Understanding the Historical Context of the Accounting Principles Board (APB)

Posted In | Finance | Accounting Software

The Accounting Principles Board (APB) was an important predecessor to the modern-day Financial Accounting Standards Board (FASB) in the United States. Established in 1959, the APB was a key player in the development of accounting standards and principles during its 14-year tenure. This article will explore the historical context in which the APB was created, its key contributions, and how it paved the way for the FASB.

 

 

Formation of the Accounting Principles Board

The APB was created by the American Institute of Certified Public Accountants (AICPA), which was concerned about the lack of standardization and consistency in accounting practices at the time. The AICPA sought to bring greater uniformity to the field by creating a body that would establish authoritative accounting principles. The APB was thus formed as a self-regulatory organization, with its members consisting of experienced accounting professionals from various backgrounds, including academia, public accounting, and industry.

 

Contributions of the APB

During its existence, the APB issued 31 Accounting Research Bulletins (ARBs) and four APB Opinions. These publications were aimed at providing guidance and establishing standards on various accounting issues. The APB's work focused on topics such as revenue recognition, inventory valuation, lease accounting, and pensions. Some of the most significant APB publications include ARB No. 43, which provided guidance on inventory valuation, and APB Opinion No. 17, which addressed accounting for leases.

 

However, the APB was not without its critics. Some believed that the board's publications were too vague, allowing for varying interpretations and application by different companies. Others felt that the APB's consensus-based approach to standard-setting led to delays in issuing timely guidance on emerging accounting issues.

 

Transition to the Financial Accounting Standards Board

By the early 1970s, it was clear that a more structured and efficient standard-setting process was needed to address the growing complexity of accounting issues. In response, the AICPA established the Wheat Committee in 1971 to study the existing standard-setting process and recommend changes. The Wheat Committee's recommendations led to the creation of the Financial Accounting Standards Board (FASB) in 1973, which replaced the APB.

 

The FASB was designed to be a more independent and authoritative body, with full-time members dedicated to the task of setting accounting standards. The FASB adopted a more rigorous and transparent process for standard-setting, including exposure drafts, public hearings, and greater stakeholder input. Many of the APB's publications were subsequently superseded by FASB Statements and Interpretations, although some continue to be referenced in today's accounting literature.

 

Legacy of the Accounting Principles Board

While the APB was ultimately replaced by the FASB, its contributions to the development of accounting standards should not be underestimated. The APB played a crucial role in the early efforts to standardize accounting practices, and its work laid the groundwork for the more structured and authoritative approach of the FASB. Today's financial reporting landscape is built upon the foundation established by the APB and its commitment to improving accounting practices in the United States.