ACC/497: Advance Topic in Accounting Research

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Running Head: CASE STUDY ASSIGNMENTCase Study AssignmentTeam B: Crystal Alloy, Shannon Crawford, Shawn McQuary, Daphane Morgan, & AngelaPurselACC/497: Advance Topic in Accounting ResearchUniversity of PhoenixProfessor JenkinsonMonday, September 13, 2010Case 1-3: Politicalization of Accounting Standards:(Financial Accounting Theory andAnalysis, p. 27).Prepare a 305-word response for each of the following cases answering thequestions located at the end of each case:Some accountants have said that politicalization inthe development and acceptance of generally accepted accounting principles (i.e., standardsetting) is taking place. Some use the term politicalization in a narrow sense to mean theinfluence by governmental agencies, particularly the Securities and Exchange Commission, onthe development of generally accepted accounting principles. Others use it more broadly to meanthe compromising that takes place in bodies responsible for developing these principles becauseof the influence and pressure of interested groups (SEC, American Accounting Association,businesses through their various organizations, Institute of Management Accountants, financialanalysts, bankers, lawyers, etc.).Required:

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a.“The Committee on Accounting Procedure of the AICPA was established in the mid-tolate 1930s and functioned until 1959, at which time the Accounting Principles Board cameinto existence. In 1973, the Financial Accounting Standards Board was formed, and theAPB went out of existence. Do the reasons these groups were formed, their methods ofoperation while in existence, and the reasons for the demise of the first two indicate anincreasing politicalization (as the term is used in the broad sense) of accounting standardsetting? Explain your answer by indicating how the CAP, APB, and FASB operated oroperate. Cite specific developments that tend to support your answer,” (Schroeder, Clark,& Cathey, 2005, pp. 27).The Financial Accounting Standards Board (FASB), through the standards it establishes,addresses an exposure draft of each of the accounting standards. The Financial AccountingStandards Board, then issues the exposure draft to the American Institute of Certified PublicAccountants (AICPA), the Securities and Exchange Commission (SEC), and other organizations.These organizations, reviews the exposure draft and the presents their observations to theFinancial Accounting Standards Board, which will then include changes considered essential.This practice is highly vulnerable to lobbying by affected or interested parties and politicalparties.The AICPA established many committees over the years. The first was the CAP,followed by the APB and then the FASB. The CAP was given the authority to issuepronouncements on matters of accounting procedures and practices. While the CAP wasrelatively inactive the first two years, it became more active with its response to the release ofASR No. 4. Controversy over impact of inflation as well as the companies lobbying for use ofreplacement cost depreciation was rejected by the CAP. The CAP was often criticized for actingin piecemeal fashion and being inconsistent. As a result, the AICPA formed the APB. The mainobjective was to narrow areas of difference in appropriate practice and advance writtenexpression of generally accepted accounting principles. While the pronouncements of the APBwere initially termed as opinions, they were not mandatory practice. There was controversy overproper methods to use in accounting for investment tax and as a result, the APB then had to facehow the companies should report the effects of investment tax. The ending decision was that thetax credit was to be accounted for using the deferred method. The lack of support for the APB’s

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