, SOLUTION MANUAL FOR Financial Accounting
Theory and Analysis Text and Cases, 15th Edition
Schroeder
Notes
1- The file is chapter after chapter.
2- We have shown you few pages sample.
3- The file contains all Appendix and Excel sheet
if it exists.
4- We have all what you need, we make update
at every time. There are many new editions
waiting you.
5- If you think you purchased the wrong file You
can contact us at every time, we can replace it
with true one.
Our email:
, Accounting Theory and
Analysis
15th Edition
FASB ASC Tutorial and
Solutions Manual
By
Richard G. Schroeder
University of North Carolina at Charlotte
Myrtle W. Clark
University of Kentucky
Jack M. Cathey
University of North Carolina at Charlotte
1
, Using the Codification to Solve the FASB ASC Cases
Prior to attempting to use the codification website to solve the FASB ASC cases, it is
recommended that you read “Test Driving the Codification,” by Carolyn Ford and C. William
Thomas, Journal of Accountancy, December, 2008. Available at
http://www.journalofaccountancy.com/Issues/2008/Dec/TestDrivingtheCodification.htm and
review the tutorials on the codification website.
Overview of the Codification
The Financial Accounting Standards Board codification (FASB ASC) is organized into general
topics listed on the left-hand side of the home page (General Principles, Presentation, etc.).
Clicking on any of the general topics will bring up what the FASB terms a “landing page.”
Each landing page contains a list of subtopics for that link. For example, clicking on the general
topic Assets brings up list of seven subtopics (Cash and Cash Equivalents, Receivables, etc.).
Notice that each of the subtopics is identified by a three-digit number. This allows for access
via the go to function that we will discuss later.
Clicking on any of the subtopics brings up a second link to what are termed sections and
contain the content specific area of the FASB ASC. All Subtopics have a set of standard
Sections unless there is nothing to include in a particular standard section, in which case that
standard Section is left out of the Subtopic and therefore the FASB ASC. There are sixteen
standard Sections for each Subtopic. Sections are indicated by a two-digit number between 00
and 99. Some of the most frequently used sections are: 25 Recognition, 30 Initial Measurement
35 Subsequent Measurement, 50 Disclosure and Implementation Guidance and Instructions.
Each Section has Paragraph numbers that start over at the beginning of each Section. Each
Paragraph, therefore, has a two-part number. The first number is the Section number, and the second
part is the Paragraph number within that Section. The Paragraphs are where “substantive content”
of the FASB ASC is found. The rest of the levels only exist to organize the information in the
Paragraphs and help navigate to the information contained in them. In order to view the specific
content areas, it is necessary to click on the JOIN ALL SECTIONS tab found on each section page.
For example, assume we are interested in the authoritative literature on accounting for sales of
products when a right to return exists. First, click on the topic Revenue at the left-hand side of the
home page, then on the landing page Revenue Recognition. Next, click on the products subsection.
Finally click the JOIN ALL SECTIONS tab and all of the paragraph content will appear. Page down
through the material and you will find that Paragraph 25-1 contains the authoritative guidance for
accounting for sales of products with a right to return.
The home page also gives other options for navigating the FASB ASC. Two of these
are the SEARCH function and the GO TO option. We have found that using these
2
,functions is an easy way to start navigating the FASB ASC. To use the search method
of navigating the FASB ASC, first, type the general topic in the search box at the top
right of the FASB ASC home page. This will give you some references to specific
FASB ASC sections where the topic is discussed.
Choose the section that seems most appropriate and type the reference number in the
GO TO box at the top left-hand side of the FASB ASC homepage. Once you are
redirected to the desired section, click combine sections and all of the information on
the topic will be displayed. You can then browse through the material to find the
appropriate subsection that addresses the case issue. Let’s use this option to find the
authoritative literature on accounting for sales of products with a right to return Type
“right to return,” in the search box at the top right of the FASB ASC web page. You
will get references to the place where this issue is discussed. Seven possibilities appear,
but in reviewing we see that the criteria are contained in 605-15-25-1. Type this number
in the box next to the GO TO link at the top left-hand side of the FASB ASC homepage.
