Accounting Principles Board (1959 – 1973): Operation
“You should bear this in mind: you can help in preventing the encroachment of government by participating directly in steps toward agreement upon accounting principles.”
Not until November 1962 would the Accounting Principles Board (APB) issue its first Opinion, comprising modest guidance on new tax depreciation rules. The members’ qualifications of their assents were almost as long as the Opinion’s seven paragraphs. The APB almost died aborning after its second Opinion was overruled by the SEC.12
The APB issued 31 Opinions in its brief life, including seminal guidance on leases, accounting changes, earnings per share, income taxes, equity method accounting, interim reporting, early extinguishment of debt, and the results of operations. In 1970, the APB issued two controversial Opinions related to accounting for acquisitions of businesses. The first included criteria for the purchase and pooling-of-interests methods. The second mandated amortization of acquired goodwill over a period not to exceed 40 years.
The two Opinions could have been issued as one, but would have included so many qualified assents that it might appear not to have the required two-thirds majority. The issues were separated into two separate Opinions to allow for dissents rather than qualified assents. The process was criticized and was a factor in studies leading to the Financial Accounting Standards Board (FASB).
Recalling the dying days of the CAP, the AICPA convened two study groups to consider how to improve accounting standards-setting in 1971. The first, chaired by former SEC Commissioner Francis M. Wheat, studied the APB to determine necessary changes to “attain better results faster.”(13) Robert M. Trueblood, who had been both AICPA president and an APB member, headed the other group, reviewing the objectives of financial statements and problems in achieving those objectives.
The Wheat Study Group concluded that the APB was fatally flawed and recommended creating the FASB. The Trueblood Study Group laid the groundwork for the conceptual framework later developed by the FASB.
SEC Chief Accountant Andrew Barr served from 1956 to 1972, during almost the entire life of the APB. Aside from the investment tax credit fiasco and APB Opinion No. 2, he was generally supportive of and collaborated with the APB. He had a strong interest in strengthening auditor independence and evaluating independence based on “appearance” rather than the auditor’s “state of mind.” He contributed to actions to eliminate differences between disclosures in the Form 10-K and stockholder reports, and was a significant contributor to the 1964 amendments to the Exchange Act and improving reporting by banks, insurance companies and transportation entities.