Question

CA1.11 (LO 2, 4) (Models for Setting GAAP) Presented below are three models for setting GAAP.

1. The purely political approach, where national legislative action decrees GAAP.
2. The private, professional approach, where GAAP is set and enforced by private professional actions only.
3. The public/private mixed approach, where GAAP is basically set by private-sector bodies that behave as though they were public agencies and whose standards to a great extent are enforced through governmental agencies.

Instructions

1. Which of these three models best describes standard-setting in the United States? Provide justification for your answer.
2. Why do companies, financial analysts, labor unions, industry trade associations, and others take such an active interest in standard-setting?
3. Cite an example of a group other than the FASB that attempts to establish accounting standards. Speculate as to why another group might wish to set its own standards.

Answer 1

Answer:

1)

Being a Big 4 auditor this inquiry is exceptionally interest to me. I figure you could make an excellent argument for 1 or 2. I might want to agree with 2 through.

i) My opinion you could put forth a case for the absolutely political methodology, yet I feel there is a lot of private segment association authorization which is the reason I like 2 better.

ii) Private/proficient methodology best depicts the current circumstance since we have the norms being set by the FASB (quasi government association under the SEC) and generally auditors upholding the guidelines or standards. Allowed the PCAOB participates in a portion of the authorization however they can't look at each audit. By far most of authorization is with the audit work in the accounting firms.

iii) Public/private mixed, this possibly what we had pre-FASB (I think 1970s), when the AICPA was a simply private association and giving the legitimate direction. We don't have that any longer and will probably never have a set up like that again. It just gives the organizations and private division an excessive amount of control.

2)

These groups are keen on standard setting since it decides how they'll get paid, regardless of whether their organization will endure. You could go through every one of these models and why every group has a stake in financial standards.

Financial Analyst:

It decides the quality and convenience of the data they escape organizations to make a superior job.

Trade union :

It can give them a superior image of the money related or financial state of the organization and whether they're in a situation to request a good labor contract.

3)

I would presumably approach my professor for some lucidity here, I don't know whether we're discussing the "obvious issue at hand" IFRS being set by the IASB. This could likewise be some administrative accounting guidelines which are set for like insurance agencies who need to report another arrangement of financials on an administrative premise notwithstanding GAAP(to better show their dissolvability, it's a marginal money premise of bookkeeping). It could likewise be the IRS which for the most part has all citizens including corporations report a close to money or cash premise strategy for representing tax purposes.

The thing is, another premise of bookkeeping can't generally simply come into the United States and set up for business. We can't get together in our carport and start a superior premise of bookkeeping than is out there. This is on the grounds that the SEC holds all the cards. For huge organizations that are traded freely they need to experience the SEC which implies they need to give an account or report of US GAAP.