PSAAC - What It Is & What It Does

“PSAAC” stands for the Public Sector Accounting and Auditing Committee of the Canadian Institute of Chartered Accountants (CICA). PSAAC was established in 1981, to improve and harmonize public sector accounting and auditing practices. Its creation followed extensive consultation with federal and provincial governments and legislative auditors, and an in-depth CICA study of their financial reporting.

 

That study, Financial Reporting by Governments (1980), found wide disparities in government reporting practices. Government financial statements often reported fragmented and incomplete information, leaving out major operating units and liabilities. So, the financial statement information was inadequate for both decision-making and accountability. In addition, similar transactions were being reported very differently from government to government. As a result, useful comparisons of one government’s financial statements with those of another were almost impossible. The study called for accounting standards tailored to reflect the nature of government objectives and operations, and to meet information needs of the users of government financial statements and reports.

 

In 1991, a tenth anniversary pamphlet was issued on PSAAC - What It Is & What It Does. The pamphlet explains: what it is; why it was formed; how it works; what it’s done; where it’s going; and progress to date. According to the pamphlet: “PSAAC’s role is: To serve the public interest by strengthening accountability in the public sector through developing, recommending and gaining acceptance of accounting and auditing standards of good practice. The Committee issues its recommendations in Public Sector Accounting and Auditing Statements and Guidelines. It also initiates research studies to serve as input to the standard-setting process and to stimulate thought and debate on contentious or complex issues.” An Appendix to the pamphlet lists seven accounting statements, four auditing statements, two auditing guidelines and four research studies issued up to that point in time.

Should Accounting Standards be Principles or Rules?

In a recently-published article, Sir David Tweedie notes that: “Forty-odd years ago, as a CA apprentice, I didn't have to study accounting standards because there weren’t any! There was one major standard – the true and fair view – augmented by accepted practice.” According to Tweedie, two disputed takeover bids soon changed that. The President of the Institute of Chartered Accountants in England and Wales (ICAEW), Sir Ronald Leach, senior partner of Peat Marwick & Co., and Professor Edward Stamp of Edinburgh University became embroiled in a public argument in the pages of The Times over the state of British financial reporting.

 

“Professor Stamp argued that for any major company, there would be a million ways which you could show a true and fair view, and that this was totally unacceptable. Sir Ronald reacted with alacrity, and together with the other Institutes (including a rather reluctant ICAS), agreed to form the Accounting Standards Steering Committee in 1969. Pressured by the Government, the Committee looked for a quick win and came upon a research paper of the ICAEW dealing with Associated Companies. This was rapidly turned into the Statement of Standard Accounting Practice 1. While to accountants such a topic would be a bizarre choice for the first standard, rather than what became SSAP2 – Accounting Policies – the profession needed to show it.”

 

“The argument continues over whether standards in financial reporting can best be governed by clear and detailed rules, or by principles and judgement could act quickly in a time of crisis. Since then, we have seen the SSAPs gradually replaced with Financial Reporting Standards and latterly by International Financial Reporting Standards (IFRS). These standards have become more and more complex.”

 

“Accounting is not rocket science. Writing a standard to deal with 80 per cent of the problems takes only a few pages, yet if our profession requires every avenue to be explored, then it can run into hundreds. ICAS is just completing a judgement framework to assist professionals who are unsure what exactly judgement involves. If you have been trained in what I term ‘search-engine’ accounting – looking up the answer in a massive book of rules –judgement can be scary.”

 

“The profession is at a crossroads, and the more we head down the rules route the harder it will be to pull back to simpler, more clearly expressed principle-based standards.” Read the article “Should Accounting Standards be Principles or Rules?” by Sir David Tweedie, President of the Institute of Chartered Accountants of Scotland (ICAS), as well as previous postings regarding the Principles versus Rules debate.

The First Quarter Century of the GASB (1984–2009): A Perspective on Standard Setting

 

The Governmental Accounting Standards Board (GASB) was established in April 1984 as the authoritative accounting standard-setting body for state and local governmental entities in the United States. There are over 87,000 state and local entities in the country and for the most part these entities are required to comply with the generally accepted accounting principles established by the GASB. Therefore, the standards promulgated by the GASB are significant. On June 30, 2009, the GASB completed its 25th year of standard setting. Because of its influence and the importance of its mission, a better understanding of the GASB and its accomplishments during its first 25 years of existence may be helpful.