This will redirect you to the content specific paragraph that discusses accounting for
sales of products where a right of return exists. (Note: in some searches you may be
redirected to the section outline. If so, click the JOIN ALL SECTIONS tab and all of
the paragraph content will appear.
If the issue involves accessing a previous specific pronouncement, it is also possible to
access the topic through the cross-reference function. On the home page, select Cross
Reference. This feature allows you to access the relevant FASB ASC section by citing
the original source. To use this feature, first access the drop-down menu under Standard
Type. (Standard Type refers to the authoritative body that originally issued the
pronouncement. For example, the Financial Accounting Standards Boards uses the
acronym FAS. A discussion of the acronyms for the various standard types is contained
through a link in the directions). Next, use the drop-down menu under standard number
and choose the appropriate number. Then click GENERATE REPORT. When the
results appear, click on the first paragraph number at the far-right side. Next, click on
the 3-digit topic at the top under Table of Contents. When the results appear, click and
expand and all of the subtopics will appear. Choose the subtopic you wish to view and
then combine sections and the relevant authoritative literature will be displayed.
For example, to answer FASB ASC Case 9-3, choose FAS from the drop-down
Standard Type menu. Then choose 143 from the standard number drop down menu.
Click on GENERATE REPORT and when the results appear, click on 05-4 on the first
line under paragraph number. When the results appear, click 410 Asset Retirement and
Environmental Obligations. When the results appear, the most appropriate section
3
,seems to be 20 Asset Retirement Obligations. Select it and then click the JOIN ALL
SECTIONS tab and all of the paragraph content will appear.
Finding original source material still contained in the Codification
Several of the FASB ASC cases ask for EITF pronouncements related to a particular
topic. In order to find original source material from the EITF or any other authoritative
body use the following steps:
1. Find the relevant topic in the FASB ASC
2. Click expand for the relevant subtopic
3. Click the JOIN ALL SECTIONS tab
4. From the menu select Printer-friendly with sources
ƒ Page/Print functions
5. Page through the material to find content originally sourced from the EITF
4
, CHAPTER 1
Case l-1
a. The FASB had three primary goals in developing the Codification:
1. Simplify user access by codifying all authoritative US GAAP in one spot.
2. Ensure that the codified content accurately represented authoritative US GAAP as
of July1, 2009.
3. Create a codification research system that is up to date for the released results of
standard-setting activity.
b. The Codification is expected to improve accounting practice by:
1. Reducing the amount of time and effort required to solve an accounting research
issue
2. Mitigating the risk of noncompliance through improved usability of the literature
3. Provide accurate information with real-time updates as Accounting Standards
Updates are released
4. Assisting the FASB with the research and convergence efforts.
c. The FASB ASC is composed of the following literature issued by various standard
setters:
1. Financial Accounting Standards Board (FASB)
a. Statements (FAS)
b. Interpretations (FIN)
c. Technical Bulletins (FTB)
d. Staff Positions (FSP)
e. Staff Implementation Guides (Q&A)
f. Statement No. 138 Examples.
2. Emerging Issues Task Force (EITF)
a. Abstracts
b. Topic D.
