GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Generally accepted accounting principles
(GAAP) are the guidelines, rules, and procedures used
in recording and reporting accounting information in
audited financial statements. Various organizations
have influenced the development of modern-day accounting
principles. Among these are the American
Institute of Certified Public Accountants (AICPA),
the Financial Accounting Standards Board (FASB),
and the Securities and Exchange Commission (SEC).
The first two are private sector organizations; the SEC
is a federal government agency.

The AICPA played a major role in the development
of accounting standards. In 1937 the AICPA
created the Committee on Accounting Procedures
(CAP), which issued a series of Accounting Research
Bulletins (ARB) with the purpose of standardizing
accounting practices. This committee was replaced by
the Accounting Principles Board (APB) in 1959. The
APB maintained the ARB series, but it also began to
publish a new set of pronouncements, referred to as
Opinions of the Accounting Principles Board. In mid-
1973, an independent private board called the Financial
Accounting Standards Board (FASB) replaced the
APB and assumed responsibility for the issuance of
financial accounting standards. The FASB remains
the primary determiner of financial accounting standards
in the United States. Comprised of seven members
who serve full-time and receive compensation for
their service, the FASB identifies financial accounting
issues, conducts research related to these issues, and is
charged with resolving the issues. A super-majority
vote (i.e., at least five to two) is required before an
addition or change to the Statements of Financial
Accounting Standards is issued.


The Financial Accounting Foundation is the parent
organization to FASB. The foundation is governed
by a 16-member Board of Trustees appointed from the
memberships of eight organizations: AICPA, Financial
Executives Institute, Institute of Management Accountants,
Financial Analysts Federation, American
Accounting Association, Securities Industry Association,
Government Finance Officers Association, and
National Association of State Auditors. A Financial
Accounting Standards Advisory Council (approximately
30 members) advises the FASB. In addition,
an Emerging Issues Task Force (EITF) was established
in 1984 to provide timely guidance to the FASB
on new accounting issues.
The Securities and Exchange Commission, an
agency of the federal government, has the legal authority
to prescribe accounting principles and reporting
practices for all companies issuing publicly traded
securities. The SEC has seldom used this authority,
however, although it has intervened or expressed its
views on accounting issues from time to time. U.S.
law requires that companies subject to the jurisdiction
of the SEC make reports to the SEC giving detailed
information about their operations. The SEC has
broad powers to require public disclosure in a fair and
accurate manner in financial statements and to protect
investors. The SEC establishes accounting principles
with respect to the information contained within reports
it requires of registered companies. These reports
include: Form S-X, a registration statement;
Form 1O-K, an annual report; Form 1O-Q, a quarterly
report of operations; Form S-K, a report used to describe
significant events that may affect the company;
and Proxy Statements, which are used when management
requests the right to vote through proxies for
shareholders.