 

Two research papers (Part 1 and Part 2) provide a complete sequential treatment of the GASB’s operational history through the end of its first quarter century. The first paper begins with an historical perspective about municipal accounting issues from colonial times to 1934. The origin of professional self-determining standards is the feature of the second paper, identifying standard-setting bodies that contributed to municipal accounting from 1934 to 1984. The early activities of the GASB are then reviewed. Two appendices are provided to detail the composition of the Board during its first quarter century, along with biographical information about the early Board members and later Chair and Vice Chair personnel.

 

The first paper concludes with a review of the relationship of other governmental standard setting bodies at the federal level and the international level. The second paper provides an overview of the future challenges faced by the GASB and supplies a digest of the standards including appendix and a synoptic summary of the standards the Board has promulgated by topic and by standard number.

 

Gary J. Previts

For more information, read the article “The First Quarter Century of the GASB (1984–2009): A Perspective on Standard Setting” by Helen M. Roybark, Edward N. Coffman and Gary J. Previts.

 

Part 1 of this article was published in ABACUS (Volume 48, Issue 1, pages 1–30, March 2012) and Part 2 was published in ABACUS (Volume 48, Issue 2, pages 147–198, June 2012).

 

 

 

In addition, refer to the article “The GASB Marks 25 Years of Standards-Setting” published in June 2009 on the GASB website.

 

Paul Pacter: Profile and Interview

 

Accountancy Age online published an April 2010 article called “Profile: Paul Pacter, international standard setter.” The article states that, although some people may not recognise his name, Paul Pacter is one of the most influential men in the history of international accounting standards."  Since 2000, he has played a variety of roles including director of standards for small and medium-sized entities at the International Accounting Standards Board and director at the global IFRS office for Deloitte in Hong Kong. During the 1990s, he served as staff member at the International Accounting Standards Committee working on projects including financial instruments, interim financial reporting, segment reporting, discontinuing operations, extractive industries, agriculture, and electronic financial reporting. From 1984-1989, he was vice chairman of the advisory council to the US Governmental Accounting Standards Board.

 

On July 12, 2011, an Interview with Paul Pacter was conducted in New York City by James Stocker for the Securities and Exchange Commission Historical Society’s virtual museum and archive on the history of financial regulation. A 53-page transcript of that interview notes that, during the 2000s, he also set up a very popular website (www.iasplus.com) for accountants involved in international accounting standards. Pacter comments that: “This was done for Deloitte. We just had an idea that there ought to be someplace out on the Internet where all sorts of information about international accounting standards was available. The old IASC didn’t have much of a website, although I did that too, I taught myself the HTML and the graphics and how to do FTP. Deloitte said, “Why don’t you set something up for IASs?” We opened shop as a free site. We opened the door in December 2000. Visitor numbers grew dramatically. When I left Deloitte in June 2010, we were getting 60,000 to 70,000 visitors a week – unique visitors. We had about 1,000 webpages. We had 4,000 downloadable PDF files. It was, and still is, the biggest website in a very narrow area of interest, international accounting standards.”

 

Looking back at a long career, Pacter comments: “...I must just say out of respect for the U.S. SEC, they’ve been a great contributor to accounting standards. They have stayed out of the development of the standards. They’ve encouraged and prodded and commented. They’ve insisted on high quality implementation. For that, I say I have the greatest respect for the commission and for their counterparts around the world. We don’t want politics setting accounting standards. We don’t want politicians setting accounting standards any more than I want them telling my surgeon how to do my surgery. Set the broad principles and let the private sector do the job. The commission has done that, and I thank them for that.”

Achieving International Harmonization of Accounting Standards (1975)

In July 1975, the Accounting Research Committee of the Canadian Institute of Chartered Accountants (CICA) issued an exposure draft on International Accounting Standards for inclusion in the CICA Handbook. The exposure draft notes that the CICA is a member of the International Accounting Standards Committee (IASC) whose objectives are “to formulate and publish in the public interest, basic standards to be observed in the presentation of audited accounts and financial statements,and to promote their worldwide acceptance and observance.”