3. Derivative Implementation Group (DIG) Issues
4. Accounting Principles Board (APB) Opinions
5. Accounting Research Bulletins (ARB)
6. Accounting Interpretations (AIN)
7. American Institute of Certified Public Accountants (AICPA)
a. Statements of Position (SOP)
b. Audit and Accounting Guides (AAG)—only incremental accounting guidance
c. Practice Bulletins (PB), including the Notices to Practitioners elevated to
Practice Bulletin status by Practice Bulletin 1
5
, d. Technical Inquiry Service (TIS)—only for Software Revenue Recognition
Additionally, in an effort to increase the utility of the FASB ASC for public companies,
relevant portions of authoritative content issued by the SEC and selected SEC staff
interpretations and administrative guidance have been included for reference in the
Codification, such as:
1. Regulation S-X (SX)
2. Financial Reporting Releases (FRR)/Accounting Series Releases (ASR)
3. Interpretive Releases (IR)
4. SEC Staff guidance in:
i. Staff Accounting Bulletins (SAB)
ii. EITF Topic D and SEC Staff Observer comments
d. The FASB ASC contains all current authoritative accounting literature. However, if
the guidance for a particular transaction or event is not specified within it, the first
source to consider is accounting principles for similar transactions or events within a
source of authoritative GAAP. If no similar transactions are discovered,
nonauthoritative guidance from other sources may be considered. Accounting and
financial reporting practices not included in the Codification are nonauthoritative.
Sources of nonauthoritative accounting guidance and literature include, for example,
the following:
1. Practices that are widely recognized and prevalent either generally or in the
industry
2. FASB Concepts Statements
3. American Institute of Certified Public Accountants (AICPA) Issues Papers
4. International Financial Reporting Standards of the International Accounting
Standards Board Pronouncements of professional associations or regulatory
agencies
5. Technical Information Service Inquiries and Replies included in AICPA Technical
Practice Aids
6. Accounting textbooks, handbooks, and articles
Case 1-2
a. Subsequent to its formation, the SEC began reviewing the registrations required by the
securities acts. Despite the absence of a body of well-established accounting principles,
the SEC begin to challenge accounting practices they considered inaccurate or
misleading and a recurring issue emerged. Many companies were increasing assets to
current or appraisal value with commensurate increases in reserves or equity (surplus)
accounts. Expenses that should have been charged against earnings were then offset
against those surplus accounts. The SEC believed this practice was incorrect but the
6
, securities laws were disclosure laws. It questioned whether a presentation it believed
to be wrong could be accepted if fully disclosed, particularly if the SEC had not
previously stated that the practice was incorrect. That is, at what point do accounting
presentations that are not correct, though disclosed, amount to violations of the security
laws? Accounting Series Release No. 1 was issued in response to the appraisal value
and other questionable accounting practices prevalent at that time. It stated that
opinions on accounting principles would be published periodically for the purpose of
contributing to the development of uniform standards and practices on major
accounting questions and specifically stated that losses properly chargeable against
income should not be charged against surplus.
b. At that time the SEC was engaged in an internal debate over whether it should develop
accounting standards. In 1938, it decided in Accounting Series Release No. 4 to allow
accounting principles to be set in the private sector. This release stated that reports
filed with the SEC must be prepared in accordance with accounting principles that
have “substantial authoritative support.” If financial statements were prepared in
accordance with principles for which there was no substantial authoritative support,
the SEC would presume that the statements were misleading or inaccurate, despite
disclosures. If the SEC differed with a registrant on an accounting practice, disclosure
in lieu of correction would be accepted only if there were substantial authoritative
support for the registrant’s practice.
Case 1-3
a. Inclusion or omission of information that materially affects net income harms
particular stakeholders. Accountants must recognize that their decision to implement
(or delay) reporting requirements will have immediate consequences for some
stakeholders.
b. Yes. Because the FASB standard results in a fairer presentation, it should be
implemented as soon as possible--regardless of its impact on net income.
c. The accountant's responsibility is to provide financial statements that present fairly the
financial condition of the company. By advocating early implementation, Hoger
fulfills this task.
d. Potential lenders and investors, who read the financial statement and rely on its fair
representation of the financial condition of the company, have the most to gain by
early implementation. A stockholder who is considering the sale of stock may be
harmed by early implementation that lowers net income (and may lower the value of
the stock).
Case 1-4
7
, a. CAP. The Committee on Accounting Procedure, CAP, which was in existence from
1939 to 1959, was a natural outgrowth of AICPA (then AIA) committees, which were
in existence during the period 1933 to 1938. The committee was formed in direct
response to the criticism received by the accounting profession during the financial
crisis of 1929 and the years thereafter. The authorization to issue pronouncements on
matters of accounting principles and procedures was based on the belief that the
AICPA had the responsibility to establish practices that would become generally
accepted by the profession and by corporate management.
