Answer to Part(a)
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Key organisations involved in accounting rule amking are:
1. The Financial Accounting Standards Board (FASB) was founded in 1973 to establish and regulate US Generally Accepted Accounting Principles (US GAAP) for public companies trading in US exchange boards which earlier was regulated by Accounting Principles Board (APB) of AICPA. FASB currently overlooks the US GAAP and its compliance.
2. American Institute of Certified Public Accountants (AICPA) doesnot set US GAAP because it already sets US Auditing Standards and have no role at present in setting of accounting standards. However they used to set AS before FASB was formed in 1973. However they proived their inputs to FASB in setting out the changes in the standards from time to time.
3. Securities & Exchange Board (SEC) is an independent agency of US government and is responsible for enforcing security laws and regulates security industry. It ensures that disclosures made by public companies are true and fair. Apart from this, SEC also mandates that how and following which standards, companies have to maintain their financial statements and disclose them. It is SEC only who has currently authorized FASB to regulate US GAAP standards.
4. IASB currently looks over at IFRS and is a board of individual members from different countries like UK, Japan, France, Sweden, China, and Australia who are CPAs, analysts and one accounting professor. It is currently working in tandem with FASB to resolve various conflicting issues and have almost solve many small issues.
Besides, accounting and auditing firms, investors, bankers, all provide their insights to FASB for setting accounting rules.
Answer to Part (b)
In simple words, ‘authoritative support’ means that all the opinions which are affirmed by FASB of various agencies are gathered at one place and user can access all of them at once. With gathering all the reports and opinion of Accounting Principles Board, pronouncements of the American Institute of CPAs, statements of the Financial Accounting Standards Board, and releases of the Securities and Exchange Commission (if there are any on the subject in question) at one place FASB does not create a new GAAP but only one more level for better reaserch which is considered authoratitive.
Answer to Part (c)
A committee of the American Institute of Accountants, the Committee on Accounting Procedure (CAP) was the very first private-sector standard setting body. During its existence from 1938 to 1959, the CAP issued 51 Accounting Research Bulletins (ARBs). Since, it has not established a financial accounting conceptual framework, its rule-making approach of dealing with accounting and reporting problems and issues was subject to severe criticism.
The CAP was then replaced by the Accounting Principles Board (APB) which was able to issue 31 Accounting Principles Board Opinions (APBOs), 4 Statements and several interpretations during its tenure from 1959 to 1973. In contrast to its predecessor, it attempted to establish a conceptual framework with its APB Statement No. 4 but failed. In addition to its unsuccessful effort to create a framework, it was also under fire for its apparent lack of independence because its board members were supported by the AICPA and that other interest groups were not represented in the rule-making process.
Emphasizing the significance of an independent standard-setting structure, the APB was reorganized in 1973 into a new body called the Financial Accounting Standards Board (FASB) which is still over looks the accounting practices through GAAP.
Answer to Part (d)
The 1934 act created the U.S. Securities and Exchange Commission (SEC) which was mandated with both the power and responsibility for standard-setting of financial accounting and reporting for publicly-traded companies. But the SEC while keeping the power to set standards has chosen to delegate its rule-making responsibilities to the private sector. This means that if the SEC does not conform to a specific standard issued by the private sector, it has the authority to change that standard, which it has done in the past. Despite delegating its rule-making responsibility, the SEC issues its own accounting pronouncements called Financial Reporting Releases (FRRs).
Thus SEC would be the authority for compliance with GAAP which has existed through out the history of rule making.