The exposure draft sets out the procedures that the Accounting Research Committee will follow when an International Accounting Standard is issued. In addition, it notes that: “For companies that report in an international environment, it is desirable to disclose that accounting principles generally accepted in Canada have been followed in preparing the financial statements. It is also desirable to disclose conformity with or identify deviations from International Accounting Standards (but not necessarily the effect on the financial statements). Appropriate disclosure would be in the Summary of Accounting Policies.”

Principles-based standards and professional judgment - then and now

At a historic roundtable discussion in New York, the chairman (Charles B. Couchman) stated that: “For many years the leading practitioners of public accountancy have been reducing the practice of accountancy to rules and standards as far as it has been found practical and logical to do so. The elements that make up financial statements have been reduced to standard classifications to the extent permitted by complicated and constantly changing transactions of the business world. Rules have been adopted covering, to a large extent, the various entries affecting the financial classifications. These classifications and these rules have been made widely available through books, articles, addresses and accounting curricula. Practically all the progress that has been made in reducing accountancy to rules and standards has been accomplished by the public accounting profession.”

“If all of the transactions of business were susceptible to analysis into a definite and rigid number of effects that could be analyzed to an extent that would allow exact classification, then rules could be adopted that would cover correctly each one. However, that is not the case. No matter how long one is engaged in an extensive practice of accountancy, he is continually faced  by new and unexpected transactions, each legitimate but each presenting combinations of effects not previously encountered. That is why the sorting of accounting transactions is rigid classifications to which rules and standards may be applied without distortion of fact is a slow process and cannot be otherwise.”

“No fixed rule may be laid down until all of the accounting elements that may fall within its scope have been studied and their effects determined so completely as to bring exact knowledge that the rule, when applied to them, will result in a proper statement of financial facts. Even then the rule must be subject to possible exception, as there is always the possibility that a new and unexpected set of circumstances may arise to which the rigid application of this rule would result in distortion of truth.”

“It is true, not only of accountancy, but of almost every other complicated subject, that the one who has only a smattering of knowledge of it considers that the subject is reasonably simple and that he can readily devise rules governing each phase thereof. To the simple, all things are simple. It is only when one goes deeply into the subject, whatever it may be, that he becomes aware of the complications and the difficulties of proper treatment that is applicable to each element.”

To learn more about the history of the principles versus rules debate, read the transcript of an October 19, 1937 roundtable at the Waldorf-Astoria, New York titled “To What Extent Can the Practice of Accounting Be Reduced to Rules and Standards?” For more information and different perspectives regarding this ongoing debate, refer to previous postings during the past year.

Indiana CPAs - In the beginning …

Before there was a tax code (1913), before there was a Department of Labor (1913), before the SEC (1935) and before the PCAOB (2002), even before audits, there were CPAs (New York – 1896). How did the profession rise to the level of prominence in business without license to do something specific?

What were the requirements in 1915? Well … you had to be 21 years old, a high school graduate, have three years of experience as a professional accountant and submit “proof” of all of that to the newly created “state board of certified accountants”. Then, per Indiana law, “shall be granted without examination a certificate authorizing him to practice as a certified public accountant”. Of course this had to be done within 90 days. After that you would have had to take an examination. The early CPAs were grandfathered. That is how the profession got its start.

The first accounting standards were issued somewhere around 1938, and by 1959 there were 51 pronouncements known as Accounting Research Bulletins – this eventually became GAAP. The pronouncements were issued by the Committee on Accounting Procedure (CAP). The first auditing standards were issued in 1939 by the American Institute of Accountants committee on auditing procedure. In 1941, the SEC mandated that the auditor’s report had to be made in accordance with GAAP (they didn’t do that in 1935 because there was no GAAP).

To learn more, read the article “In the beginning …” posted on the Indiana CPA Society blog on February 16, 2012 by Gary Bolinger.

The “Going Concern” Assumption: Accounting and Auditing Implications - 1991

The “Going Concern” Assumption: Accounting and Auditing Implications was published by the Canadian Institute of Chartered Accountants (CICA) in 1991. This 262-page research report was prepared by J.E. Boritz, PhD, FCA, supported by a seven-member advisory group. It assesses the financial reporting and auditing implications of the “going concern” assumption. Particular attention is given to the nature and extent of disclosures in the financial statements and/or auditor's report when there is insufficient support for the assumption due to significant risks or uncertainties facing either the industry or the enterprise.

