The Evolution of US GAAP, Part II: 1973-2004

This article, the second of a two-part commentary about accounting standards setting, chronicles the rising importance of financial accounting standards in different sectors of the US economy, which has led to increasing special-interest lobbying for accounting standards with characteristics compatible with the desired outcomes. Financial accounting standards affect the US economy in many ways, both in the aggregate and in the distribution of income, wealth and risk. This commentary captures many of the key issues that have preoccupied standards setters, and especially identifies the efforts of the Financial Accounting Standards Board (FASB) to implement an asset-and-liability approach to recognition and a fair-value approach to measurement.

According to the author, “When a highly prescriptive standards setter is coupled with a rigorous enforcement process used by a government regulator to secure compliance with accounting standards, especially in a confrontational society such as the United States, companies and even branches of government will lobby the standards setter not to approve standards that interfere with their business plans and strategies. This is what has happened increasingly in the United States since the 1970s, and there is no sign that, on sensitive and controversial issues, it will diminish in intensity or frequency.”

(Read more in the article “The Evolution of U.S. GAAP: The Political Forces Behind Professional Standards (Part II)” by Stephen A. Zeff, PhD, in the February 2005 issue of The CPA Journal online.)

The Evolution of US GAAP, Part 1: 1930-1973

In 2005, The CPA Journal marked its 75th anniversary by publishing an assessment of the path of accounting standards setting over the previous 75 years. This commentary on the evolution of US GAAP was presented in two parts.

The first part covers the years from 1930 to 1973. The second part covers the years from 1973 to 2004. The focus is deliberately on incidents that represented important changes in practice or in the way in which accounting principles and standards were set.



Read about the history of US accounting standards in the article “The Evolution of U.S. GAAP: The Political Forces Behind Professional Standards” by Stephen A. Zeff, PhD, in the January 2005 issue of The CPA Journal online.

About the Canadian Institute of Chartered Accountants (CICA)

The Canadian Institute of Chartered Accountants (CICA) will celebrate its 110^th anniversary in 2012. Established in 1902 as the Dominion Association of Chartered Accountants, its goal was to develop the highest professional standards for the young country that was Canada. Now, the CICA is recognized as one of the most influential standard-setters in the world and is a leader in the global effort to create and implement international standards that will allow investors to compare reliable financial information from companies everywhere. The CICA serves the interests of society and the CA profession by providing leadership to uphold the professional integrity, standards and pre-eminence of Canada's Chartered Accountants, nationally and internationally. For an overview of the first 100 years of the CICA’s history, read the article “Setting the standard” in the May 2002 CAmagazine.

Comparing Thoughts on Professional Judgment - 1937 and 1988

“Proficiency in accounting work is largely a matter of experience and judgment; the underlying theory of the science is not particularly profound. The test comes when we attempt to apply the general fundamentals to the infinitely varied and complex situations found in the world of commerce. Factual information and accuracy in its procurement are essential, but its value is submerged unless with it is synchronized the development and training of the judgment...the solution of business problems not only calls for an orderly marshalling of facts, but, what is equally important, careful analysis and logical reasoning from such facts, the formation and establishing of effective conclusions and the exercise of sound judgment.” (This quote is drawn from the article by Kris A. Mapp, FCA, "Educating Our Students - What Is Our Responsibility?" Canadian Chartered Accountant, October 1937, page 258.)

“According to the academic research literature, the exercise of professional judgment by those preparing and auditing financial accounting information is at the core of financial reporting. Without the flexibility and the intelligence provided by professional judgment, the complex system of financial accounting procedures, standards and rules would be ponderous, unresponsive, insensitive: in short, unworkable. Financial reporting, as it operates in Canada and elsewhere, requires professional judgment at many levels, in a host of circumstances, and by a variety of skilled and experienced professionals. In fact, professional judgment is an essential part of financial reporting.” (This quote is drawn from the CICA Research Study, Professional Judgment in Financial Reporting, Michael Gibbins and Alister K. Mason, 1988, page 1.)

A History of the AICPA and Volunteer Committees

The American Institute of Certified Public Accountants (AICPA) and its predecessors have a history dating back to 1887, when the American Association of Public Accountants (AAPA) was formed.  In 1916, the American Association was succeeded by the Institute of Public Accountants, at which time there was a membership of 1,150. The name was changed to the American Institute of Accountants in 1917 and remained so until 1957, when it changed to its current name of the American Institute of Certified Public Accountants. The American Society of Certified Public Accountants was formed in 1921 and acted as a federation of state societies. The Society was merged into the Institute in 1936 and, at that time, the Institute agreed to restrict its future members to CPAs.

The use of committees began even before the AAPA was formed in 1887.  At the first meeting of what would become the AAPA on December 22, 1886, those present authorized the appointment of a committee to draft rules and regulations.  Beyond this first preliminary committee, the first Bylaws of the AAPA in 1897 established three committees: Finance and Audit Committee, Committee on Elections, Qualifications and Examinations, and the Committee on Bylaws.  The number of committees grew continually over the years.

(For more information, see the AICPA website section on History of AICPA Volunteering.)