The
standard setting process is composed of three organizations, the Securities and
Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), and
the American Institute of Certified Public Accountants (AICPA). This paper will
discuss each organization’s role today and how the three organizations interact
with one another.

            The
SEC is a federal agency that was established after the Great Depression; it’s
purpose was to promote and standardize financial information presented to
stockholders. Confidence in the stock market had plummeted and the SEC set out
to provide standards that stockholders would regain their trust in. The SEC thought
that the private sector had the best resources to achieve the task of setting
standards. Because of this, accounting standards have originated in the private
sector either by the AICPA or the FASB. In fact, the SEC depends on the FASB to
do the heavy lifting of developing accounting standards. One of the SEC’s
strict rules is that all participators are to abide by the generally accepted
accounting principles (GAAP). The SEC’s involvement in standard setting varies
from approving/rejecting proposed standards, pushing the private sector to make
quicker decisions, or communicating problems to the FASB. The SEC has the power
to issue a “stop order” if there is prolonged disagreement with irregularity
within the financial statements of a company.

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            The
AICPA, by the urging of the SEC designated the Committee on Accounting Procedure
in 1939. This organization was composed of 51 CPAs. After 1959 the Accounting
Principles Board was organized to provide a framework that would assist in
problem solving and to research issues that came up. The APB struggled to be
productive and act quickly on accounting issues that needed swift and proper
resolutions. Because of this, and some other issues, the FASB replaced the APB
in 1973. The AICPA has had significant impact on the development of GAAP,
through its various programs.

            The
FASB’s mission is to institute and advance standards of financial accounting
and to report accurately for the greater education of the public. Five major
factors separate FASB from the APB: 1) Smaller membership, 2) Full-time,
remunerated membership, 3) Greater autonomy, 4) Increased independence, &
5) Broader representation. The FASB routinely announces two major types of
messages; these are accounting standards updates and financial accounting
concepts. Within FASB is the Emerging Issues Task Force (EITF) that handles
controversial accounting problems.

            Through
the years, AICPA has influenced GAAP, but lately has taken a very small role in
setting accounting standards. What we know as GAAP in the modern world came
from influences of the SEC, AICPA, and FASB. Each of these organizations took
on tasks to improve and establish standards for financial accounting. Recently
the FASB produced a codification system that provides all informative
literature that pertains to a financial topic, in one place. The new codification
system does not change GAAP, but makes information easier to access. The FASB
created the Codification Research System (CRS) which is an online database
meant to give easier access to the codification. Because of the united effort
from the SEC, FASB, and the AICPA, accounting standards have improved
tremendously throughout the years, and there is confidence in the
accounting/information system that is in place today.