DEVELOPMENT OF THE INSTITUTIONAL STRUCTURE OF FINANCIAL ACCOUNTING

LEARNING OBJECTIVES

After reading this chapter, you should be able to: • Understand the historical background and
development of ac

counting standard setting in the United States. Understand how the FASB differs from its two
predecessors. • Understand the institutional problems facing the FASB.

• Appreciate the complexity of the standard-setting process. • Understand how the liability crisis in
public accounting is being modified.

n Chapter 1, we described the role of accounting theory in the stan dard-setting process. In this
chapter, we focus on major events that

have led to the present institutional arrangements for the develop ment of accounting standards in
the United States. In Chapter 19, we will briefly examine the standard-setting process in other
English speaking countries as well as attempts to establish uniform accounting standards on an
international basis. In the United States prior to 1930, accounting was largely unregu

lated. The accounting practices and procedures used by a firm were gen erally considered
confidential. Thus, one firm had little knowledge about the procedures followed by other companies.
Obviously, the result was a considerable lack of uniformity in accounting practices among compa
nies, both from year to year and even within the same industry. Bankers and other creditors, who
were the primary users of financial reports, pro vided the only real direction in accounting practices.
Bank and creditor pressure was aimed primarily at the disclosure of cash and near-cash re sources
that could be used for repayment of debt.