Chapter 1
Financial Accounting
Standards
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Standard Setters
Securities and Exchange Commission
(SEC). Formed to administer the
Securities Act of 1934.
 Oversees the development of Generally
Accepted Accounting Principles (GAAP).
 Encouraged the development of the first
“private” standard-setting body, the CAP
(next slide).
 SEC sits on FASB’s (Slide 4) Emerging
Issues Task Force (EITF).

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Standard Setters

American Institute of Certified Public
Accountants (AICPA)
– Committee on Accounting Procedure
(CAP), 1939-1959; issued Accounting
Research Bulletins (ARB).
– Accounting Principles Board (APB),
1959-1973; issued APB Opinions
(APBO).
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Standard Setters

Financial Accounting Standards Board
(FASB), 1973 to present.
– Funded by Financial Accounting
Foundation (FAF).
– Benefits: smaller Board; full-time, paid
members; independent; broader
representation.
– Wheat Committee (1972)
recommended an independent
standard-setting structure.
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FASB Codification



FASB issues a number of pronouncements
containing GAAP: Standards, Interpretations,
Technical Bulletins, Implementation Guides,
EITF Statements.
To organize GAAP, FASB developed the
Accounting Standards Codification (ASC).
All GAAP pronouncements are organized by
topic and subtopic, and make it easier to
research GAAP issues.
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FASB Codification

FASB issues a number of pronouncements
containing GAAP: Standards, Interpretations,
Technical Bulletins, Implementation Guides.
 To organize GAAP, FASB developed the
Accounting Standards Codification (ASC).
 All GAAP pronouncements are organized by
topic and subtopic, and make it easier to
research GAAP issues.
 You will research several issues this
semester using the Codification.
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International Accounting Standards
Board (IASB)

The IASB issues International Financial
Reporting Standards (IFRS).
 The predecessor to the IASB was the
International Accounting Standards
Committee (IASC); the IASC issued
International Accounting Standards (IAS).
 Over 115 countries currently use IFRS as
their primary financial reporting standard.
 The U.S., through the FASB and the SEC,
has been working with the IASB on a
number of issues, with the goal of achieving
convergence with IFRS by 2015.
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Professional Reputation and Ethics

Ethical behavior is in the long-run interest of
managers, stockholders, and auditors.
 Many companies, universities, and
professional organizations have enacted
increased emphasis on ethics.
 Auditors’ reputations are integral to their
ability to perform their duties. High ethical
conduct is imperative to their continued
success.
 A number of companies, and their auditors,
have been exposed in recent years for their
fraudulent financial reporting. Some of
these ethical failures will be discussed this
semester.
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