Politicization Phase in the Development of Accounting Principles in USA

Politicization phase (1973-present)

The environment

Main contribution: FASB (Financial Accounting Standard Board) and various pressure groups are moving towards politicization of accounting.

How the idea of politicization is started? Reasons:

•  Limitations of both professional associations and management in formulating an accounting theory
• Created by the generally accepted view that accounting numbers affect economic behavior

Horngren statement: relationship between standards and political elements

The setting of standards is a social decision. That is why it is said to be a product of political action. He further define standards is define as to place a restrictions on behaviour. It must be accepted by affected parties to be stated as standards even though the way is to force or by voluntary or both.

FASB quasi and deductive political approach adoption has a political elements:

•  An effort to develop a theoretical framework @ accounting constitutions
•  By emergence of various interest groups, the contribution of which is required for the “general acceptance” of new standards.

Statements by FASB about the political elements

Setting standard is the same as democratic process, similarly it can be described as legislative because it must be deliberative & because all views must be heard. And the standards setter must represent the entire constituency as a whole and not be representatives of a specific constituent group.

“Metcalf report” better expressed the process of formulating accounting standards

The report charged that the ‘big eight’ accounting firms monopolize the auditing of large corporations and control the standard setting process. The “big eight” and AICPA have control over accounting standards approved by SEC. (you may want to search: the recommendations aimed at enhancing corporate accountability)