The AICPA role in standard setting.Statement on Auditing Standards no. 69, "The Meaning of 'Present Fairly in Conformity With Generally Accepted Accounting Principles' in the Independent Auditor's Report Auditor's Report
Recorded in the annual report, the auditor's report tests to see that a corporation's financial statements comply with GAAP. This is sometimes referred to as the clean opinion.
Most auditor's reports consist of three paragraphs. ," identifies American Institute of CPAs industry audit and accounting guides, statements of position and practice bulletins as sources of| established generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records.
Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting .
This month's column discusses the AICPA AICPA
See American Institute of Certified Public Accountants (AICPA). role in the standard-setting process. To obtaiu AICPA standards, contact the AICPA order department, JA1092, PO. Box 1003, New York New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , 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 New York Stock Exchange (NYSE)
World's largest marketplace for securities. The exchange began as an informal meeting of 24 men in 1792 on what is now Wall Street in New York City. . In subsequent years, the AICPA formed committees to develop financial reporting principles, culminating in the formation of the Accounting Principles Board The Accounting Principles Board (APB) is the former authoritative body of the American Institute of Certified Public Accountants (AICPA). It was created by the American Institute of Certified Public Accountants in 1959 and issued pronouncements on accounting principles until 1973, in 1959.
In 1973 the Financial Accounting Standards Board Financial Accounting Standards Board (FASB)
Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP). was formed to assume the primary responsibility for financial accounting and reporting standards. The APB APB
See Accounting Principles Board (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 (1) (SAS Institute Inc., Cary, NC, www.sas.com) A software company that specializes in data warehousing and decision support software based on the SAS System. Founded in 1976, SAS is one of the world's largest privately held software companies. See SAS System. 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 GAAP
See: Generally Accepted Accounting Principles
See generally accepted accounting principles (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 tare (târ), name sometimes used as a synonym for any vetch, most frequently for the common vetch. The tare of the Scriptures, a weed of grainfields and considered a seed of evil, is thought to have been the unrelated darnel (see rye grass). 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 Independent Auditor
An external auditor with a certified public accounting designation that qualifies him or her to provide an auditor's report.
These auditors aren't affiliated with the company being audited. 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 FASB
See: Financial Accounting Standards Board
See Financial Accounting Standards Board (FASB). or the Governmental Accounting Standards Board The Governmental Accounting Standards Board (GASB) is currently the source of generally accepted accounting principles (GAAP) used by State and Local governments in the United States of America. . 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 (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. 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 The abrogation of a contract, effective from its inception, thereby restoring the parties to the positions they would have occupied if no contract had ever been formed. By Agreement 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.