The “going concern” assumption is important because it underlies generally accepted accounting principles. Financial statements are prepared on the basis that the entity is a “going concern”, meaning that it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the normal course of operations.

According to the report, there were 8,664 business bankruptcies in Canada in 1989, accounting for about $2.2 billion in liabilities against assets of only $774 million, representing losses to creditors of more than $1.4 billion. In view of the economic significance of “going concern” disclosures, the lack of professional guidance, and the absence of standards in this area, the purpose of the report is to provide the basis for: 

• an accounting standards project to address the financial reporting implications of the “going concern” assumption in the accounting section of the CICA Handbook;
• an auditing standards project to modify CICA Handbook Section 5510, Reservations in the Auditor's Report, regarding auditor review of management's assertion as a “going concern”;
• an audit techniques study to support the professional judgment process.

The report summarizes relevant pronouncements and current literature and surveys reporting practices in Canada and the United States. In addition, it fulfills its mandate by:

• defining key terms including “financial distress”, “insolvency” and “bankruptcy”.
• discussing whether any reference should be made to the “going concern” assumption in the notes to the financial statements.
• assessing the financial reporting implications when there is insufficient support for the assumption.
• identifying conditions which may bring into question the continuance of an entity as a “going concern”.
• providing guidance on how doubts as to “going concern” status should be expressed.
• evaluating alternative principles governing the presentation of financial information including historical cost, value realizable in orderly liquidation and discounted value.
• determining the need for auditor review of the support for management's implicit or explicit “going concern” assumption.
• assessing the audit implications and providing guidance for reporting when there is insufficient support or inadequate disclosure in the financial statements.
• considering techniques to support the professional judgment process.

The report responds to recommendations in the 1990 publication Approaches to Dealing with Risk and Uncertainty and the 1988 Report of the Commission to Study the Public's Expectations of Audits, which noted the need to warn the public about the risk of business failure and the auditor's responsibility in that connection.

Generally Accepted Auditing Standards – 1975

Thirty-seven years ago, in February 1975, the CICA’s Auditing Standards Committee proposed, subject to comments received following exposure, to publish the contents of an Exposure Draft as CICA Handbook: Section 5100 - Generally Accepted Auditing Standards. This Exposure Draft was a re-exposure of material previously included in a November 1973 Exposure Draft. At that time the Committee used wording closely following and, in most places, identical to that used in the AICPA Statement on Auditing Standards No. 1, Codification of Auditing Standards and Procedures.

The Introduction said: "Although the Committee’s intention remains, as a general principle, to use words closely following AICPA Statements (or other professional pronouncements) in cases where this is appropriate, consideration of responses received to the 1973 Exposure Draft indicated that several significant changes were desirable in this particular case. The November 1973 Exposure Draft contained two other Sections of background material, which have been eliminated. "Responsibilities and Functions of the Independent Auditor" required extensive changes and will be dealt with at a later date. The discussion previously included under the heading "The General Standards" related to ethical matters [emphasis added], which are within the jurisdiction of the provincial Institutes and Order. Accordingly, it is the Committee’s intention not to deal further with this topic in the Auditing Recommendations Section of the CICA Handbook, other than including the substance of the three November 1973 general standards as one general standard in paragraph 5100.02 in the interest of completeness."

It is noteworthy that the Introduction also said that, oncurrent with the issuance of this Exposure Draft as an Auditing Recommendation, the Committee would intend to amend the Introduction to Auditing Recommendations by inserting the following as a new paragraph in the "Application" section:

"Among the Recommendations issued, GENERALLY ACCEPTED AUDITING STANDARDS, Section 5100, constitute the basic professional standards with which, in the Committee’s view, the auditor should comply when reporting upon financial statements. In adhering to such basic standards the auditor should have regard to the specific Auditing Recommendations in the Handbook while exercising his professional judgment [emphasis added] as to what procedures are required for such adherence. In addition, the Handbook provides Recommendations with respect to unaudited financial statements, to which Generally Accepted Auditing Standards do not apply."

