CASE 1‐3 Politicalization Of Accounting Standards
Some accountants have said that politicalization in the development and acceptance of generally accepted accounting principles (i.e., standard setting) is taking place. Some use the term politicalization in a narrow sense to mean the influence by government agencies, particularly the SEC, on the development of generally accepted accounting principles. Others use it more broadly to mean the compromising that takes place in bodies responsible for developing these principles because of the influence and pressure of interested groups (SEC, American Accounting Association, businesses through their various organizations, Institute of Management Accountants, financial analysts, bankers, lawyers, etc.).
1.The Committee on Accounting Procedure of the AICPA was established in the mid to late 1930s and functioned until 1959, at which time the Accounting Principles Board came into existence. In 1973, the Financial Accounting Standards Board was formed, and the APB went out of existence. Do the reasons these groups were formed, their methods of operation while in existence, and the reasons for the demise of the first two indicate an increasing politicalization (as the term is used in the broad sense) of accounting standard setting? Explain your answer by indicating how the CAP, APB, and FASB operated or operate. Cite specific developments that tend to support your answer.
2.What arguments can be raised to support the politicalization of accounting standard setting?
3.What arguments can be raised against the politicalization of accounting standard setting? (CMA adapted)
CASE 2‐4 Continuity
Continuity is often cited as a basic accounting postulate that affects how a company presents information in published financial statements.
1.How did Sprouse and Moonitz describe continuity?
2.Given the presumption of continuity, if you are planning to buy a business, would the historical cost of the company’s assets be relevant to your decision to invest? Explain. If your answer is no, what asset values would be relevant to your decision to invest?
3.If a company is bankrupt and plans to liquidate its assets, can continuity still be presumed? Explain. If your answer is no, how do you think the lack of continuity should affect the measurement of assets reported in a company’s balance sheet.