Question

7. What were the politics that led to the demise of both the CAP and the APB? 8. The FASB's standard-setting procedure is a fairly narrow, cut-and-dried approach to developing accounting standards. Evaluate this statement. 9. Should constituents have input into the FASB decisions, or should the FASB neutrally and independently set standards?

Answer 1

(7) Politics led to the demise of both the CAP and APB. The APB and CAP were unable to operate completely independently of the U.S. government. The overall record of the APB was a reasonably good one, but it seems likely that a smaller full-time body directly in control of its research holds promise of more success.

The “politics” that led to the demise of both the CAP and the APB was that the SEC’s belief that both groups were unable to work effectively due to their lack of independence. The members of both groups were only part-time standard setters and full-time practicing accountants with various vested interests regarding certain accounting standards.

(8) The FASB’s standard setting procedure/process is a fairly narrow cut-and -dried to developing accounting standards.The Financial Accounting Standards Advisory Council is instrumental in the establishment of financial accounting standards.It is also appointed by the Board of Trustees. The FASAC advises the FASB on its operating and project plans, agenda and priorities, and appointment of task forces, as well as on all major or technical issues. The standard-setting procedure starts with the identification of a problem. A task force is then formed to explore all aspects of the problem. It produces a discussion memorandum identifying all issues and possible solutions, which is widely circulated to interested parties. The FASB then convenes a public hearing during which interested parties may make their views known to the Board. Subsequently, an exposure draft of the final standard is issued and written comments are requested. After consideration of written comments, either another exposure draft is issued (if significant changes are deemed necessary) or the Board takes a final vote. A normal 4-to-3 majority vote is required for passing new standards. This makes FASB standard-setting procedure is cut-and-dried.

(9) Using constituents’ input and acting neutrally and independently are not mutually exclusive. Without question, the FASB should neutrally and independently set standards. However, it must consider its constituents’ input or its standards will not be accepted. One of the FASB’s  biggest jobs is to obtain a consensus of the constituents on standards it promulgates. However, current conditions indicate a decline of influence by constituents, but it is still important to get their input .