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ACC/497: Advance Topic in Accounting Research

Research on advanced topics in accounting practices and financial reporting.

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    Running Head: CASE STUDY ASSIGNMENT Case Study Assignment Team B: Crystal Alloy, Shannon Crawford, Shawn McQuary, Daphane Morgan, & Angela Pursel ACC/497: Advance Topic in Accounting Research University of Phoenix Professor Jenkinson Monday, September 13, 2010 Case 1 - 3: Politicalization of Accounting Standards : (Financial Accounting Theory and Analysis, p. 27) . Prepare a 305 - word response for each of the following cases answering the questions located at the end of each case: 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:

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    a. “ 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 , ” (Schroeder, Clark, & Cathey, 2005, pp. 27). The Financial Accounting Standards Board (FASB), through the standards it establishes, addresses an exposure draft of each of the accounting standards. The Financial Accounting Standards Board, then issues the exposure draft to the American Institute of Certified Public Accountants (AICPA), the Securities and Exchange Commission (SEC), and other organizations. These organizations, reviews the exposure draft and the presents their observations to the Financial Accounting Standards Board, which will then include changes considered essential. This practice is highly vulnerable to lobbying by affected or interested parties and political parties. The AICPA established many committees over the years. The first was the CAP, followed by the APB and then the FASB. The CAP was given the authority to issue pronouncements on matters of accounting procedures and practices. While the CAP was relatively inactive the first two years, it became more active with its response to the release of ASR No. 4. Controversy over impact of inflation as well as the companies lobbying for use of replacement cost depreciation was rejected by the CAP. The CAP was often criti cized for acting in piecemeal fashion and being inconsistent. As a result, the AICPA formed the APB. The main objective was to narrow areas of difference in appropriate practice and advance written expression of generally accepted accounting principles. While the pronouncements of the APB were initially termed as opinions, they were not mandatory practice. There was controversy over proper methods to use in accounting for investment tax and as a result, the APB then had to face how the companies should repo rt the effects of investment tax. The ending decision was that the tax credit was to be accounted for using the deferred method. The lack of support for the APB’s

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