As a general rule, the CAP directed its attention, almost entirely, to resolving specific
accounting problems and topics rather than to the development of generally accepted
accounting principles. The committee voted on the acceptance of specific Accounting
Research Bulletins published by the committee. A two-thirds majority was required
to issue a particular research bulletin. The CAP did not have the authority to require
acceptance of the issued bulletins by the general membership of the AICPA but rather
received its authority only upon general acceptance of the pronouncement by the
members. That is, the bulletins set forth normative accounting procedures that "should
be" followed by the accounting profession but were not "required" to be followed.
It was not until well after the demise of the CAP, in 1964, that the Council of the
AICPA adopted recommendations that departures from effective CAP Bulletins should
be disclosed in financial statements or in audit reports of members of the AICPA. The
demise of the CAP could probably be traced by four distinct factors: (1) the narrow
nature of the subjects covered by the bulletins issued by the CAP, (2) the lack of any
theoretical groundwork in establishing the procedures presented in the bulletins, (3)
the lack of any real authority by the CAP in prescribing adherence the procedures
described by the bulletins, and (4) the lack of any formal representation on the CAP of
interest groups such as corporate managers, governmental agencies, and security
analysts.
APB. The objectives of the APB were formulated mainly to correct the deficiencies
of the CAP as described above. The APB was thus charged with the responsibility of
developing written expression of generally accepted accounting principles through
consideration of the research done by other members of the AICPA in preparing
Accounting Research Studies. The committee was in turn given substantial
authoritative standing in that all opinions of the APB were to constitute substantial
authoritative support for generally accepted accounting principles. If an individual
member of the AICPA decided that a principle of procedure outside of the official
pronouncements of the APB had substantial authoritative support, the member had to
disclose the departure from the official APB opinion in the financial statements of the
firm in question.
8
Theory and Analysis Text and Cases, 15th Edition
Schroeder
Notes
1- The file is chapter after chapter.
2- We have shown you few pages sample.
3- The file contains all Appendix and Excel sheet
if it exists.
4- We have all what you need, we make update
at every time. There are many new editions
waiting you.
5- If you think you purchased the wrong file You
can contact us at every time, we can replace it
with true one.
Our email:
, Accounting Theory and
Analysis
15th Edition
FASB ASC Tutorial and
Solutions Manual
By
Richard G. Schroeder
University of North Carolina at Charlotte
Myrtle W. Clark
University of Kentucky
Jack M. Cathey
University of North Carolina at Charlotte
1
, Using the Codification to Solve the FASB ASC Cases
Prior to attempting to use the codification website to solve the FASB ASC cases, it is
recommended that you read “Test Driving the Codification,” by Carolyn Ford and C. William
Thomas, Journal of Accountancy, December, 2008. Available at
http://www.journalofaccountancy.com/Issues/2008/Dec/TestDrivingtheCodification.htm and
review the tutorials on the codification website.
Overview of the Codification
The Financial Accounting Standards Board codification (FASB ASC) is organized into general
topics listed on the left-hand side of the home page (General Principles, Presentation, etc.).
Clicking on any of the general topics will bring up what the FASB terms a “landing page.”
Each landing page contains a list of subtopics for that link. For example, clicking on the general
topic Assets brings up list of seven subtopics (Cash and Cash Equivalents, Receivables, etc.).
Notice that each of the subtopics is identified by a three-digit number. This allows for access
via the go to function that we will discuss later.
