proclaimed that his beliefs were that investors and the public were much more important than anyone else. He also reaffirmed that the SEC had oversight power that gave them jurisdiction over the FASB’s affairs. Finally, Levitt emphasized that he would not allow any threat to exist to the FASB’s independence.
Levitt’s first course of action was to allow the FASB to support itself but “every new assault on the FASB was met with Silence.” Levitt was discontent with these unsatisfactory replies but held his position that he would oppose any initiative that would compromise the FASB’s effectiveness or the fact or perception of its independence. After all of this Cook sent a diplomatic letter to Roy which failed to rebut Roy’s criticisms. Again, Levitt was discontent and this caused him to take further, more drastic action.
Levitt formulated a plan for restructuring the FAF to give the trustees more power for turning aside threats. He believed that the present trustees were unsuitable. Thus, Levitt delivered an ultimatum that the trustees replace some of themselves with new members and demanded the power to approve specific appointments. He backed this ultimatum by expressing the willingness to amend ASR No. 150 which threatened the SEC’s endorsement of the FASB as the only authoritative source of GAAP.
After learning about Levitt’s position the FAF responded to Roy like Levitt Had sought four months earlier. They resisted Roy’s proposals. Then, Cook responded to Levitt by rejecting his demands for restructuring. Cook proclaimed that the FAF emphatically did not agree with Levitt. Cook also proclaimed that the FAF was capable of saying “no” to its critics. Levitt wasn’t slowed down by Cook’s response. He made it clear that he would consider the controversy resolved only if the FAF’s structure was changed.
When the controversy was resolved Levitt had won on two issues while losing on three of them. One issue that he had prevailed on was that the trustees had to convert two sponsoring organization positions into at-large seats. The other issue that he was victorious on was in respect to his influence in appointing trustees. He was able to appoint four specific individuals who met his criteria. On the other side of this outcome Levitt had failed to win separate trustee panels for the FASB and GASB and he ended up agreeing to classify two of three governmental trustees as public members. He also did not get veto power over trustee selections. The basic effect of the restructuring was to reduce the number of sponsored trustees to 11, while increasing the at-large seats to five.
Although it may seem as Levitt won, ultimately, this new structure did not necessarily ensure the permanency of Levitt’s achievements.