"Prominent accountants repeatedly expressed concern over the possibility that the Commission would exercise the powers to push for a then near universally dreaded uniformity in accounting practices, while Commissioners and members of the staff frequently expressed their impatience with the efforts that were being made by the accounting profession to better the quality of financial reporting."
The concepts of public disclosure based on accounting standards is essential to long-established principles intended to help investors make informed decisions about the financial strength and stability of companies.(52) After the economic crisis created by the Great Depression, the government and the accounting industry both realized an increased need for improvement in accounting rules and regulations. In 1934, the New York Stock Exchange and the professional organization which would become the American Institute of Certified Public Accountants (AICPA) proposed preliminary guidelines in Audits of Corporate Accounts.
Congress created the SEC with authority to "prescribe standards for the preparation of financial reports." The AICPA, which had long been involved in accounting standards, responded proactively to Congress by creating a new set of standards and a board to supervise them. In 1938, the SEC, recognizing the process already underway, authorized the private sector to establish accounting standards, yet retained authority over those standards. The AICPA's Committee on Accounting Procedure (CAP) assumed that standard-setting role in 1939, which shifted in 1959 to the Accounting Principles Board.
Even with the 1970 Board's publication of Basic Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises, emerging corporate scandals prompted critics to state the rules were inadequate. In 1971, the AICPA created a blue-ribbon panel, known as the Wheat Commission, charged with "studying how and by whom accounting principles should be established.(53) "The Wheat Commission Report recommended the creation of an independent foundation and a full-time, standard-setting board outside of the AICPA. The Financial Accounting Foundation was created and appointed a new accounting standard setting body called the Financial Accounting Standards Board (FASB). (54)
In the early 1970s, the Department of Justice began broad scrutiny into the practices of a variety of professional organizations, including accountants. The AICPA took action to overhaul its own code of professional ethics. Among the revisions, the profession was required to follow the FASB standards with disciplinary consequences for violations. In addition, the professional code made an omission of a material fact in any accounting report an ethical violation, and more importantly, reaffirmed the principle that all financial statements should be presented in accordance with generally accepted accounting principles.
(52) John Buckley, SEC Accounting (New York: Wiley, 1980); Gary John Previts, ed. The Development of SEC Accounting (Addison-Wesley Pub Co: Massachusetts, 1981); John L. Carey, The Rise of the Accounting Profession, Volume 1 and 2 (AICPA: New York, 1969-1970)
(54) For information about the founding and operation of the FASB, see www.fasb.org (Accessed August 24, 2009); Paul B. W. Miller and Rodney J. Redding, The FASB: The People, the Process and the Politics, 2nd ed. (Irwin Publishing: Illinois, 1988)
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