With updated branding, this year the Financial Accounting Standards Board (FASB) hits a key milestone: the big Four-0. Established in 1973, prior to its first meeting on July 5, standard setting was a history of failed attempts to produce functional accounting standards. Over the years, the board has been on a mission that extended farther than anyone could see.
America's previous efforts to set standards go back to the dark days of The Great Depression. The U.S. Securities and Exchange Commission, created in 1934, was given the task of, among other things, establishing accounting standards. The commission assigned that responsibility to the American Institute of [Certified Public] Accountants' (AICPA) Committee on Accounting Procedures, which proved unable to resolve the many conflicting methods of accounting that the SEC accepted. It was replaced in 1959 by the Accounting Principles Board (APB), again under the auspices of the AICPA.
Over the next 14 years, as a part-time, all-volunteer board, the APB managed to grind out four statements and 31 opinions. Still, progress was slow, and the board was failing to establish a framework of the philosophical fundamentals of accounting that was supposed to underlie subsequent guidance.
The AICPA undertook a study to identify the problem and recommend a solution (by forming the Wheat Committee, headed by Francis Wheat in 1971). The committee found that a standard setter had to be independent from government, business and the AICPA. If an organization was going to oversee it, it would have to be exclusively dedicated to making it work. The solution was three new organizations: the Financial Accounting Foundation (FAF), FASB and the Financial Accounting Standards Advisory Council (FASAC).
FAF would oversee the board (including funding it, devising policies that protect the board's independence and appointing its members). Eight organizations involved in finance, accounting, auditing and securities, among them Financial Executives Institute (currently FEI) and the AICPA, would appoint the first trustees. The board of trustees would reserve seats for three people with an auditing background, two from corporate accounting, an academic and a financial analyst.
At the same time, FAF established FASAC, with a mission to advise the board on issues that should be addressed. The council's members would be drawn from FASB's various constituencies, business, investors, banks, regulators, auditors and financial...