Question

QUESTION 3 10.5 Marks x 4 = 2 Marks formulation of Committee on Accounting Procedure (CAP) was the first to establish the accounting theory. Discuss this and explain the main mission of this committee and criticism for its work resulting in formulating the Accounting Principles Board [4 Marks)

Answer 1

The Committee on Accounting Procedure (CAP) was the first private sector organization that had the task of setting accounting standards in the United States. It was a committee run by the American Institute of Accountants (now known as the American Institute of Certified Public Accountants). CAP is the predecessor of the Accounting Principles Board, itself a predecessor to the Financial Accounting Standards Board. Its formation and activities were early efforts to rationalize and legitimize the reporting of business performance. However, it is widely regarded as having failed.

CRITICISM:

Criticism of standard the setting process continued and it was dual in nature. Exposure for tentative APB opinions was too limited and occured too late in process. Secondly, the problems with business combinations showed the standard setting process was too long and subject to too many outside pressures that were not appropriately channeled into the formulation process.