Politicalization of Accounting

Case 1-3 Politicalization of Accounting Standards

Politicalization of accounting standards has been important issue because of the ever-changing economic status of our country. It has been known that various accounting standards have economic concerns that yield hostile effects for certain identifiable corporate interests. The defense of the “politicalization” of accounting standards from the Securities Exchange Commission (SEC) and FASB (Financial Accounting Standards Board) ensure that government’s authority is designed to benefit all users and interests.

a. Committee on Accounting Procedure (CAP) was originally formed to develop comprehensive statement of accounting principles that would serve as a general guide to the solution of specific practical problems. However, CAP decided only to attack problems when they arose. After CAP shortcomings, AICPA formed Accounting Principles Board (APB). The APB was formed to advance the written expression of generally accepted accounting principles (GAAP), to narrow the areas of difference in appropriate practice, and to discuss unsettled and controversial issues. In a couple of years the Wheat Committee recommended to abolish the APB because of different criticisms. After the abolishment of the APB, FASB became the official body charged with issuing accounting standards. I believe that the first two bodies’ demise definitely resulted in an increasing politicalization of the accounting standards. The government and interested groups wanted more control because of the economic effects on the country. The first two were issuing statements either too late or issuing the wrong opinions in the time of a recession when the country needed the most economic relief.

b. Arguments that can be raised to support “politicalization” of accounting standards setting are listed below:

a. After the demise of Arthur Anderson and Enron, the SEC were forced to create greater restrictions improve policies, including full...