Clicking on any of the subtopics brings up a second link to what are termed sections and
contain the content specific area of the FASB ASC. All Subtopics have a set of standard
Sections unless there is nothing to include in a particular standard section, in which case that
standard Section is left out of the Subtopic and therefore the FASB ASC. There are sixteen
standard Sections for each Subtopic. Sections are indicated by a two-digit number between 00
and 99. Some of the most frequently used sections are: 25 Recognition, 30 Initial Measurement
35 Subsequent Measurement, 50 Disclosure and Implementation Guidance and Instructions.
Each Section has Paragraph numbers that start over at the beginning of each Section. Each
Paragraph, therefore, has a two-part number. The first number is the Section number, and the second
part is the Paragraph number within that Section. The Paragraphs are where “substantive content”
of the FASB ASC is found. The rest of the levels only exist to organize the information in the
Paragraphs and help navigate to the information contained in them. In order to view the specific
content areas, it is necessary to click on the JOIN ALL SECTIONS tab found on each section page.
For example, assume we are interested in the authoritative literature on accounting for sales of
products when a right to return exists. First, click on the topic Revenue at the left-hand side of the
home page, then on the landing page Revenue Recognition. Next, click on the products subsection.
Finally click the JOIN ALL SECTIONS tab and all of the paragraph content will appear. Page down
through the material and you will find that Paragraph 25-1 contains the authoritative guidance for
accounting for sales of products with a right to return.
The home page also gives other options for navigating the FASB ASC. Two of these
are the SEARCH function and the GO TO option. We have found that using these
2
,functions is an easy way to start navigating the FASB ASC. To use the search method
of navigating the FASB ASC, first, type the general topic in the search box at the top
right of the FASB ASC home page. This will give you some references to specific
FASB ASC sections where the topic is discussed.
Choose the section that seems most appropriate and type the reference number in the
GO TO box at the top left-hand side of the FASB ASC homepage. Once you are
redirected to the desired section, click combine sections and all of the information on
the topic will be displayed. You can then browse through the material to find the
appropriate subsection that addresses the case issue. Let’s use this option to find the
authoritative literature on accounting for sales of products with a right to return Type
“right to return,” in the search box at the top right of the FASB ASC web page. You
will get references to the place where this issue is discussed. Seven possibilities appear,
but in reviewing we see that the criteria are contained in 605-15-25-1. Type this number
in the box next to the GO TO link at the top left-hand side of the FASB ASC homepage.
This will redirect you to the content specific paragraph that discusses accounting for
sales of products where a right of return exists. (Note: in some searches you may be
redirected to the section outline. If so, click the JOIN ALL SECTIONS tab and all of
the paragraph content will appear.
If the issue involves accessing a previous specific pronouncement, it is also possible to
access the topic through the cross-reference function. On the home page, select Cross
Reference. This feature allows you to access the relevant FASB ASC section by citing
the original source. To use this feature, first access the drop-down menu under Standard
Type. (Standard Type refers to the authoritative body that originally issued the
pronouncement. For example, the Financial Accounting Standards Boards uses the
acronym FAS. A discussion of the acronyms for the various standard types is contained
through a link in the directions). Next, use the drop-down menu under standard number
and choose the appropriate number. Then click GENERATE REPORT. When the
results appear, click on the first paragraph number at the far-right side. Next, click on
the 3-digit topic at the top under Table of Contents. When the results appear, click and
expand and all of the subtopics will appear. Choose the subtopic you wish to view and
then combine sections and the relevant authoritative literature will be displayed.
For example, to answer FASB ASC Case 9-3, choose FAS from the drop-down
Standard Type menu. Then choose 143 from the standard number drop down menu.
Click on GENERATE REPORT and when the results appear, click on 05-4 on the first
line under paragraph number. When the results appear, click 410 Asset Retirement and
Environmental Obligations. When the results appear, the most appropriate section
3
,seems to be 20 Asset Retirement Obligations. Select it and then click the JOIN ALL
SECTIONS tab and all of the paragraph content will appear.
