This video outlines the history of the accounting standard-setting process in the United States. This began with the Securities Act of 1933 and the Securities Exchange Act of 1934, which required publicly-traded firms to file extensive financial disclosures and created the Securities and Exchange Commission to regulate those disclosures. The SEC delegated the responsibility for creating accounting standards to a private organization, the Committee on Accounting Procedure, in 1939. The CAP was the standard-setter until 1959, when it was replaced by the Accounting Principles Board. The APB issued accounting standards until 1973, when it was replaced by the Financial Accounting Standards Board. The FASB has created a conceptual framework to guide the development of accounting standards, and in 2009 it codified the accounting standards to create a single level of GAAP.
There has not always been a set of generally accepted accounting principles (GAAP) in the United States. The stock market crash in 1929 caused investors to panic, with some people seeing their entire fortunes disappear in a matter of weeks. To restore confidence in the stock market, Congress passed the Securities Act of 1933 and the Securities Exchange of 1934. These laws required publicly-traded firms to file extensive financial reports and created the Securities and Exchange Commission (SEC) to ensure that firms complied with these disclosures. There was just one problem.
No one knew the rules companies were supposed to follow when creating the reports.
Technically the SEC had the power to create a common set of accounting rules, but it lacked the manpower and expertise to do so. Thus, it did what any reasonable person would do; it delegated the job of making accounting standards to someone else. And so it came to pass that a private group called the Committee on Accounting Procedure (CAP) was given the responsibility of creating the accounting rules by which financial statements should be prepared.
The CAP was the standard-setter from 1939 to 1959, but it was criticized for dealing with problems on an issue-by-issue basis and not creating a conceptual framework to guide the development of accounting principles. For this reason the CAP was replaced by the Accounting Principles Board (APB), which apparently learned nothing from the experience of the CAP as it did not create a conceptual framework either. The APB was literally a group of people who worked full-time at accounting firms or large companies and made accounting standards on the side. Kind of like that friend who works at Taco Bell but also is a wedding photographer and certified life coach.
If you think creating the accounting rules for companies in the United States is not something that should be a part-time side gig you’re not alone, as the Wheat Commission recommended that the APB be abolished. Thus, in 1973 the Financial Accounting Standards Board (FASB) was born, providing full-time jobs to seven lucky people who serve as board members. They must cut ties with their former employers and focus strictly on the exciting task of issuing accounting standards.
The FASB promptly created a conceptual framework to guide the development of accounting standards, and in 2009 it codified the entire body of accounting standards into one single source of GAAP. New standards issued by the FASB are called Accounting Standards Updates (ASUs) because they amend the existing codification.