Accounting Principles Board
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| Accounting Principles Board | |
|---|---|
| Name | Accounting Principles Board |
| Formation | 1959 |
| Dissolution | 1973 |
| Predecessor | American Institute of Certified Public Accountants Committee on Accounting Procedure |
| Successor | Financial Accounting Standards Board |
| Type | Advisory committee |
| Headquarters | New York City |
| Leader title | Chair |
| Leader name | Francis Wheat |
| Parent organization | American Institute of Certified Public Accountants |
Accounting Principles Board The Accounting Principles Board served as the primary authoritative body for United States private-sector financial reporting standard-setting from 1959 until 1973. Chartered by the American Institute of Certified Public Accountants to replace the Committee on Accounting Procedure, it issued pronouncements intended to guide certified public accountants in the preparation of financial statements, responding to developments in securities regulation and corporate reporting. The Board operated amid interactions with the Securities and Exchange Commission, Congressional inquiries, and evolving practices in capital markets and corporate governance.
History
Formed in 1959 by the American Institute of Certified Public Accountants, the Board succeeded the Committee on Accounting Procedure after criticism over fragmented guidance and calls for more coherent standards. Early years involved coordination with the Securities and Exchange Commission and engagement with influential practitioners drawn from firms such as Price Waterhouse, Arthur Andersen, Ernst & Young, Deloitte, and KPMG. During the 1960s the Board confronted issues raised by expanding multinational corporations, new derivative instruments, and the growth of institutional investors including Pension Benefit Guaranty Corporation participants and mutual funds. Public controversies such as accounting for research and development, inventory costing methods influenced Congressional attention and prompted dialogues with committees of the United States Senate and the United States House of Representatives. Mounting criticisms over process, independence, and responsiveness culminated in the establishment of the Financial Accounting Standards Board by the Financial Accounting Foundation in 1973, following recommendations from panels that included members of the Cotton Commission and other advisory groups.
Structure and Membership
The Board was composed of practicing certified public accountants, academics from institutions like Harvard Business School, University of Chicago Booth School of Business, Columbia Business School, and University of Pennsylvania Wharton School, and representatives of the accounting profession nominated by the American Institute of Certified Public Accountants. Leadership included prominent figures such as Francis Wheat, while membership drew from executives associated with major accounting firms and corporations like General Electric, Ford Motor Company, IBM, and General Motors. Operating committees and task forces consulted specialists from regulatory agencies including the Securities and Exchange Commission and advisors from Congressional Budget Office staff on occasion. Meetings were held under AICPA auspices in New York City and consulted with international bodies such as the International Accounting Standards Committee. Critics cited the Board’s appointment process and links to large firms as potential conflicts with independence promoted by advocates including Arthur Levitt and other reformers.
Major Pronouncements and Opinions
The Board issued numbered Opinions that addressed issues including revenue recognition, inventory valuation, and consolidation. Notable outputs include Opinions on accounting for leasing arrangements, treatment of research and development costs, and guidance on financial statement presentation that influenced practices at corporations like AT&T and ExxonMobil. Opinions interacted with pronouncements from the Securities and Exchange Commission and were cited in litigation such as cases before the Supreme Court of the United States and federal appellate tribunals. The Board’s releases were supplemented by Discussions Papers and bulletins; key documents were debated at meetings attended by academics from Massachusetts Institute of Technology, Stanford Graduate School of Business, and practitioners from firms like Coopers & Lybrand. Some Opinions informed auditing practice and were referenced in materials of the AICPA Auditing Standards Board.
Influence on Accounting Standards and Practice
Though limited by its parent association’s boundaries, the Board shaped mid-20th-century United States accounting through adoption of conventions and by catalyzing professional debate. Its rulings affected reporting by Fortune 500 corporations and influenced accounting curricula at schools such as New York University Stern School of Business and University of Michigan Ross School of Business. The Board’s emphasis on authoritative Opinions contributed to convergence efforts with international standard-setters and provided a foundation for subsequent Financial Accounting Standards Board projects. Regulators, including SEC commissioners and staff, often referenced Board Opinions in enforcement and interpretive guidance, and academic citations in journals like the Accounting Review documented the Board’s doctrinal impact.
Criticisms and Controversies
Critics criticized the Board for perceived lack of independence from the accounting firms and for slow, reactive processes in addressing emerging transactions such as complex securitization and evolving derivatives. High-profile disputes over topics like income smoothing and treatment of extraordinary items drew attention from press outlets and congressional committees, including hearings influenced by lawmakers such as members of the House Committee on Interstate and Foreign Commerce. Scholars and practitioners alleged inconsistencies, and calls for a fully independent, full-time standard-setting body intensified after reports by panels chaired by figures associated with Securities and Exchange Commission reform initiatives. Accusations of capture by large firms and inadequate transparency spurred the creation of the Financial Accounting Foundation and eventual replacement of the Board.
Legacy and Succession by the FASB
The Board’s closure in 1973 led directly to formation of the Financial Accounting Standards Board, structured with full-time members, a transparent due process, and funding mechanisms administered by the Financial Accounting Foundation. The transition reflected recommendations from commissions including the Special Committee on Financial Reporting and reform advocates such as academics from Columbia University and Yale School of Management. Many Board Opinions were reviewed, superseded, or incorporated into early FASB Statements, and personnel from the Board migrated to roles within the new standard-setting architecture and within major accounting firms and regulatory agencies. The Board’s era remains a focal point in histories of United States accounting standard-setting and is studied in courses at institutions including Indiana University Kelley School of Business and University of Texas McCombs School of Business.