Zeff 1978

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THE RISE OF ECONOMIC CONSEQUENCES The impact of accounting reports on decision making may be the most challenging accounting issue of the 1970s. by Stephen A. Zeff Since the 1960s, the American accounting profession has been aware of the increasing influence of "outside forces" in the standardsetting process. Two parallel developments have marked this trend. First, individuals and groups that had rarely shown any interest in the setting of accounting standards began to intervene actively and powerfully in the process. Second, these parties began to invoke arguments other than those which have traditionally been employed in accounting discussions. The term "economic consequences" has been used to describe these novel kinds of arguments.…show more content…
In the end, the inability of the APB to deal effectively with these forces led to its demise and the establishment in 1973 of the FASB. The true preoccupations of the intervening third parties have not always been made clear. When trying to understand the thirdparty arguments, one must remember that before the 1970s the accounting model employed by the American Institute of CPAs committee on accounting procedure (CAP) and the APB was, formally at least, confined to technical accounting considerations (sometimes called "accounting principles" or "conceptual questions") such as the measurement of assets, liabilities and income and the "fair presentation" of financial position and operations. The policy makers ' sole concern was with the communication of financial information to actual and potential investors, for, indeed, their charter had been "granted" by the SEC. which itself had been charged by Congress to assure "full and fair disclosure" in reports to investors. Third-party intervenors, therefore, would have had an obvious incentive to appeal to the accounting model used by policy makers rather than raise the .specter of an economic consequences model preferred by the third parties. When corporate management began intervening in the standard-setting process to an increasing degree, therefore, its true position was probably disguised. An examination of management

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