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The Accounting Standards Setting Process

How does government involvement in standard setting affect investor confidence? This paper answers this question with a thorough history on the accounting standards setting process.

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For your convenience, I have attached a formatted MS Word file containing requested information on how our governmental standard setting policies affect investor confidence. I have also included information on the history and practices of govermental involvement in the standard setting practice that might help to increase your understanding of the subject.

The Accounting Standards Setting Process

Prior to the Great Crash of 1929, there was very little support for federal regulation of the securities markets. This was particularly true during the post-World War I surge in securities activity, when investors tempted by dual promises of "easy riches" and easy credit, gave little thought to the dangers inherent in uncontrolled market operation. During the 1920s, "approximately 20 million large and small shareholders took advantage of post-war prosperity and set out to make their fortunes in the stock market" (SEC, 2007). When the stock market crashed in October 1929, the fortunes of countless investors was forever lost, with it now being estimated that of the "$50 billion in new securities offered during this period, half became worthless" (SEC, 2007).

With the Crash and the ensuing depression, public confidence in the government and the market plummeted. During this time of national distress, there arose a consensus that for the economy to recover, the public's faith in the capital markets needed to be restored. Congress held hearing to identify the problems and to search for solutions. Based on the findings of these hearings, Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934, which contained laws designed to restore investor confidence in our capital markets by providing more structure and government oversight. With the passage of these two bills, the Security and Exchange Commission (SEC) was born.
Staffed by five (5) residentially-appointed commissioners, four (4) divisions and eighteen (18) offices, and approximately 3,100 staff members, the SEC was considered even then to be small by federal agency standards. Headquartered in Washington, DC, the SEC ...

Solution Summary

For your convenience, I have attached a formatted MS Word file containing requested information on how our governmental standard setting policies affect investor confidence. I have also included information on the history and practices of govermental involvement in the standard setting practice that might help to increase your understanding of the subject.

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