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The History of the Financial Accounting Standards Board

Autor:   •  February 21, 2012  •  Research Paper  •  2,927 Words (12 Pages)  •  1,233 Views

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The History of the Financial Accounting Standards Board

Abstract

This paper discusses the history and background of the Financial Accounting Standards Board (FASB). The primary goal of the FASB is to devise the Generally Accepted Accounting Principals (GAAP) in the United States. This paper will also discuss the structure and function of the FASB and its standards. Finally, the paper will discuss the future as the FASB and the International Accounting Standards Board (IASB) as they work together to transition to a common world wide standard.

In 1494, 2 years after the discovery of America, Luca Pacioli wrote a book on mathematics entitled Summa de Arithmetica, geometria, proportioni et Proportionalita. (Accounting Theory, 2009) "It was a little survey and should have been treated like ordinary books of the time and read then disappeared into historical archives and forgotten. A few brief chapters on practical mathematics made this one special." (LeMoine, 2004)

These chapters were written on practical mathematics, specifically mathematics of business. Luca stated that a merchant requires three things to ensure he is successful in his business venture: "sufficient cash or credit, an accounting system that can tell him how he's doing, and a good bookkeeper to operate it." The accounting system proposed by Luca consisted of journals and ledgers and invented double entry bookkeeping. "Debits were on the left side because that's what "debit" meant, "the left". The numbers on the right were named credits." (LeMoine, 2004)

The double entry system allowed the bookkeeper to check his progress quickly and easily; he simply needed to add up all of the debits, and then add up all of the credits. If the totals matched then the bookkeeper had done everything correctly, if there was a discrepancy in the totals, "that would indicate a mistake in your Ledger, which mistake you will have to look for diligently with the industry and intelligence God gave you." Luca wrote. (LeMoine, 2004)

This system of bookkeeping, invented by a Franciscan monk, proved to be so easy to use and well suited to the needs of the merchant class it became the standard for business. (Accounting Theory, 2009). Accounting standards remained largely unchanged until the financial collapse of 1929 and the depression that followed.

In October of 1929, the stock market crashed; companies that had recently showed huge profits went bankrupt and private investors lost their life savings. Everyone questioned how such a thing could happen, how was it possible that a company is highly profitable one day and bankrupt the next, the only answer was fraud. "So far, these events could be chalked

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