Chapter 4 The New Chapter 4 The New Tripartite StructureTripartite Structure Trace the demise Trace the demise

of the APB.of the APB. Focus on the new Focus on the new

view of view of accounting.accounting.

Consider the Consider the tripartite tripartite structure.structure.

Standard Setting VIStandard Setting VIDemise of the APBDemise of the APB

1970 APB in big trouble M. Armstrong AICPA President

AICPA and AAA ReactionAICPA and AAA Reaction 2 Committees…. Second watershed period AAA 1971 action AICPA reaction…evaluate?

Trueblood CommiteeTrueblood Commitee Established 10/1971 “Objectives of Financial Statements”

Goal and methodology

Trueblood ReportTrueblood Report Issued in October, 1973 Content and flavor

Trueblood EvaluationTrueblood Evaluation Evaluation

Reactions to TB• Skinner• ARS #1 again?

Origin of the FASBOrigin of the FASB

Wheat Committee “The Wheat Committee “The Study Group on Study Group on Establishment of Establishment of Accounting Principles”Accounting Principles”

Approach?Approach?Why? Why?

New View of AccountingNew View of Accounting

Old view focusOld view focus:: Micro: The Firm to investorsMicro: The Firm to investors

New view focus:New view focus: Macro: The Market: domestic & Macro: The Market: domestic &

international capital markets…international capital markets…

New ViewNew View Accounting Role and ImportanceAccounting Role and Importance

• Achieve Society goals=>Achieve Society goals=>• SE=> SE=> • cr allocated…….cr allocated…….• allocation process =>allocation process =>• decisions=>decisions=>• accounting …..accounting …..

Concurrent International Concurrent International DevelopmentsDevelopments Third watershed periodThird watershed period Bretton Woods collapse Bretton Woods collapse

1971. 1971. Breakdown of economic Breakdown of economic

barriersbarriers Growth of capital needsGrowth of capital needs New vs. Old World OrderNew vs. Old World Order

FASB Context: Early 1970sFASB Context: Early 1970s Accounting reflects economic Accounting reflects economic

environment environment so describeso describe in early in early 1970s….1970s….

Public interest in capital marketsPublic interest in capital markets Dominant capital sourceDominant capital source Financial media coverageFinancial media coverage Pubic interest in accountingPubic interest in accounting Pressures on managementPressures on management Stage of the economyStage of the economy New growth industriesNew growth industries So accounting is….So accounting is….

Wheat Report: New Wheat Report: New StructureStructure

1972 Report; implemented 7/1/731972 Report; implemented 7/1/73 Tripartite Structure: Tripartite Structure: Web site: www.fasb.org/Web site: www.fasb.org/

1) FASB1) FASB

MissionMission AuthorityAuthority

• SEC, ASR 150 (1973) [FRR 1, 1982] SEC, ASR 150 (1973) [FRR 1, 1982] and Sarbanes-Oxley Act, 2002.and Sarbanes-Oxley Act, 2002.

• AICPA Rule 203AICPA Rule 203

FASB StructureFASB Structure

7 Members7 Members Staff: 40Staff: 40 FinancesFinances

2) FAF2) FAF Parent, 501 (c)(3) FoundationParent, 501 (c)(3) Foundation FunctionsFunctions TrusteesTrustees

New Structure:New Structure:3) FaSAC3) FaSAC

Advise FASBAdvise FASB 30 members30 members

Tripartite StructureTripartite Structure So…as evidenced by tripartite So…as evidenced by tripartite

structure, what lessons did we learn?structure, what lessons did we learn?• FASB: f/t, small number, independent, $, FASB: f/t, small number, independent, $,

start CFstart CF• FAF: Resources and shield for FASBFAF: Resources and shield for FASB• FaSac: Point person for FASBFaSac: Point person for FASB• SEC: formally delegated authority, SOXSEC: formally delegated authority, SOX