Development of Accounting Theory and Practices in the United State of America

1. Development of Accounting Theory and Practices in the United State of America • The USA can be called the leading country in developing accounting theory during the past one century. • In the first half of this century a major shift in basic accounting thought was the change in the objective of accounting from that of presenting information to management and creditors to that of providing financial information for investor and stockholders.

2. Development of Accounting Theory and Practices in the United State of America • The change in the objective of financial statement led to the following changes in accounting thought: 1- a deemphasize of balance sheet as a statement of values, by adhering more closely to the going concern concept. 2- increased emphasis on income statement and uniform concept of income. 3- The need for full disclosure of relevant financial information , by presenting more complete financial statement and increasing the use of footnote . 4- an emphasis on consistency in reporting , particularly with respect to the income statement.

3. Development of Accounting Principles • The AICPA ( through CAP and FASB) has been harbinger of developing principles and techniques . Normative theory came to be stressed upon after the issuance of conceptual framework for accounting and reporting by the FASB and others . • Accounting guidelines are being issued in the form of accounting standers.

4. Development of Accounting Principles • Different committees , associations , boards, and institute have, based on the researches conducted , made pronouncements from time to time to develop and improve the principles of accounting. These pronouncements have considerably influenced the principles , which are commonly known as “ Generally Accepted Accounting Principles “ (GAAP)

5. The GAAP • Every business enterprise prepares its financial statement in accordance with the GAAP . • The GAAP are guidelines for specific accounting issues , which are to be followed by the prepares of financial statement , and are further subject to scrutiny by the auditors , who attest that the financial statements have been prepared in accordance with the GAAP.

6. The GAAP • Since the GAAP are generally acceptable to the preparers , auditors and other categories of users , the annual accounts have to be prepared according to the “principles” laid down.

7. Standard Versus Principles • AICPA “… principles connotes things basic and fundamental of sort which can be expressed in few words , relatively timeless in nature , and in no way dependent upon changing fashions in business or the evolving needs of the investment community.” • The FASB issued 137 standards based upon the conceptual framework . The standards helped in developing solutions to the specific accounting issues.

8. Standard Versus Principles • They became part of the generally acceptable accounting principles (GAAP). In fact, they should have been called generally acceptable accounting standards (GAAS).

9. Alternative of accounting Standards • General rules derived from the objectives and concepts of accounting theory which guide the development of accounting practices. • Look in to the second paragraph . (page 70)