Financial Reporting Timeline
The creation of: 1. Committee on Accounting Procedures
Role - With the recent increase in members, the SEC delegated the responsibility of issuing pronouncements on accounting principles to the Committee. The SEC worked with the Committee on Accounting Procedures to develop standards for accounting and financial reporting and issued 51 Accounting Research Bulletins (ARBs) over its lifetime. In 1949, they updated 42 of their original ARBs and codified them. a. History - In 1933, the Special Committee on Development of Accounting Principles was formed by the AICPA. Quite simply, this committee did not get much done and was replaced by the Committee on Account Procedures in 1936. For the first two years, this committee also made very little progress. In 1938, the Securities and Exchange Commission issued Accounting Series Release No. 4 which asserted that any financial statements prepared in accordance with principles that had no substantial authoritative support would be considered inaccurate. This prompted the CAP to expand from 7 members to 21 members and increased its activity. b. Structure – The Committee on Accounting Procedures was committee formed by the American Institute of Accountants after the SEC delegated to it the responsibility of issuing pronouncements on accounting principles without government council. Initially, the CAP wanted to create guidance for solving accounting problems, but did not believe they had enough time. Instead, they began attacking specific problems and recommended accounting methods. c. Strengths – Although the CAP did not produce an accounting framework, they set the stage for how accounting policies would be made, in the private sector. They also had more power than was granted to any committee prior to their existence. d. Weaknesses - The committee did not have the best approach to solving accounting issues. Instead of creating a framework for financial reporting, they tended to release documents with multiple suggested solutions thus not solving the original issue. e. Reason for creation/demise – The Committee on Accounting Procedures was formed back in 1933 because of the lack of authority over accounting issues at the time. Although the committee was able to make substantial progress in its’ 20 years of existence, but many lost faith in their ability to get work done 2. Accounting Principles Board f. Role – The APB was established to bring research to the forefront of critical accounting decisions. Initially, the research preceded any opinions issued by the committee. When the research division provided reports contrary to the views of the board they began to disregard them. It was not much longer that they followed in the footsteps of the CAP. g. History – In 1958, after the demise of the Committee on Accounting Procedure, the AICPA established the Accounting Principles Board to replace them. The new committee came with a new focus, research. To assist the APB with their responsibilities, the AICPA also established a research division. The first opinion of the committee with guidance on new tax depreciation rules wasn’t issued until November of 1962. After escaping a close death after their first two opinions, the APB survived to issue 31 opinions over a variety of topics. h. Structure – The APB originally consisted of 18 members before increasing to 21, and then further reversed. i. Strengths – Although the APB filed to produce much as far as standards, it did provide a new idea that research should be a part of standard setting; however, they were never able to find an efficient balance. j. Weaknesses – The board was dominated by accounting practitioners, including many from the “Big 8” firms. k. Reason for creation/demise – In the end the committee was filled with qualifications and overwhelmed by opinions, which lead to new studies that would describe the committee as “fatally flawed” (Fritz). The studies also lead to the creation of the FASB and replacement of the APB. 3. Financial Accounting Standards Board l. Role – The role of the financial accounting standards board was to establish standards that would regulate the financial reporting in the United States. m. History – After many failed attempts at creating an efficient structure, the FASB was meant to transform how accounting guidance is established. It replaced the APB in 1973, and the members were chosen by its’ parent organization, the Financial Accounting Foundation (FAF). The accountants on the board continued to be useful throughout this time contributing too much of the revenue producing products of the FASB. In 2003 the SEC, in accordance with the Sarbanes-Oxley Act, reaffirmed the FASB as the standard setter. The FASB has maintained its position as the standard setter, and now looks to converge U.S. GAAP and IRS Standards. n. Structure – From the beginning the Financial Accounting Foundation (FAF), was the parent organization of the FASB. The FAF contained 14-18 trustees whose responsibilities included fund raising, FASB officer appointment and review. In 1996, a new requirement was established allowing on 25% preparers. The Sarbanes Oxley Act established a steady revenue stream from issuers of securities. The number of members and voting requirements has change over the years, and before settling with 7 members following a simple majority. o. Strengths – The organization of the FASB got rid of many of the inefficiencies of previous committees. The reduction in size and member employment requirement allowed a smoother process to set new standards. p. Weaknesses – The board was slowly losing power to the preparers before the 25% rule established by the SEC in 1996. This helped to ensure representation of the public. q. Reason for creation/demise - The Financial accounting Standards board was created as a last attempt to find a process for creating standards that was effective. The board is still active today. 4. Emerging Issues Task Force r. Role – The Emerging Issues Task Force takes control over decisions involving issues within the context of GAAP. This includes narrow implementation, application, or other emerging issues. s. History – The EITF was formed to relieve the FASB of issues that can be analyzed with previously issued standards in 1984, and is still active. t. Structure - The task force has 10-15 members whose chairman is appointed by the FASB. A vote can be passed as long as no more than three members object to the position, and the FASB has the ability to revise it. The SEC can alter the agenda of the committee, and they sometimes provide an acceptable answer to certain issues. u. Strengths – The limited scope of the board allows them to process new and emerging issues quickly and efficiently. v. Weaknesses – The SECs has significant influence on the opinions provided by the EITF. w. Reason for creation/demise – The emerging issues task force is still active today. 