CHANGING NATURE OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
Generally accepted accounting principles are usually developed by professional accounting bodies like American Institute of Certified Public Accountants (AICPA) and Institute of Chartered Accountants of India(ICAI). In developing such principles, however, the accounting profession has to reflect the realities of social, economic, legal and political environment in which it operates. Besides academic research, regulatory and tax laws of the government e.g., Companies Act, 1956, income Tax Act, 1961 etc., in a large measure, influence the formulation of acceptable accounting principles. Stock exchanges and other regulatory agencies like Controller of Capital Issues (CCI) have laid down rules for disclosure and extent of accounting information.
Since the environment in which business operates, undergoes constant changes as a result of changes in economic and financial policies of the Government and changes in the structure of business, continued evaluation of the relevance of generally accepted accounting principles is required. In this sense, the principles of accounting are not ever-lasting truths. You will appreciate that it is the development of relevant accounting principles in tune with the present day needs of the society that would make it possible for the business enterprises to develop financial statements which would be acceptable and of value to the end users.
Now we give you a brief account of the development of standards in the United Kingdom, United States of America, India, and at the international level.
ATTEMPTS TOWARDS STANDARDISATION
Standardisation in UK and USA: Though the Institute of Chartered Accountants in England and Wales began making recommendations since 1942, the real progress started with the establishment of Accounting Statements Committee (ASC) by the Institute in 1969 in the wake of public criticism of financial reporting methods which permitted diverse practices. As a result of diversity in practices some big investors had suffered heavy losses on their investments in well known companies. The main objective of ASC has been to narrow areas of difference and variety in accounting practices. The procedure used for standardisation is initiated by the issue of an "Exposure Draft" on a specific topic for discussion by accountants and the public at large. Comments made on exposure draft are taken into consideration when drawing up a formal statement of the accounting methods for dealing with that specific topic. The statement is known as a Statement of Standard Accounting Practice (SSAP).
Once the statement of standard accounting practice is adopted by the accounting profession ( the fact that a statement has been issued by the Institute in itself signifies the acceptance by the profession), any material departure by any company form the standard practice in presenting its financial reports is to be disclosed in that report. So far, nineteen statements of standard accounting practice, in addition to some exposure drafts under consideration, have been issued by the ASC.
The need for evolving standards in the USA was felt with the establishment of the Securities Exchange Commission (SEC) in 1933. The SEC is the Government agency to regulate and control the issuance of and dealings in securities of the companies. A research-oriented organization called the Accounting Principles Boards (APB) was formed in 1957 to spell out the fundamental accounting postulates. The Financial Accounting Standards Board(FASB) was formed in 1973. The FASB pronounces statements from time to time articulating the generally accepted accounting principles. The constant support given by SEC to FASB pronouncements has given considerable credibility to its accounting policy statement. The FASB till 1985 has issued five statements of concepts and eighty-eight statements of financial accounting standards. Standards at International Level: In view of the growth of international trade and multinational enterprises, the need for standardization at the international level was felt. An international Congress of Accountants was organized in Sydney. Australia in 1972 to ensure the desired level of uniformity in accounting practices. Keeping this in view, the International Accounting Standards Committee (IASC) was formed and was entrusted with the responsibility of formulating international standards. All the member countries of IASC resolved to conform to the standards developed by IASC or at least to disclose variations from recommended standards. After its formation in 1973, the IASC has issued 40 international accounting statements to date. Another professional body, the International Federation of Accountants (IFAC) was established in 1978. Attempts have also been made in countries of the European Economic Community (EEC) and Canada for standardization of accounting practices regarding disclosure and consistency of procedures.
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