Accounting System

Accounting Theory

History and Conceptual Framework

I. History of Financial Accounting: Reporting to outside users financial matters.

A. Why do we need financial accounting?

It’s an operation of the economy. Capital resources are allocated through the financial markets. The allocation process consists of a large number of decisions by capital providers. These decisions are based on some form of financial information. Some of this information is provided by financial statements.

B. Development of Standards—Generally accepted accounting principles (GAAP) are accounting principles that have substantial authoritative support. The SEC actually has the power to establish GAAP but has allowed the accounting profession itself to establish GAAP and self-regulate.

1. Before 1900, little organized financial reporting existed. Accounting was all internal accounting.

2. 16th Amendment (1913) says business owners should report net income; therefore rules are needed to calculate this figure.

3. 1929: Stock Market Crash

4. 1933: Securities Act established the SEC. This organization was given the power to regulate accounting rules. The purpose of the SEC is to protect investors.

5. 1939: Committee on Accounting Procedure (CAP)—a part-time committee of the AICPA that promulgated Accounting Research Bulletins (ARB), which was GAAP from 1939 until 1959.

6. 1959: Practicing CPA’s issued 51 Accounting Research Bulletins—like FASBs. However they did not have to be followed.

7. 1959: Accounting Principles Board (APB), another part-time committee of the AICPA, issued 31 opinions (APBO) and APB Interpretations, which determined GAAP from 1959 until 1973.

8. 1964: Companies were finally required to follow APB’s.

9. 1973 to 2009: Financial Accounting Standards Board (FASB) is the authoritative standard setting body. It is an independent full-time organization. They issued 168 standards as well as opinions, bulletins, etc.

a. Statements of...