5. International Accounting Standards Committee x. Role – The International Accounting Standards Committee was to establish the framework and standards for international companies to follow. y. History – The IASC was formed in 1973 by professional accounting organizations from countries around the world. In 1997 the board began looking for ways to converge the different accounting structures and decided to re-exam its focus and strategy, and substantially reorganized. z. Structure – The IASC consisted of 5 major components: i. IASC Board – the board that sets the standards ii. Consultative Group – group of international organizations with and interest in accounting that acted as advisors. iii. Standing Interpretations Committee – Provided comments and interpretations of standards iv. Advisory Council – Oversight body v. Steering Committee – task force for individual projects {. Strengths – The IASC had members from multiple countries over a broad range of practices. The committee also invited observer members to come from different accounting organizations to provide input. |. Weaknesses }. Reason for creation/demise – The International Accounting Standards Committee was formed to provide a structure known as the International Accounting Standards. The committee was transformed into the International Accounting Standards Board after a reorganization that took affect in 2000. 6. International Accounting Standards Board ~. Role – The International Accounting Standards Board is responsible for all technical matters of the of the IFRS foundation. This includes the setting and pursuit of its agenda, issuance of interpretations, and approval of the Interpretations Committee. . History – The IASC decision to form the International Accounting Standards Board was implemented in July of 2000. Over the succeeding years the committee created a framework that was implemented by countries around the world. . Structure – The International Accounting Standards Board operates under the IFRS Foundation consisting of 16 members. The IASC Foundation consists of trustees, IASB, Standards Advisory Council, and the International Financial Reporting Interpretations Committee. The IASC Foundation appoints IASB members and provides oversight and resources; however, the IASB is responsible for the standard setting. . Strengths – The IASB provides standards for companies that operate within the authority of several different standards. . Weaknesses – The organization is a conglomerate of many countries coming together with different goals, which can lead to inefficiencies. . Reasons for creation/demise – The International Accounting Standards board is still active today. 7. PCAOB . Role . History – the Sarbanes-Oxley Act of 2002 established The PCAOB in an effort to move away from the self-regulation that previously existed. It provided external and independent oversight for the audit of a publicly traded company. . Structure – The PCAOB has 5 members who are appointed by the Securities Exchange Commission, with the advice of the Chairman of the Board of Governors of the Federal Reserve and Secretary of the Treasury. The SEC has final approval of rules, standards, and budgets set by the board. . Strengths – Created an oversight committee that is subject to external and independent oversight. . Weaknesses – Some claim the PCAOB still is not independent from Public Firms due to the registration fees they provide. . Reasons for creation/demise – The PCAOB was established as a result of the Securities Exchange Act of 1934. The PCAOB is still active in setting standards and providing industry oversight today. 8. The Forum of Firms . Role – The role of the Forum of Firms is to create consistency and quality of transnational audits. They identify issues with performing transnational audits, a forum for discussion of quality controls and practices, and acting as an intermediary between firms. . History – The Forum of Firms was established in 2002 . Structure – The forum is a legal entity in Switzerland with 24 members and two affiliates. It has an executive arm, The Transnational Auditors committee that provides a link between the forum and the International Federation of Accountants. . Strengths – The forum provides a place where firms performing national audits can meet and discuss technical and standard setting matters in an effort to strengthen worldwide accounting standards. . Weaknesses – There are many requirements of membership such as maintaining certain standards, perform internal quality reviews, rely on standards based off of the International Standards of Auditing, as well as policies which conform to the International Ethics Standards Board for Accountants. . Reasons for creation/demise – The Forum of firms was created to create a forum for companies that provide transnational audits to discuss and set international auditing standards. 9. IOSCO . Role – The role of the International Organization of Securities Commissions is to set the regulation standards for securities around the globe. Its objectives include creating consistent standards, enhancing investor protections, and to provide a forum to exchange information to assist in the development of markets. . History - The International Organization of Securities Commissions was created in 1983 as a result of the transformation of the Inter-American Regional Association created in 1974. Since, the IOSCO has grown to become the international standard setter for security markets. . Structure – The IOSCO is composed of members in over 100 jurisdictions that regulate more than 95% of the world’s securities. They adopted the Objectives and Principles of Securities Regulation as the benchmark for regulating securities, and organized the Principles Assessment Methodology that enables an assessment of the implementation of these principles. . Strengths – The commission has a strong member base that covers most markets around the world, and provides standards to allow new markets to easily adopt their ideology. . Weaknesses – Due to the size of the commission, it has had trouble in the past with resolving cross-border disputes. . Reasons for creation/demise – With the globalization of markets and long reach of the internet, investors have more opportunity than ever to invest in companies around the world. The IOSCO was established to provide consistent standards to protect investors.
