Politicalization of Accounting Standards
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Some accountants have said that politicalization in the development and acceptance of generally accepted accounting principles (i.e., standard setting) is taking place. Some use the term politicalization in a narrow sense to mean the influence by governmental agencies, particularly the Securities and Exchange Commission, on the development of generally accepted accounting principles. Others use it more broadly to mean the compromising that takes place in bodies responsible for developing these principles because of the influence and pressure of interested groups (SEC, American Accounting Association, businesses through their various organizations, Institute of Management Accountants, financial analysts, bankers, lawyers, etc.).
Required:
The Committee on Accounting Procedure of the AICPA was established in the mid-to late 1930s and functioned until 1959, at which time the Accounting Principles Board came into existence. In 1973, the Financial Accounting Standards Board was formed, and the APB went out of existence. Do the reasons these groups were formed, their methods of operation while in existence, and the reasons for the demise of the first two indicate an increasing politicalization (as the term is used in the broad sense) of accounting standard setting? Explain your answer by indicating how the CAP, APB, and FASB operated or operate. Cite specific developments that tend to support your answer.
What arguments can be raised to support the politicalization of accounting standard setting?
What arguments can be raised against the politicalization of accounting standard setting? (CMA adapted)
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This solution discusses politicalization of accounting standards.
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NOTE: This is the part the touches on how APB, FASB, etc operates:
First, the boards through its standard setting committee writes of an exposure draft of the accounting standard, and then distributes such to different bodies including the AICPA, SEC and other business groups. These groups would then provide their comments to the board which will then incorporate changes it deems necessary. This process is very susceptible to lobbying efforts by concerned groups. Wherever there are lobbying opportunities, there will always be politics.
Answers:
Chand and Cummings (2008) opined that the nature of the accounting standard setting process lends it inevitably to political influences (p. 177). This paper explores arguments that either support the idea ...
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