Who Founded the GAAP?

Save

If you're an accountant or studying accounting as a profession, you have probably heard of the GAAP (Generally Accepted Accounting Principles). This is the set of rules that all public accountants in the United States must live and work by. You may already know what these GAAP rules are, but where did they come from? Who established these rules that all CPAs are expected to follow?

Identification

  • GAAP stands for Generally Accepted Accounting Principles. This is the set of guidelines that accountants in the United States must follow. This set of principles includes very specific rules regarding full disclosure of finances; periodicity; continuity of asset values; prudence; non-compensation of debts or costs with assets and revenues; permanence of a company's methods; sincerity; consistency; and regularity.

Significance

  • The GAAP was created to protect companies, investors and other stakeholders, especially as the accounting practices of businesses can sometimes be questionable. These general accounting principles help hold companies responsible for their financial reporting activities.

    But inquisitive minds will want to know more. What are the origins of these accounting principles? Who came up with the GAAP, and why do we follow them?

American Institute of Certified Public Accountants

  • The American Institute of Certified Public Accountants (AICPA) is a group of CPAs who originally set out the guidelines by which all accountants must practice. Since accountants knew the field best, at the time it was natural for them to hold the monopoly on setting out these principles.

    The authoritative committee that was originally responsible for defining accounting principles for the AICPA was the Committee on Accounting Procedure (1936-1959). It was soon replaced by the Accounting Principles Board of the AICPA, which was established in 1959. Until the 1970s, the Accounting Principles Board was responsible for establishing the principles that all American accountants should follow.

    But in 1973, the AICPA and Accounting Principles Board had to transfer this responsibility to the Financial Accounting Standards Board, a nonprofit company that was appointed by the Securities and Exchange Commission (SEC).

Financial Accounting Standards Board

  • The Financial Accounting Standards Board (FASB) was appointed by the SEC in 1973 to take over the development of GAAP rules in the United States. The purpose of the FASB is to set accounting standards that will accurately inform, educate and protect the public. The FASB is overseen by the Financial Accounting Foundation (FAF).

Why Did the FASB Replace the AICPA?

  • The SEC replaced the AICPA with the FASB in 1973 because it felt that this new, smaller nonprofit board would be able to more efficiently develop accounting principles. The SEC believed that this new appointment would be a more successful alternative for public accountants, stakeholders and the general public.

    The original 31 statements created by the Accounting Principles Board were largely accepted by the new FASB. Nineteen statements remain in effect as a part of the FASB's Generally Accepted Accounting Principles. (Follow the link in Resources for the most current list of accounting principles.)

Related Searches

Promoted By Zergnet

Comments

Resources

You May Also Like

  • Why Is GAAP Important to Financial Statements?

    Generally Accepted Accounting Principles (GAAP) are the set of rules, methods, processes and procedures used by companies across all industries in order...

  • What is the GAAP Matching Principle?

    In order to comply with the generally accepted accounting principles, companies must determine the exact time when revenue and expenses occur. This...

  • About the GAAP Capitalization Threshold

    Generally accepted accounting principals (GAAP) are rules that govern the way a business must report earnings, losses and activity surrounding their property....

  • Comparing GAAP Accounting vs. Tax Accounting

    There are two choices when selecting an accounting method for your business: GAAP, which stands for Generally Accepted Accounting Principles, and Tax...

  • What Are Generally Accepted Auditing Standards?

    Generally Accepted Auditing Standards (GAAS) are the rules by which a Certified Public Account (CPA) must conduct himself while performing an audit...

  • The History of Accounting Theory

    Accounting has been around in one form or another since the beginning of organized trade and business. Accounting is the foundation to...

  • What Is GAAP Accounting?

    GAAP--"generally accepted accounting principles"--are a common set of accounting rules, standards and procedures. They are used to prepare, present and report financial...

  • What Is the Accrual Principle of Accounting?

    The accrual principle of accounting is a methodology used to measure business transactions. Under this principle, income and expenses are recognized as...

  • How to Account for Organizational Costs in GAAP

    Expenditures are divided into either revenue or capital expenditures. Revenue expenditures, more commonly called expenses, produce benefits for the business in one...

  • GAAP Limitations

    Countries such as the U.S., India, Australia and many European countries have their own Generally Accepted Accounting Principles, or GAAP, that provide...

  • Development Costs Under IFRS & GAAP

    The development costs of a company are those costs incurred through the process of developing improved or new goods and services to...

  • Generally Accepted Accounting Procedures

    Generally accepted accounting principles are created, mandated and overseen by the Federal Accounting Standards Advisory Board. The GAAP guides accountants and lets...

  • What Does GAAP Stand for in Accounting?

    GAAP is the standard implemented by accountants and auditors. The acronym stands for generally accepted accounting principles. It is a compilation of...

  • What Is GAAP & What Is Its Importance?

    GAAP, or generally accepted accounting principles, form the basis for financial reporting in the United States. Accountants follow these principles when measuring...

Related Searches

Check It Out

Are You Really Getting A Deal From Discount Stores?

M
Is DIY in your DNA? Become part of our maker community.
Submit Your Work!