The Evolution of Accounting Standards: A Look at the APB

Posted In | Finance | Accounting Software

Accounting standards are essential in the financial world, as they provide a framework for accurate and consistent financial reporting. Over the years, accounting standards have evolved to meet the ever-changing needs of the business environment. One of the key players in the development of accounting standards in the United States was the Accounting Principles Board (APB). This article will explore the history of the APB, its contributions to accounting standards, and the impact it has had on the accounting profession.

 

 

History of the Accounting Principles Board

The APB was created in 1959 by the American Institute of Certified Public Accountants (AICPA) as a successor to the Committee on Accounting Procedure (CAP). The CAP, which had been in existence since 1939, was dissolved due to concerns about its lack of formal standard-setting procedures and the perceived need for a more authoritative body to govern accounting principles.

 

The APB consisted of 18 to 21 members, primarily from public accounting firms, but also from industry, academia, and government. The board was responsible for researching and issuing accounting principles known as Accounting Research Bulletins (ARBs) and APB Opinions. The ARBs and APB Opinions were considered authoritative guidance for accountants and auditors, and their goal was to improve financial reporting by establishing uniform accounting principles.

 

Contributions of the APB to Accounting Standards

During its existence, the APB issued a total of 31 Opinions, which addressed various accounting issues and helped shape financial reporting in the United States. Some of the key contributions of the APB include:

 

• APB Opinion No. 4: This Opinion, issued in 1961, provided guidance on the accounting treatment for stock options and became the first authoritative pronouncement on this topic.
   
• APB Opinion No. 9: Issued in 1966, this Opinion addressed the accounting treatment for the costs of computer software developed or obtained for internal use.
   
• APB Opinion No. 15: This 1969 Opinion established guidelines for the accounting treatment of convertible securities and stock purchase warrants.
   
• APB Opinion No. 20: Issued in 1971, it provided guidance on the accounting for changes in accounting estimates, accounting changes, and error corrections.
   
• APB Opinion No. 28: This 1973 Opinion addressed the concept of interim financial reporting and established guidelines for the presentation of interim financial statements.

 

Impact of the APB on the Accounting Profession

While the APB was instrumental in the development of accounting standards during its existence, it faced criticism for its slow pace in addressing emerging accounting issues and the perceived influence of the accounting profession on its decision-making process. As a result, the APB was replaced in 1973 by the Financial Accounting Standards Board (FASB), an independent organization with a full-time staff and a broader membership base that included representatives from the accounting profession, industry, academia, and government.

 

Despite its dissolution, the APB has left a lasting impact on the accounting profession. Many of the accounting principles established by the APB remain in use today, either in their original form or as modified by the FASB. The APB's work also laid the foundation for the development of the Generally Accepted Accounting Principles (GAAP) framework, which continues to govern financial reporting in the United States.

 

The Accounting Principles Board played a significant role in the evolution of accounting standards in the United States. Its contributions to the development of accounting principles and the establishment of a framework for financial reporting have had a lasting impact on the accounting profession. Although the APB was eventually replaced by the FASB, its legacy can be seen in the continued use of many of its accounting principles and the foundation it provided for the development of GAAP.