Attempts to Establish a Theory of Accounting

Attempts to Establish
a Theory of Accounting
AIA and NYSE attempt to develop GAAP (1932)—5 broad principles became 1st
chapter of ARB #1
AAA Tentative Statement of Accounting Principles Affecting Underlying Corporate
Annual Reports (1936)
AICPA Committee on Accounting Procedure
AICPA Statement of Accounting Principles issued by Sanders, Hatfield, and Moore
Paton and Littleton’s Introduction to Corporate Accounting Standards (1940)
The Basis for Accounting Principles—Scott (1941) and Cultural Significance of
Orientation postulate (social, political, and economic)
Pervasive principle of justice and equitable treatment to all users of information
Truth and fairness (objectivity, freedom from bias, and impartiality)
Adaptability and consistency
Scientific method
Attempts to Establish
a Theory of Accounting
• AICPA Accounting Principles Board
– Accounting Research Study #1 Basic Postulates of
Accounting by Moonitz (1961)
– Accounting Research Study #3 Tentative Set of Broad
Accounting Principles by Sprouse and Moonitz (1962)
– Inventory of GAAP by Grady (1965)
• A Statement of Basic Accounting Theory
(ASOBAT) issued by AAA (1966)
• APB issued Statement 4 Basic Concepts and
Accounting Principles Underlying Financial
Statements of Business Enterprises
Attempts to Establish
a Theory of Accounting
AICPA Trueblood Committee identifies objectives of accounting (1973)
– Useful for making economic decisions
– Serve primarily those users having limited authority, ability, or resources to obtain information
and rely on financial statements as their principal source of information about an entity’s
economic activities
– Information useful to investors and creditors in predicting, comparing, and evaluating
potential cash flows—amounts, timing, and uncertainty
– Information for predicting, comparing, and evaluating earning power
– Information useful in judging management’s ability to use resources effectively in achieving an
entity’s goals
– Factual and interpretative about transactions and other events
– Statement of financial position
– Statement of periodic earnings
– Statement of financial activities relating to significant cash flows
– Financial forecasts that enhance the reliability of user predictions
– Information for governmental and not-for-profit to evaluate effectiveness of management of
resources in achieving identified goals
– Information on an entity’s activities affecting society
Attempts to Establish
a Theory of Accounting
• AAA issues Statement on Accounting Theory
and Theory Acceptance (SATTA) in 1977
– No single, universally accepted basic accounting
theory existed
• FASB issues Statements of Financial
Accounting Concepts 1-7 (1978 -2000);
Conceptual Framework
• IASB Conceptual Framework