Question

The "Wheat Committee" issued its report in 1972 which resulted in the creation of FASB which remains in existence today, One of the key differences is that FASB is independent of the AICPA and members are paid and serve full time. The creation of FASB decreased the AICPA's involvement in standard setting. Do you feel this action was necessary? What impact did this have on integrity and credibility?

Answer 1

Answer :

1. The Financial Accounting Standards Board is a private, non-profit organization standard-setting body whose primary purpose is to establish and improve Generally Accepted Accounting Principles within the United States in the public's interest.

2. The FASB is recognized by the Securities and Exchange Commission as the designated accounting standard setter for public companies. FASB standards are recognized as authoritative by many other organizations, including state Boards of Accountancy and the American Institute of CPAs (AICPA). The FASB develops and issues financial accounting standards through a transparent and inclusive process intended to promote financial reporting that provides useful information to investors and others who use financial reports.

3. The seven members of the FASB serve full time and, to foster their independence, are required to sever connections with the firms or institutions they served before joining the Board. While they individually have diverse backgrounds, each has a concern for investors, other users, and the public interest in matters of accounting and financial reporting and they collectively have "knowledge of accounting, finance, business, accounting education, and research.”
Board members are appointed by the FAF Board of Trustees generally for 5-year terms; they may serve up to 10 years.

4. FASB members are appointed by the Financial Accounting Foundation (FAF) Board of Trustees. To ensure that a balance of perspectives are represented on the FASB, the Appointments committee of the Board of Trustees seeks Board nominations from wide array of stakeholders, including key stakeholder organizations/associations representing a wide range of financial statement users and preparers, as well as academics, public and private companies and organizations, regulators and other government leaders, and professional search firms.

5. FASB Advisory Groups are standing resources to the FASB and its staff, and include:

• Financial Accounting Standards Advisory Council (FASAC): Advises the FASB on technical issues on the Board’s agenda, possible new agenda items, project priorities, procedural matters that may require the attention of the FASB, and other matters as may be requested by the FASB or its chairman.
• Investor Advisory Committee (IAC): Provides advice, from the investors’ perspective, on current and potential FASB agenda projects.
• Not-for-Profit Advisory Committee (NAC): Provides advice on existing guidance, current and proposed technical agenda projects, and longer-term issues related to the not-for-profit sector.
• Small Business Advisory Committee (SBAC): Provides advice on FASB projects related to the operationality and the anticipated costs, complexities, and benefits of potential solutions principally from a small public company perspective.

6. The American Institute of Certified Public Accountants (AICPA) is the national professional organization of Certified Public Accountants in the United States, with more than 418,000 members in 143 countries in business and industry, public practice, government, education, student affiliates and international associates.

7. The AICPA develops standards for audits of private companies and other services by CPAs; provides educational guidance materials to its members; develops and grades the Uniform CPA Examination; and monitors and enforces compliance with the profession's technical and ethical standards.Professional Standards is your comprehensive source of professional standards and interpretations issued by the AICPA, such as auditing and attestation, accounting and review services pronouncements, along with the AICPA Code of Professional Conduct and Bylaws.

8. The AICPA sets ethical standards for the profession and U.S. auditing standards for private companies, nonprofit organizations, federal, state and local governments. ... It features posts from AICPA staff on a variety of topics affecting the accounting profession, the AICPA and its members.The organization held a monopoly in setting the generally accepted professional and technical standards for the CPA profession until 1970. The function of setting the Generally Accepted Accounting Principles (GAAP) was later transferred to the Financial Accounting Standards Board, while the organization retained the role of setting professional standards for CPA professionals. The association sets the standards in financial statement auditing, private practice, CPA firm quality control, business valuation, financial planning, and professional ethics. It also disciplines members who are accused of misconduct while in active professional practice.

9. Due to the increasing financial accounting aspects in today's economy byfurcating the creation of FASB decreased the AICPA's involvement in standard setting. This action made an impact on integrity & credibility as is inconsistent with the language & intent of SOX and Policy statement because it would appear to weaken the independence of the FASB, harm the integrity of the standard setting process and have an adverse impact on achieving international convergence of high quality accounting standards.