Case 1-3 Politicalization of Accounting Standards Some accountants have said tha
ID: 2462133 • Letter: C
Question
Case 1-3 Politicalization of Accounting Standards
Some accountants have said that politicalization in the development and acceptance of generally accepted accounting principles (i.e., standard setting) is taking place. Some use the term politicalization in a narrow sense to mean the influence by governmental agencies, particularly the SEC, on the development of generally accepted accounting principles. Others use it more broadly to mean the compromising that takes place in bodies responsible for developing these principles because of the influence and pressure of interested groups (SEC, American Accounting Association, businesses through their various organizations, Institute of Management Accountants, financial analysts, bankers, lawyers, etc.).
Required:
The Committee on Accounting Procedure of the AICPA was established in the mid- to late 1930s and functioned until 1959, at which time the Accounting Principles Board came into existence. In 1973, the Financial Accounting Standards Board was formed, and the APB went out of existence. Do the reasons these groups were formed, their methods of operation while in existence, and the reasons for the demise of the first two indicate an increasing politicalization (as the term is used in the broad sense) of accounting standard setting? Explain your answer by indicating how the CAP, APB, and FASB operated or operate. Cite specific developments that tend to support your answer.
1)What arguments can be raised to support the politicalization of accounting standard setting?
2)What arguments can be raised against the politicalization of accounting standard setting? (CMA adapted)
Explanation / Answer
Answer
Answer 1
The Committee on Accounting Procedure of the AICPA was established in the mid- to late 1930s and functioned until 1959, at which time the Accounting Principles Board came into existence. In 1973, the Financial Accounting Standards Board was formed, and the APB went out of existence. Do the reasons these groups were formed, their methods of operation while in existence, and the reasons for the demise of the first two indicate an increasing politicization (as the term is used in the broad sense) of accounting standard setting? Explain your answer by indicating how the CAP, APB, and FASB operated or operate. Cite specific developments that tend to support your answer.
Answer :
The former accounting boards CAP and APB did reach their demise due to increasing politicization. The broad definition of politicization assumes that standard-setting bodies are influenced by those invested groups. The CAP had issues from businesses regarding the fact that service here meant they had to hold AICPA membership; many entities saw this as limiting the voices from businesses the CAP sought to represent. Due to this, the APB was formed and developed with board members from not only the accounting profession, but also from industry, government, and academics in order to have a better representation of those specific groups. However, the demise of the APB came when the independence of the board members was questioned; each member was responsible to their respective employers and were thought to be looking out for their own respective interests.
The FASB is different in that all members are independent of other businesses. Proposed by the Wheat Committee chaired by Francis Wheat, the FASB is the “official body charged with issuing accounting standards” (Schroeder, Clark, & Cathey, 2011).
From these changes in accounting boards that develop and expand upon accounting theory, it is evident that the entities on the receiving end of the principles and guidelines that are being developed have the ability to change the organizations that appoint them.
Answer 2.
What arguments can be raised to support the politicization of accounting standard setting?
Answer :
One major benefit to the politicization of accounting standard setting is that the backing of federal government regulations aids in the dissemination and credibility of changes to accounting standards or newly issued accounting standards. The other benefit is the ability to include the federal courts when a ruling is needed regarding clarification of a accounting standard.
Answer 3
What arguments can be raised against the politicization of accounting standard setting? (CMA adapted).
Answer :
As has been shown in various examples in the past such as, congressional and FASB debates regarding the use of fair value measurements and the reporting of employee stock options as an expense, political agendas have the potential to skew the perception of what may be more appropriate for the profession. In these examples, companies and other interested parties were able to use money and positions of power to lobby congress to ensure that regulations that would have been best for the accounting profession but not necessarily in the best interest of the company were not allowed to be passed or implemented by the FASB.
Another potential issue resulting from the politicization of accounting is the conflict of interest that can result from a regulating authority, such as the federal government, which can be influenced by big money and big power, able to dictate when and how experts in the accounting profession will do their job.
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