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Attempts to Establish a Theory of Accounting

Attempts to Establish a Theory of Accounting. AIA and NYSE attempt to develop GAAP (1932)—5 broad principles became 1 st chapter of ARB #1 AAA Tentative Statement of Accounting Principles Affecting Underlying Corporate Annual Reports (1936) AICPA Committee on Accounting Procedure

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Attempts to Establish a Theory of Accounting

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  1. Attempts to Establish a Theory of Accounting • AIA and NYSE attempt to develop GAAP (1932)—5 broad principles became 1st chapter of ARB #1 • AAA Tentative Statement of Accounting Principles Affecting Underlying Corporate Annual Reports (1936) • AICPA Committee on Accounting Procedure • AICPA Statement of Accounting Principles issued by Sanders, Hatfield, and Moore (1938) • Paton and Littleton’s Introduction to Corporate Accounting Standards (1940) • The Basis for Accounting Principles—Scott (1941) and Cultural Significance of Accounts • Orientation postulate (social, political, and economic) • Pervasive principle of justice and equitable treatment to all users of information • Truth and fairness (objectivity, freedom from bias, and impartiality) • Adaptability and consistency • Scientific method • Normative

  2. Attempts to Establish a Theory of Accounting • AICPA Accounting Principles Board • Accounting Research Study #1 Basic Postulates of Accounting by Moonitz (1961) • Accounting Research Study #3 Tentative Set of Broad Accounting Principles by Sprouse and Moonitz (1962) • Inventory of GAAP by Grady (1965) • A Statement of Basic Accounting Theory (ASOBAT) issued by AAA (1966) • APB issued Statement 4 Basic Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises

  3. Attempts to Establish a Theory of Accounting • AICPA Trueblood Committee identifies objectives of accounting (1973) • Useful for making economic decisions • Serve primarily those users having limited authority, ability, or resources to obtain information and rely on financial statements as their principal source of information about an entity’s economic activities • Information useful to investors and creditors in predicting, comparing, and evaluating potential cash flows—amounts, timing, and uncertainty • Information for predicting, comparing, and evaluating earning power • Information useful in judging management’s ability to use resources effectively in achieving an entity’s goals • Factual and interpretative about transactions and other events • Statement of financial position • Statement of periodic earnings • Statement of financial activities relating to significant cash flows • Financial forecasts that enhance the reliability of user predictions • Information for governmental and not-for-profit to evaluate effectiveness of management of resources in achieving identified goals • Information on an entity’s activities affecting society

  4. Attempts to Establish a Theory of Accounting • AAA issues Statement on Accounting Theory and Theory Acceptance (SATTA) in 1977 • No single, universally accepted basic accounting theory existed • FASB issues Statements of Financial Accounting Concepts 1-7 (1978 -2000); Conceptual Framework • IASB Conceptual Framework

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