The AICPA role in standard setting.
This month's column discusses the AICPA role in the standard-setting process. To obtaiu AICPA standards, contact the AICPA order department, JA1092, PO. Box 1003, New York, New York 10108-1003. Phone: I-800-TO-AICPA.
The AICPA has a long history of involvement in setting accounting standards, dating back to 1933 when it first made recommendations to the New York Stock Exchange. In subsequent years, the AICPA formed committees to develop financial reporting principles, culminating in the formation of the Accounting Principles Board in 1959.
In 1973 the Financial Accounting Standards Board was formed to assume the primary responsibility for financial accounting and reporting standards. The APB was disbanded, and the AICPA accounting standards executive committee (AcSEC) was formed that same year.
Today, AcSEC is the AICPA's official voice on financial accounting and reporting matters. AcSEC's conclusions on financial accounting and reporting matters are included in SOPs, audit and accounting guides and practice bulletins. (For a listing of AcSEC members for the 1992-93 committee year, see the sidebar on page 68.)
AUTHORITY OF AcSEC PRONOUNCEMENTS
Historically, AcSEC pronouncements were recognized as supplementary guidance on financial accounting and reporting matters. That changed in January 1992 with the issuance of SAS no. 69. For nongovernment entities, SAS no. 69 identified AcSEC SOPs and audit and accounting guides as category (b) and practice bulletins as category (c) in the GAAP hierarchy; category (a) consists of FASB statements and interpretations, APB opinions and AICPA accounting research bulletins. For SOPs, audit and accounting guides and practice bulletins whose effective dates are after March 15, 1992, or for entities initially applying an accounting principle after March 15, 1992, these pronouncements' provisions should be followed if the accounting treatment of a transaction or event is not specified by a higher category pronouncement.
SOPs. Generally, SOPs provide guidance on matters unique to a specific industry. However, recent SOPs are broader in scope and cover a number of industries. (For examples, see the sidebar on page 70.) SOPs also may update or amend audit and accounting guides. For example, SOP no. 92-6, Accounting and Reporting by Health and We!tare Benefit Plans, amends the AICPA audit and accounting guide Audits of Employee Benefit Plans.
Audit and accounting guides. A guide's principal objective is to help the independent auditor audit and report on the financial statements of a specific industry by emphasizing its unique accounting and auditing aspects. Audit and accounting guides have been issued for 21 industries and are updated annually to include conforming changes. (For a partial listing of audit and accounting guides, see the sidebar on page 70.)
The AICPA is currently developing a new guide, Audits of Insurance Agents and Brokers expanding the scope of Audits of Stock Life Insurance companies encompass Au- dits of Life and Health Insurance Entities, and is revising Audits of Brokers and Dealers in Securities.
Practice bulletins. These typically pertain to narrow financial reporting problems not considered by the FASB or the Governmental Accounting Standards Board. During 1991 and 1992, respectively, AcSEC issued Practice Bulletin no. 9, Disclosured of Fronting Arrangements by Fronting Companies and tice Bulletin no. 10, An Amendment to Practice Bulletin 7, "Criteria for Determining Whether Collateral for a Loan Has Been In-Substance Foreclosed."
AcSEC's self-imposed due process requires authoritative pronouncements (for example, SOPs and guides) to be deliberated in a public meeting, exposed for public comment and cleared by the FASB at various stages.
Public meetings. AcSEC meetings, which are announced in the CPA Letter. are held approximately every six weeks to deliberate projects on its agenda. Projects are added to the technical agenda based on recommendations by individuals from public practice, industry, education, government, the FASB, the Securities and Exchange Commission and the FASB emerging issues task force. All agenda projects are cleared by the FASB to ensure that AcSEC projects do not conflict with items on the FASB's technical agenda. AcSEC deliberates the accounting issues at the public meeting and a super-majority of the members must support a project before it is exposed for public comment and before final issuance.
Exposure for public comment. Proposed pronouncements usually are exposed to the public for a 90-day comment period. When exposure drafts are issued, announcements appear in the CPA Letter and the Journal of Accountancy. AcSE C encourages ED recipients to comment on them. All the comments received are discussed by AcSEC and incorporated into the final pronouncement as appropriate.
FASB clearance. AcSEC's due process also includes requesting "negative clearance" from the FASB at one of its public meetings. Negative clearance means no more than two of the seven FASB board members have objected to the proposed technical project, ED or final pronouncement.
Every other month, this column contains updates on AcSEC proj ects. During the first quarter of 1993 we plan to finalize the following four pronouncements:
1. Proposed SOP Foreign Currency Accounting and Financial Statement Presentation for Investment Companies.
2. Proposed SOP, Financial Accounting and Reporting for HighYield Debt Securities by Investment Companies.
3. Proposed SOP, Determination, Disclosure, and Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by Investment Companies.
4. Proposed SOP Rescission of Accounting Principles Board Statements.
* STATEMENT on Auditing Standards no. 69 identifies AICPA audit and accounting guides, statements of position and practice bulletins as sources of established GAAP.
* THIS MONTH'S column explains the AICPA's standard-setting role, past and present, including the various types of AICPA pronouncements, their authority and AcSEC's due-process procedures.
By ARLEEN K. RODDA, CPA, director of the AICPA accounting standards division. Edited by LINDA A. VOLKERT CPA, technical manager of the AICPA technical information divisions.