Finding original source material still contained in the Codification
Several of the FASB ASC cases ask for EITF pronouncements related to a particular
topic. In order to find original source material from the EITF or any other authoritative
body use the following steps:
1. Find the relevant topic in the FASB ASC
2. Click expand for the relevant subtopic
3. Click the JOIN ALL SECTIONS tab
4. From the menu select Printer-friendly with sources
ƒ Page/Print functions
5. Page through the material to find content originally sourced from the EITF
4
, CHAPTER 1
Case l-1
a. The FASB had three primary goals in developing the Codification:
1. Simplify user access by codifying all authoritative US GAAP in one spot.
2. Ensure that the codified content accurately represented authoritative US GAAP as
of July1, 2009.
3. Create a codification research system that is up to date for the released results of
standard-setting activity.
b. The Codification is expected to improve accounting practice by:
1. Reducing the amount of time and effort required to solve an accounting research
issue
2. Mitigating the risk of noncompliance through improved usability of the literature
3. Provide accurate information with real-time updates as Accounting Standards
Updates are released
4. Assisting the FASB with the research and convergence efforts.
c. The FASB ASC is composed of the following literature issued by various standard
setters:
1. Financial Accounting Standards Board (FASB)
a. Statements (FAS)
b. Interpretations (FIN)
c. Technical Bulletins (FTB)
d. Staff Positions (FSP)
e. Staff Implementation Guides (Q&A)
f. Statement No. 138 Examples.
2. Emerging Issues Task Force (EITF)
a. Abstracts
b. Topic D.
3. Derivative Implementation Group (DIG) Issues
4. Accounting Principles Board (APB) Opinions
5. Accounting Research Bulletins (ARB)
6. Accounting Interpretations (AIN)
7. American Institute of Certified Public Accountants (AICPA)
a. Statements of Position (SOP)
b. Audit and Accounting Guides (AAG)—only incremental accounting guidance
c. Practice Bulletins (PB), including the Notices to Practitioners elevated to
Practice Bulletin status by Practice Bulletin 1
5
, d. Technical Inquiry Service (TIS)—only for Software Revenue Recognition
Additionally, in an effort to increase the utility of the FASB ASC for public companies,
relevant portions of authoritative content issued by the SEC and selected SEC staff
interpretations and administrative guidance have been included for reference in the
Codification, such as:
1. Regulation S-X (SX)
2. Financial Reporting Releases (FRR)/Accounting Series Releases (ASR)
3. Interpretive Releases (IR)
4. SEC Staff guidance in:
i. Staff Accounting Bulletins (SAB)
ii. EITF Topic D and SEC Staff Observer comments
d. The FASB ASC contains all current authoritative accounting literature. However, if
the guidance for a particular transaction or event is not specified within it, the first
source to consider is accounting principles for similar transactions or events within a
source of authoritative GAAP. If no similar transactions are discovered,
nonauthoritative guidance from other sources may be considered. Accounting and
financial reporting practices not included in the Codification are nonauthoritative.
Sources of nonauthoritative accounting guidance and literature include, for example,
the following:
1. Practices that are widely recognized and prevalent either generally or in the
industry
2. FASB Concepts Statements
3. American Institute of Certified Public Accountants (AICPA) Issues Papers
4. International Financial Reporting Standards of the International Accounting
Standards Board Pronouncements of professional associations or regulatory
agencies
5. Technical Information Service Inquiries and Replies included in AICPA Technical
Practice Aids
6. Accounting textbooks, handbooks, and articles
Case 1-2
a. Subsequent to its formation, the SEC began reviewing the registrations required by the
securities acts. Despite the absence of a body of well-established accounting principles,
the SEC begin to challenge accounting practices they considered inaccurate or
misleading and a recurring issue emerged. Many companies were increasing assets to
current or appraisal value with commensurate increases in reserves or equity (surplus)
accounts. Expenses that should have been charged against earnings were then offset
against those surplus accounts. The SEC believed this practice was incorrect but the
6
, securities laws were disclosure laws. It questioned whether a presentation it believed
to be wrong could be accepted if fully disclosed, particularly if the SEC had not
previously stated that the practice was incorrect. That is, at what point do accounting
presentations that are not correct, though disclosed, amount to violations of the security
laws? Accounting Series Release No. 1 was issued in response to the appraisal value
and other questionable accounting practices prevalent at that time. It stated that
opinions on accounting principles would be published periodically for the purpose of
contributing to the development of uniform standards and practices on major
accounting questions and specifically stated that losses properly chargeable against
income should not be charged against surplus.
