Synopsis

When American corporations began publishing financial statements in the early years of the twentieth century, there were vast disparities in the methods used to value assets and measure income. During the next 70 years, the American Institute of Accountants (AIA), the Committee on Accounting Procedure (CAP), the Accounting Principles Board (APB), and the Securities and Exchange Commission (SEC) struggled to write accounting standards that would improve the quality and comparability of corporate financial statements.

Discussion Questions

1. Accounting existed for centuries without generally accepted accounting principles. What economic changes in the late nineteenth and early twentieth centuries created a need for GAAP?
2. Why was the CAP unable to eliminate alternative accounting treatments for items such as inventory, depreciation, pensions, and income taxes?
3. What factors led to the CAP’s dissolution?
4. Why did the APB reject the accounting principles proposed in ARS No. 3?
5. The SEC claims to want to reduce the number of alternative accounting treatments. Have the SEC’s actions always matched its words? What role does politics play in setting accounting standards?
6. Why did growth-oriented companies prefer to account for their acquisitions as poolings-of-interests?

Additional Resources

Luca Pacioli: Father of Accounting. This video describes the life and work of monk and mathematician Luca Pacioli (27:02 minutes).