Setting accounting and auditing standards in Canada - 1978

The article “Setting Accounting and Auditing Standards” was originally published in the September 1978 issue of CAmagazine. At that time, R.D. Thomas, FCA, was the CICA General Director of Research.

This article provides a detailed review of the existing standard-setting process. It notes that: “While the Research Department makes continual efforts to keep the 27,000 CICA members and over 13,000 other subscribers to the CICA Handbook informed on its projects in process, relatively few people appreciate the wide diversity of experience that those responsible bring to bear in the setting of Accounting and Auditing Recommendations, and the care they take in doing so."

"It’s important that those affected by these Recommendations know this background for at least two reasons:

(1) With the advent of the National Securities Administrators’ National Policy 27 and recent corporate legislation, Handbook Recommendations now have “authority” attached to them by federal and provincial government bodies, in addition to the support that has been given to them through the provincial institutes’ / order’s Rules of Professional Conduct.

(2) With the steady increase in the number and complexity of the subjects being dealt with by our research groups and with the resulting increasing demands on the time of volunteer members of these groups, a major study is now to be undertaken to see how our procedures can be improved. After reviewing the following highlight summary of the issues involved, any comments or suggestions you may have on present or prospective procedures and personnel will be very useful to the in-depth review which will be starting shortly.”

(For more information, refer to the CICA Special Committee on Standard-Setting (SCOSS), Report to the CICA Board of Governors on December 19, 1980.)

Report of the CICA Special Committee on Standard-Setting (SCOSS) - 1980

On December 19, 1980, the CICA Special Committee on Standard-Setting (SCOSS) presented its Report to the CICA Board of Governors. This comprehensive 158-page report states (pages 9-10) that: “If one is to consider the means by which accounting and auditing standards are to be set and maintained, one should first have a clear understanding of what is, or should be, the appropriate role, nature and scope of those standards.”

According to the SCOSS report: “A brief history of the standard-setting function in Canada and the way the nature and role of standards have evolved may help to set the stage. This history will essentially be that of accounting standards, since accounting standards as such have been in existence for much longer than auditing standards and they are, besides, much more in the public domain than auditing standards.

There have been accounting standards in Canada for a very long time. At no time in the past century would it have been possible for a preparer of financial statements to make up his own accounting practices without considering conventional usage, even though the accepted conventional practices may not have been published anywhere. Although our main concern today is for the development of published standards, it should not be forgotten that there are, even now, many accounting standards that are generally accepted and universally followed but have not yet been published. For example, there is no requirement in the CICA Handbook to depreciate fixed assets or to follow the matching principle generally.

The CICA published its first accounting standard in 1946. It was published in the form of a Bulletin, which continued to be the form of publication for more than twenty years. Twenty-six Bulletins were published between 1946 and 1967. Of these, six were published in the years 1965-67. In 1967, as a result of the report of a committee such as ours, the CICA Handbook came into existence and the Bulletins then in force were incorporated into it. The bulk of the material in the present Handbook has been added since 1968. The pace of standard-setting has clearly accelerated, and continues to do so.

It is difficult to generalize about the thought processes involved and the purposes behind projects carried out by standard-setters in the past. Nevertheless, it appears that the early Bulletins were essentially attempts to codify best existing practices rather than to change existing practice generally. In most cases the early Bulletins were non-controversial and the best practice was fairly clearly recognized. Their purpose was to discourage less desirable practices that were being followed in a minority of cases. Over time, however, the Bulletins, and later the Handbook, became progressively more innovative in the sense of changing practices generally rather than merely eliminating minority practices.

The trend away from codifying consensus to establishing new practice was due, in part, to the 1967 Report of the Study Group on Methods of Work and Organization (chaired by P.H. Lyons, FCA) which stated: “The Research Committee, to a much greater extent than it has in the past, should engage in initiating and overseeing basic research at the frontiers of our profession rather than gathering together to record the best current practice.”

Recent accounting standards, such as those on segmented reporting, accounting for leases and disclosure of transactions with related parties, have clearly changed the accounting and disclosure practices of the majority of Canadian enterprises rather than merely imposing on a stubborn minority accounting and disclosure practices already adopted by the majority. It is not always easy to categorize a particular standard as being essentially a codification of consensus on the one hand or a changing of the rules on the other – but, in general, the trend from the former approach to the latter seems indisputable. Moreover, the history of the process makes it apparent that this attitudinal change was primarily internally generated rather than forced on the profession from outside.

