Management's Influence in the Formulation of Accounting Principles

Management's Influence in the Formulation of Accounting Principles
Cost accounting emerged in the 19th century as a result of the industrial revolution.
In the last half of the 19th century there was a development in accounting techniques for prepayments and accruals, as a way to enable the calculation of periodic profits.
Late in the 19th and 20th centuries there was a development in the funding report.
In the 20th century there were developments in accounting methods for complex issues, ranging from the calculation of earnings per share, accounting for business calculations, accounting for inflation, long-term rent and pensions, to the important problems of accounting as a new product from financial engineering.
2. 1 Stage of management contributions (1900-1933)
Management's influence in the formulation of accounting principles arose from the increasing number of shareholders and the dominant economic role played by industrial companies after 1900. The main player at that time was the association of professional accountants, the American Institute of Accountants (AIA).
The position of the AIA at the request of the Federal Trade Commission (FTC) is that "there are no sales, interest or administrative costs in the factory overhead". Opponents of the position of the Institute face a statement in the report that says "the calculated interest in production costs is a theory that is unfounded and wrong, and can be said to be impossible (absurd) in practice". Opposing parties also suffered defeat. Another important event at that time was the increasing impact of accounting theory on taxation of operating income. Although the 1913 income law provided the basis for calculating taxable profits on the basis of cash receipts and disbursements, the 1918 Act was the first to recognize the role of accounting procedures in determining taxable profits.

2. 2 stages of institutional contribution (1933-1959)
In 1934, Congress created the SEC with the task of managing a variety of federal investment laws, including the 1933 Securities Act which regulates the issuance of securities in interstate markets and the 1934 Securities Act which regulates securities trading.
After publication by Ripley in an article criticizing reporting techniques as being deceptive, George O. May, a British national, suggested that the American Institute of Certified Public Accountants (AICPA) start a work effort the same as the stock exchange. As a result, the Special Committee of the AICPA in collaboration with the Stock Exchange recommends the following general solutions:
A more practical alternative is to allow each company to freely choose its own accounting methods within ... a very broad range ... but requires disclosure of the methods used and the consistency of their application from year to year.
In addition, the Committee proposes its first official trial to develop generally accepted accounting techniques. Known as "general principles" (board principles).
After the issuance of ASR No. 4 by the SEC, which challenged the accounting profession to provide "substantial support from the authorities" for applicable accounting principles, and increased criticism from the American Accounting Association and its newly formed members, the next Institute in 1938 decided to authorize the Accounting Procedure Committee (CAP Accounting Committee) to announce its decision.

2. 3 Stage of politicization (1973-present)
Limitations held by both professional and management associations in formulating an accounting theory have led to the adoption of a more deductive approach while politicizing the standard setting process - a situation created by the generally accepted view that accounting numbers influence economic behavior and , as a consequence, accounting rules should be made in the political arena.
Since its inception, the FASB has adopted a deductive and quasi political approach in the formulation of accounting principles. What the FASB did got better value, firstly, by efforts to develop a theoretical framework or agreement in accounting, and secondly, with the birth of various interested groups, whose contribution was needed for "general" acceptance of new standards. Therefore, the standard setting process has a political aspect in it.
The process of setting standards can be described as democratic because, like all regulatory bodies, the right of the Council to make regulations will ultimately depend on the approval of the governing party. But because setting standards requires a number of perspectives, it is not appropriate if a standard is set based solely on the representation of the voters. Similarly, the process can be described as legislative because the setting of standards must be deliberated and because all views must be heard. But the standard compilers are expected to be able to represent all voters as a whole and not be representative of a particular group of voters. This process can be described as being political because there is a learning effort related to an attempt to get acceptance of a new standard.