Evolution of Financial Reporting Standards

School: Brock University - Course: ACTG 2P31 - Subject: Accounting

Chapter 2: Conceptual Framework underlying Financial Reporting Background Accounting has a long history that dates back to 1492 when Luca Pacioli published a book describing double-entry bookkeeping. In the U.S., after the stock market crash of 1929, many investors believe that poor accounting and financial reporting have inflated stock prices and might have been the major cause of the Great Depression. The Securities Act of 1933 and the Securities Exchange Act of 1934 were passed into law to restore confidence.The Securities and Exchange Commission (SEC) was created with the power and responsibility for standard-setting of financial accounting and reporting for publicly traded companies.The SEC delegates the tasks of setting standards to the private sector. The Committee on Accounting Procedure (1938-1959) 51 Accounting Research Bulletins (ARBs) No conceptual framework The Accounting Principles Board (1959-1973) 31 Accounting Principles Board Opinions (APBOs) + 4 Statements Attempt to establish a conceptual framework with APB No. 4 Lack of independence—only part-time members from public accounting firms The Financial Accounting Standards Board (1973-) 7 full-time members from accounting profession, industry and others Statements of Financial Accounting Concepts: SFAC No. 1: Objectives of Financial Reporting by Business Enterprises (1978) SFAC No. 2: Qualitative Characteristics of Accounting Information (1980) SFAC No. 3: Elements of financial Statements of Business Enterprises (1980) SFAC No. 4: Objectives of Financial Reporting by Nonbusiness Organizations (1980) SFAC No. 5: Recognition and Measurement in Financial Statements of Business Enterprises (1984) SFAC No. 6: Elements of Financial Statements; a replacement of SFAC No. 3 and an amendment of SFAC No. 2 (1985) SFAC No. 7: Using Cash Flow Information and Present Value in Accounting Measurements (2000) SFAC No. 8: Conceptual Framework for Financial Reporting; a replacement of SFAC No. 1 and No. 2 (2010) International Accounting Standard Setting

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