Undoubtedly, the most important development in the standard-setting arena since the Handbook came into existence is the conferring of quasi-legislative status on the Handbook. This process began with National Policy #27 adopted by the Canadian Securities Administrators in 1972. Since then, various federal and provincial statutes (and regulations thereunder) have come to require that financial statements prepared pursuant to those statutes must comply with the CICA Handbook.

The impact of this development on the perceived authority of the Handbook and the additional responsibilities it may, or may not, impose on standard-setters will be discussed later. However, while it is not possible to tell whether standards issued since the acquisition of this quasi-legislative status would have been different if such status had never been granted, it is possible that they might have been affected by the existence of this factor, and that future standards may be affected. The Handbook in its present form might be said to be largely a professionally- oriented set of standards with some of the latest (and future) additions perhaps being legislatively oriented. There could be conflicts in this potentially dual character of the Handbook.”

In addition to the above-noted discussion on the evolution of Canadian standards, the SCOSS report (pages 11-14) discusses the need for professional judgment in standard-setting, taking a principles-based approach, using principles rather than detailed rules, and clearly stating the role of professional judgment in the CICA Handbook. Although the report was issued more than 30 years ago, the observations and views of the Special Committee appear to be equally valid today. (For a review of the discussion on professional judgment, refer to the four-part series posted in the blog on Professional Judgment Matters.)

A Brief History of the Evolution of Accounting and Auditing Standards in Canada

Prior to 1951, the Canadian Institute of Chartered Accountants (CICA) was known as the Dominion Association of Chartered Accountants (DACA). It established an Accounting and Auditing Research Committee in 1946, which began issuing a series of bulletins setting out recommended standards of practice on accounting and auditing.


In 1968, it replaced the series of bulletins with a loose-leaf, subject-indexed Handbook that was periodically updated with inserts as the CICA’s committee issued new recommendations. Although the bulletins set out what the committee “considers to be the best accepted practice or its suggested treatment of new elements in accounting statements arising as a result of changes in social or economic conditions,” the recommendations contained in the Handbook were intended to possess greater force. Section 1500.06 in the Handbook, issued in November 1969, stated that any departures from the Handbook recommendations “should be explained in notes to the financial statements with an indication of the reason why the recommendation concerned was not followed.”

In 1975, the Canada Business Corporations Act added a degree of quasi-legislative authority to the Handbook, when Regulations 44 and 45 of the Act proclaimed:

44) The financial statements referred to in paragraph 149(1) of the Act shall, except as otherwise provided by this Part, be prepared in accordance with the standards, as they exist from time to time, of the CICA set out in the Handbook.

45) The auditor’s report referred to in Section 163 of the Act shall, except as otherwise provided by this Part, be prepared in accordance with the standards of the CICA set out in the Handbook.

In 1963, the CICA began publishing research studies on contemporary accounting and auditing topics. Since 1980, it has published a number of research studies on accounting and financial reporting, on auditing and assurance, and on environmental and performance reporting. Most are available as PDF downloads free-of-charge.

In 1991, the CICA replaced the Accounting Standards Committee and the Auditing Standards Committee with the Accounting Standards Board (AcSB) and the Auditing Standards Board. Later in that decade, the CICA Task Force on Standard Setting released its final report in May 1998, and among its recommendations was the establishment of an “independent standard setting organization for Canada.”

In addition, the CICA established the Accounting Standards Oversight Council (AcSOC) to support the setting of accounting standards domestically and to contribute to the development of internationally accepted standards. AcSOC’s mandate also includes providing opportunities for the public to comment on all aspects of accounting standard setting, and reporting to the public annually.

In 2005, a firm commitment was made to adopt International Financial Reporting Standards (IFRS), effective January 1, 2011. IFRS have now been incorporated into the CICA Handbook, along with International Auditing Standards (IAS).

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.

Approaches to Dealing with Risk and Uncertainty - 1990 CICA Research Report

The 1990 CICA Research Report, Approaches to Dealing with Risk and Uncertainty, was prepared by J.E. Boritz, PhD, FCA. He was assisted by an 8-member Advisory Group. This Research Report (about 160 pages) was developed in response to a recommendation in the Report of the Commission to Study the Public's Expectations of Audits (published in June 1988), commonly referred to as the Macdonald Commission Report.