b. At that time the SEC was engaged in an internal debate over whether it should develop
accounting standards. In 1938, it decided in Accounting Series Release No. 4 to allow
accounting principles to be set in the private sector. This release stated that reports
filed with the SEC must be prepared in accordance with accounting principles that
have “substantial authoritative support.” If financial statements were prepared in
accordance with principles for which there was no substantial authoritative support,
the SEC would presume that the statements were misleading or inaccurate, despite
disclosures. If the SEC differed with a registrant on an accounting practice, disclosure
in lieu of correction would be accepted only if there were substantial authoritative
support for the registrant’s practice.
Case 1-3
a. Inclusion or omission of information that materially affects net income harms
particular stakeholders. Accountants must recognize that their decision to implement
(or delay) reporting requirements will have immediate consequences for some
stakeholders.
b. Yes. Because the FASB standard results in a fairer presentation, it should be
implemented as soon as possible--regardless of its impact on net income.
c. The accountant's responsibility is to provide financial statements that present fairly the
financial condition of the company. By advocating early implementation, Hoger
fulfills this task.
d. Potential lenders and investors, who read the financial statement and rely on its fair
representation of the financial condition of the company, have the most to gain by
early implementation. A stockholder who is considering the sale of stock may be
harmed by early implementation that lowers net income (and may lower the value of
the stock).
Case 1-4
7
, a. CAP. The Committee on Accounting Procedure, CAP, which was in existence from
1939 to 1959, was a natural outgrowth of AICPA (then AIA) committees, which were
in existence during the period 1933 to 1938. The committee was formed in direct
response to the criticism received by the accounting profession during the financial
crisis of 1929 and the years thereafter. The authorization to issue pronouncements on
matters of accounting principles and procedures was based on the belief that the
AICPA had the responsibility to establish practices that would become generally
accepted by the profession and by corporate management.
As a general rule, the CAP directed its attention, almost entirely, to resolving specific
accounting problems and topics rather than to the development of generally accepted
accounting principles. The committee voted on the acceptance of specific Accounting
Research Bulletins published by the committee. A two-thirds majority was required
to issue a particular research bulletin. The CAP did not have the authority to require
acceptance of the issued bulletins by the general membership of the AICPA but rather
received its authority only upon general acceptance of the pronouncement by the
members. That is, the bulletins set forth normative accounting procedures that "should
be" followed by the accounting profession but were not "required" to be followed.
It was not until well after the demise of the CAP, in 1964, that the Council of the
AICPA adopted recommendations that departures from effective CAP Bulletins should
be disclosed in financial statements or in audit reports of members of the AICPA. The
demise of the CAP could probably be traced by four distinct factors: (1) the narrow
nature of the subjects covered by the bulletins issued by the CAP, (2) the lack of any
theoretical groundwork in establishing the procedures presented in the bulletins, (3)
the lack of any real authority by the CAP in prescribing adherence the procedures
described by the bulletins, and (4) the lack of any formal representation on the CAP of
interest groups such as corporate managers, governmental agencies, and security
analysts.
APB. The objectives of the APB were formulated mainly to correct the deficiencies
of the CAP as described above. The APB was thus charged with the responsibility of
developing written expression of generally accepted accounting principles through
consideration of the research done by other members of the AICPA in preparing
Accounting Research Studies. The committee was in turn given substantial
authoritative standing in that all opinions of the APB were to constitute substantial
authoritative support for generally accepted accounting principles. If an individual
member of the AICPA decided that a principle of procedure outside of the official
pronouncements of the APB had substantial authoritative support, the member had to
disclose the departure from the official APB opinion in the financial statements of the
firm in question.
8
