Parties Setting Accounting Standards – AICPA

The American Institute of Certified Public Accountants (AICPA) is a vital institution in shaping accounting standards and practices in the United States. As the national professional organization of Certified Public Accountants (CPAs), it has played a pivotal role in the development and evolution of Generally Accepted Accounting Principles (GAAP). Over its extensive history, the AICPA has formed committees and boards that significantly contributed to the establishment of robust accounting standards.

Historical Development and Initiatives

Committee on Accounting Procedure (CAP)
In 1939, at the suggestion of the SEC, the AICPA established the Committee on Accounting Procedure (CAP). This committee, composed of practicing CPAs, issued 51 Accounting Research Bulletins (ARBs) from 1939 to 1959. These bulletins were primarily problem-solving in nature, addressing specific accounting challenges. However, the CAP’s approach of dealing with issues on a case-by-case basis lacked a unified framework, which limited its long-term effectiveness.
Accounting Principles Board (APB)
To address the shortcomings of the CAP, the AICPA created the Accounting Principles Board (APB) in 1959. The APB was tasked with a dual mission:
- Developing a conceptual framework to guide the establishment of accounting principles.
- Issuing pronouncements to resolve emerging issues in accounting practice.
The APB issued 31 formal pronouncements, known as APB Opinions, between 1959 and its dissolution in 1973. These opinions were built on rigorous research and analysis, supported by representatives from public accounting, industry, and academia. Despite its accomplishments, the APB faced criticism for its lack of timeliness and inability to address broader systemic challenges, prompting the formation of the Wheat Committee.
The Wheat Committee
Formally known as the Study Group on Establishment of Accounting Principles, the Wheat Committee was established in 1971 to evaluate the APB’s operations and propose improvements. Chaired by Francis Wheat, the committee recommended replacing the APB with a more structured and authoritative body. These recommendations led to the establishment of the Financial Accounting Standards Board (FASB), marking a significant shift in standard-setting responsibilities.

Publications and Guidance

The AICPA continues to influence the accounting profession by publishing authoritative guidance and materials that supplement GAAP:

Industry Audit and Accounting Guides: These guides assist auditors in specialized industries like banking, healthcare, and real estate, providing tailored frameworks for financial reporting.
Statements of Position (SOP): Intended to clarify and resolve complex accounting issues, SOPs serve as a bridge between theoretical accounting principles and practical application.
Practice Bulletins: These publications address narrow, highly technical issues, ensuring consistent application across industries.
Accounting Trends and Techniques: Published annually, this report analyzes accounting trends by reviewing the financial statements of over 600 companies. It provides insights into emerging practices and challenges.
AICPA Accounting Interpretations: Issued during the APB’s tenure, these interpretations remain valuable for addressing specific accounting scenarios that may not be explicitly covered by existing standards.

Additionally, the AICPA develops Issue Papers to highlight critical accounting areas requiring attention from the FASB, ensuring ongoing refinement of the accounting framework.

Modern Role and Relevance

While its direct involvement in standard-setting has decreased with the establishment of the FASB, the AICPA remains a cornerstone of the accounting profession. It continues to uphold its mission of promoting high ethical standards and technical expertise among CPAs. The AICPA also plays a significant role in:

Administering the Uniform CPA Examination.
Publishing research and thought leadership on emerging accounting issues.
Advocating for the interests of CPAs in regulatory and legislative matters.

Conclusion

The AICPA’s legacy in shaping accounting standards is marked by its commitment to addressing complex financial reporting challenges and its adaptability in responding to the profession’s evolving needs. From the CAP and APB to its current role in supporting and complementing the FASB, the AICPA has laid the groundwork for a robust and transparent accounting system that serves public interest and ensures confidence in financial reporting.