The recommendation in  the Macdonald Commission Report stated that "the CICA should initiate and complete as soon as possible a study of risks and uncertainties leading to conclusions as to how they may best be disclosed in financial statements or elsewhere (e.g., in Management's Discussion and Analysis in the annual report)." Accordingly, the primary purpose of the Research Report is to discuss and summarize some of the key issues, and to recommend what further action should be taken.

CICA Task Force on Standard Setting - Final Report 1998

The Final Report of the CICA Task Force on Standard Setting (TFOSS) was issued in May 1998. It represented the culmination of almost two years of deliberations involving extensive communication and consultation with stakeholders in the standard-setting community, both in Canada and abroad. TFOSS expressed a belief in four-long-term goals articulated in its Report. These include the ultimate achievement of one set of internationally-accepted accounting and auditing standards, with Canada playing a significant role in their development.

According to TFOSS, Canada's ability to fulfil that role in the future, as well as to maintain its leadership in setting national private and public sector standards and developing emerging and innovative areas of service to the public, will depend on the commitment of adequate human and financial resources. This commitment has traditionally come from the CICA. But, in the future, TFOSS believes that it must also come from others who benefit from standards, particularly in accounting, but possibly in other areas as well. Their participation and support will serve to enhance the CICA's position as it continues to lead the profession in the years ahead.

Report of the Commission to Study the Public’s Expectations of Audits - June 1988

The Report of the Commission to Study the Public’s Expectations of Audits (Macdonald Commission Report) was released by the Canadian Institute of Chartered Accountants (CICA) in June 1988. The Commission had a threefold mandate: (1) to study the public’s expectations of audits; (2) to determine whether there is a gap between what the public expects or needs from auditors and what auditors can reasonably expect to accomplish; (3) to the extent there is an identifiable gap, to make suggestions as to how the gap might be narrowed.

The  Macdonald Commission Report made numerous recommendations regarding: strengthening the audit environment; accounting standards; extensions of financial disclosure; valuations and estimates; disclosure outside financial statements; exercise of auditor’s judgment; additional auditor responsibilities; clarification of financial reporting responsibilities; professional self-regulation; public input to auditing standards; employee fraud; management fraud; illegal acts; changes of auditors; communication with regulators; accounting standards for financial institutions; auditor reporting on internal control; and, auditor’s knowledge of the business.

A listing of the report’s 50 recommendations is provided in Appendix A (pages 139-146) of the report.

Evolution of US Generally Accepted Accounting Principles - 1930 to 2004

The accounting history paper Evolution of US Generally Accepted Accounting Principles (GAAP) was prepared by Stephen A. Zeff, Rice University. The paper outlines noteworthy developments in US GAAP from 1930 to 2004. The focus is deliberately on those incidents that represented important changes in practice or in the way that accounting principles or standards were set. These incidents are typically ones for which interesting ‘stories’ can be told about the underlying factors that led to the developments. Many of these stories involve efforts by the preparers of financial statements, or by a branch of government, to engage in ‘political’ lobbying in order to promote their narrow interests; for example, to present a more favourable earnings picture or to promote the effectiveness of government fiscal policy. Yet many US accounting standards have been issued that truly reflect the application of sound concepts, undiluted by ‘political’ lobbying. Because these principled standards have emerged in a natural progression from the underlying concepts, their stories are not as ‘interesting’ as those that were driven by ‘political’ lobbying. (Stephen A. Zeff was inducted into the Accounting Hall of Fame in 2002.)

Remembering Ross Skinner (1923-2003)

Saskatoon-born Ross MacGregor Skinner, FCA, had a significant impact on Canadian accounting standards. His 31-year Clarkson Gordon career began in 1945. A partner by 1954, he became national accounting standards director in 1962.

Among his numerous committee posts at the Canadian Institute of Chartered Accountants (CICA) were 5 years of service on its Committee on Accounting and Auditing Research (1959-64), including a term as its chair, and 5 years on its Standards Advisory Board (1990-95). He chaired the Auditor General­’s Independent Committee on Government Accounting and Auditing (1975-78) and, in the same period, was influential in the CICA’s decision to form its Public Sector Accounting Board.

