The Development of Accounting Principles

in the USA
Formulation of accounting principles in the
USA goes through 4 phases :
Management Contribution
Phase (1900-1933)
Institution Contribution Phase
(1933-1959)
Professional Contribution Phase
(1959-1973)
Politicization Contribution
Phase (1973-present)

Management Contribution Phases ( 1900

1933 )

The influence of management in the formulation of accounting

principles arose
increase number of shareholders.
dominant economic role played by industrial corporation after
1900.

Management have complete control over format & content of

accounting disclosure.

Management intervention characterized by Ad hoc solutions to

urgent problems & controversies.

Consequences of the dependence on management

Most accounting technique lacked theoretical support
Focus on determination of taxable income & minimize income
tax.
Techniques adopted by the desire to smooth earnings.
Complex problem avoided & expedient solutions adopted.
Different accounting technique adopted by different firms for
same problems.

As a result, in 1920s the above situations generated

dissatisfaction & called for the protection of investors.

1. Controversial debate of the period was on the accounting for

interest cost .
- issue arose as part of a large concern on developing a
realistic product cost that used to establish selling price and
also to measure the manufacturing efficiency.
2. Another important event of the era was the growing effect on
accounting theory of taxation business income .
Revenue Act 1913 provided the calculation of taxable
income on the basis of cash receipt and
disbursement.
1918 Act recognize the role of accounting procedures in
the determination of taxable income as stated in
Section 212 (b):
Net income shall be computed upon basis of
taxpayers annual accounting period, according to
the method of accounting regularly employed by
the taxpayer.
Main player :
American institute of
Accountants (AIA)

Relevance of accounting history

Study evolution in accounting thought, practice and institutions in
response to changes in the environment and societal needs.