The passage of: 1. The Securities Act of 1933 a. Purpose – The purpose of the Securities Act of 1933 was an attempt by congress to end the fraudulent activity of public companies. To do this, the act has the dual purpose to enforce the disclosure by public companies of certain information, as well as ensuring this information is not fraudulent. The regulations of the Act are applicable to the sale of securities in primary markets. b. Reason for passage – The Securities Act of 1933 was passed in order to provide investors with the information they need to make informed investment decisions. c. Effect on financial reporting – The act forces primary market offerings by issues to register with the SEC, and lays out the process by which they offer securities to the public. The requirements include filing a prospectus to provide investors with information as well as submitting additional information that becomes accessible by the public. The required information to be filed is extensive and covers many aspects of the business including general information, risks, and legal status. The Act also provides a timeline that provides deadlines for when certain information must be disclosed by. The Act enables investors to bring about lawsuits in regards to material misstatements, the sale of non-exempt securities not registering, fraudulent activities and exposes the “control persons” to personal liabilities in certain situations. 2. The Securities Act of 1934 d. Purpose – The purpose of the Securities Act of 1934 was to create a mandatory disclosure process for public companies, and enforce the regulation of securities in secondary markets. e. Reason for passage – The reason for the passage of the Act was to extend the reach of regulation to transactions subsequent to the initial offering. f. Effect on financial reporting – The act created disclosures to force public companies to provide useful information to investors so they could make informed decisions. The Act established the Securities and Exchange Commission which was given the power to enforce the act. The SEC enforces the disclosure requirements, and provides them to the general public through their online filing system. The Act also gives the SEC the power to impose disciplinary actions against companies and individuals who violate securities laws. The disclosure requirements are quite stringent and include the following: i. Annual Reports (10-k), Quarterly Reports (10-Q), Significant Events (8-k), as well as many other various forms. 3. The FCPA g. Purpose – the purpose of the Foreign Corrupt Practices Act of 1977 was to “make it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business.” h. Reason for passage – The reason for the passage of the act was not eliminate payments that would influence officials to act against heir lawful duty, or provide them with an advantage it. i. Effect on financial reporting – The anti-bribery positions of the act did not necessarily produce additional reporting, but the CPA did require securities listed in the United States to maintain accurate books, and develop system of internal controls. 4. The Sarbanes-Oxley Act j. Purpose – The Sarbanes-Oxley Act transformed corporate governance as well as financial practices in the US. The act aimed to protect investors against company disclosures that were inaccurate and unreliable. In order to protect investors the Act established the PCAOB to provide oversight, establish reporting standards, investigate registered firms, inspect public accounting firms and force compliance with the act. k. Reason for passage – The Sarbanes-Oxley Act of 2002 that burdens public companies with a variety of disclosure requirements was a result of the companies that mislead investors such as Tyco International, WorldCom, and many more including the infamous Enron. Investors and lawmakers alike were fed up with the corporate fraud that continued to run rampant in markets. l. Effect on financial reporting – The Sarbanes-Oxley Act is divided into 11 titles, of which 5 specifically affect the disclosure requirements of public companies: ii. Section 302 – This section required certain information that must be disclosed in financial reports such as signatures by the officers that have reviewed the report, a statement claiming the information is free of material error, information that fairly presents the financial condition of the company, an evaluation of internal controls, a list of accounting deficiencies, and negative factors that could affect their internal controls. The disclosures included in this section are not only time consuming and costly, but aim to hold officers responsible for the content within them. iii. Section 401 – This section places more pressure on the company to provide accurate information. It also provides additional disclosures such as off-balance sheet liabilities. iv. Section 404 – Requires the issuer to publish annual reports over their internal controls in addition to financial reports. The internal controls must be tested for effectiveness, and audited by a registered accounting firm along with the financial statements. v. Section 409 – This section requires public entities to disclose any material changes to their financial position or operations supported by additional information when appropriate. vi. Section 802 – This section transformed corporate structure, and allowed what some legal experts refer to as a “piercing of the corporate veil.” The disclosures in section 302 that seemed finicky become extremely important in placing blame on fraudulent actions. Persons found guilty of manipulating or destroying documents that influence a legal investigation can lead to prison sentences of up to 20 years and fines of up to $5 million.

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