He served two five-year terms on the Financial Disclosure Advisory Board of the Ontario Securities Commission (1974-79 and 1990-95) including three years as its chair. He was a consultant to the Commission to Study the Public's Expectations of Audits (the Macdonald Commission, 1987-88) and, working closely with the Commission, was the principal author of its report. He also served as a vice-president of the American Accounting Association, on the Board of Governors of Havergal College (Toronto), and on the editorial boards of Contemporary Accounting Research, Accounting Horizons, and the Accounting Historians Journal.

In 1962, he was elected a Fellow of the Institute of Chartered Accountants of Ontario (FCA) and, in 1984, he was one of the first five recipients of the Institute’s Award of Outstanding Merit. His many honours and awards also include an honourary doctorate of laws from Brock University, the Canadian Institute of Chartered Accountants’ Distinguished Service Award, and the Canadian Academic Accounting Association’s Haim Falk Award for Distinguished Contribution to Accounting Thought.

Apart from his work on committees of professional bodies and institutes, he wrote several influential books. His first, Analytical Auditing, co-authored with R.J. Anderson, was translated into four languages. His most well-known work, Accounting Principles: A Canadian Viewpoint is highly regarded in the accounting world, as is the book Accounting Standards in Evolution, co-authored with J. Alex Milburn.

Ross Skinner retired in 1983. In 1987 he joined the University of Toronto as adjunct professor and director of its Centre for Accounting Studies, positions he held until 1990. In 1999, he received an honourary Doctor of Laws from Brock University. In 2000, he was inducted to the Accounting Hall of Fame (refer to the article “A Rare Induction to Fame” in CAmagazine online). He passed away in 2003.

Remembering Professor Edward Stamp (1928-1986)

As a scholar and professional of truly international renown, Professor Edward Stamp was a British subject by birth and a Canadian citizen by naturalization. He took his degree from Cambridge in Natural Sciences and in 1950 was a Fulbright Scholar. In 1951, he came to Canada joining the public accounting firm of Clarkson Gordon & Co., where he qualified as a Chartered Accountant. He was admitted to partnership in the firm in 1959 and practiced in both Toronto and Montreal. In 1976, he was given the rare honour of Fellowship by the Ontario Institute of Chartered Accountants.

His academic teaching interests began in 1957 when he was a Special Lecturer at the Osgoode Hall Law School in Toronto. His first full-time academic appointment was in 1962 at Victoria University of Wellington in New Zealand where he was later appointed Professor of Accountancy. In 1967, he was appointed Professor and Head of the Department of Accounting and Business Method in the University of Edinburgh, Scotland - positions which he held until his appointment as Professor of Accounting Theory and Head of the Department of Accounting and Finance at the University of Lancaster in 1971. In 1975 he was named the Endowed Research Professor at the University of Lancaster. He founded the International Centre for Research in Accounting at that University in 1971 and was appointed as the Director of the Centre.

Professor Stamp's research interests are particularly broad, covering financial accounting and reporting, accounting theory, international accounting and auditing, and public accounting and auditing. He is the co-author of the basic document of the British conceptual accounting framework (The Corporate Report, 1975) and the author of the counterpart document for Canada (Corporate Reporting - Its Future Evolution, 1980).

One of the particular achievements of Professor Stamp is bridging the gap between academe and practice. His continual and articulate urging of the profession to respond to the new findings and direction emanating from the universities prompted much professional progress. His professional experience as a partner in an international public accounting firm and his senior academic appointments provide a uniquely rich background for these endeavours.

Among many of Professor Stamp's achievements and honours are: Advisor to Her Majesty's Treasury; Distinguished International Visiting Lecturer of the American Accounting Association; and Visiting professorships in Europe, Africa, the United States, Canada, Australia, New Zealand and Japan He was an executive member of the European Accounting Association and a Founding Member of the International Association for Accounting Education and Research in Japan. Professor Stamp was awarded the degree of Doctor of Laws at the University of Saskatchewan in 1984. He continued as the Endowed Research Professor and Director of the International Centre for Research in Accounting at the University of Lancaster, England, until he passed away on January 10, 1986 in Toronto.