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One of the major groups that has been involved in the standard-setting process is the American Institute of Certified Public Accountants. Initially, it was the primary organization that established accounting principles in the United States. Subsequently, it relinquished its power to the FASB.

Instructions

  1. Identify the two committees of the AICPA that established accounting principles prior to the establishment of the FASB.
  2. Speculate as to why these two organizations failed. In your answer, identify steps the FASB has taken to avoid failure.
  3. What is the present role of the AICPA in the rule-making environment?

Short Answer

Expert verified
  1. The two committees of the AICPA that established accounting principles prior to the establishment of the FASB include Committee on Accounting Procedure (CAP) and Accounting Principles Board (APB).
  2. The two organizations failed because of the failure of the problem-to-problem approach in providing the required structure for accounting principles and also the approach wasnโ€™t productive enough. The steps taken by FASB to avoid failure include FASB having a full-time and lesser membership, greater autonomy, broader representation, rising independence, and well paid and formal position.
  3. The AICPA grades and advances CPA exams, it does not issue accounting guidelines.

Step by step solution

01

Meaning of Certified Public Accountants (CPA)

Certified Public Accountants are the accounting professionals who perform a detailed study of auditing, accountancy, and its similar subjects for providing services later. The authorities concerned permit CPA for revising financial statements.

02

Explanation for โ€˜aโ€™

The committee established by AICPA before setting up the FASB includes the Committee on Accounting Procedure (CAP). During the period (1939-1959), 51 Accounting Research Bulletins (ARB) were issued by the Committee on Accounting Procedures (CAP). AICPA formed Accounting Principles Board (APB) in 1959 to replace the CAP. However, before getting substituted by the FASB, 31 official pronouncements called APB opinions were released by APB.

03

Explanation for โ€˜bโ€™

The committee on Accounting Procedure (CAP) used a problem-to-problem-based method to overcome accounting issues but did not succeed in providing a collection of standardized accounting principles that were essential. Accounting Principles Board (APB) was created to provide such standards, but it wasnโ€™t beneficial. Moreover, the Accounting Principles Board (APB) did not respond to the accounting abuses and usually met with opposition from various organizations.

Steps taken by FASB to prevent failure are as follows:

  • Smaller membership
  • Full-time salaried membership
  • Larger autonomy
  • Increased Independence
  • Broader representation
04

Explanation for โ€˜cโ€™

The AICPA boosts the FASBโ€™s efforts in the present standard-setting environment. Issues papers prepared by the Accounting Standards Executive Committee (ASEC), recognize present financial reporting issues for particular industries and present alternative treatments of the problem. Additionally, the AICPA plays a great role in advancing auditing standards with the help of the Auditing Standards Board. These standards provide rules for regulating auditing practice and for enforcing and developing professional ethics.

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Most popular questions from this chapter

ETHICS (Rule-Making Issues) When the FASB issues new pronouncements, the implementation date is usually 12 months from date of issuance, with early implementation encouraged. Karen Weller, controller, discusses with her financial vice president the need for early implementation of a rule that would result in a fairer presentation of the companyโ€™s financial condition and earnings. When the financial vice president determines that early implementation of the rule will adversely affect the reported net income for the year, he discourages Weller from implementing the rule until it is required.

Instructions:Answer the following questions.(b) Is the financial vice president acting improperly or immorally?

GAAP stands for:

  1. governmental auditing and accounting practices.
  2. generally accepted attest principles.
  3. government audit and attest policies.
  4. generally accepted accounting principles

The Sarbanes-Oxley Act was enacted to combat fraud and curb poor reporting practices. What are some key provisions of this legislation?

CA 1-4 (Financial Accounting) Omar Morena has recently completed his first year of studying accounting. His instructor for next semester has indicated that the primary focus will be the area of financial accounting.

Instructions

  1. Differentiate between financial accounting and managerial accounting.
  2. One part of financial accounting involves the preparation of financial statements. What are the financial statements most frequently provided?
  3. What is the difference between financial statements and financial reporting?

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.
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