companies’ disclosure documents, which function is performed by the Division of
Corporation Finance, as discussed above. The Chief Accountant’s office is also re-
sponsible for issues relating to the independence and qualifications of accountants
and auditors practicing before the Commission, including foreign accountants and
auditors.
14.3 RELATIONSHIP WITH U.S. ACCOUNTING BODIES. The method used for es-
tablishing accounting principles and standards differs from country to country. Ac-
counting standards, for the most part, are established either by governmental bodies,
by private standard-setting bodies, or by a combination of the two. Different ap-
proaches to standard setting may be the result of legal, cultural, political, or economic
differences among countries.
Generally, if corporate ownership in a country is concentrated in the hands of only
a few institutional investors and small family businesses predominate in the country,
accounting standards will be set mainly by governmental agencies, because there is
no need for a comprehensive or sophisticated financial reporting system. In a coun-
try where corporate ownership is diverse, however, the need for a sophisticated fi-
nancial reporting system increases, and, correspondingly, the influence of the private
sector, through the accounting professions, usually becomes greater.
The standard-setting process in the United States, where corporate ownership is
diverse, is a clear illustration of private-sector standard setting. Although the gov-
ernment, through the SEC, does have the authority to establish accounting standards,
U.S. generally accepted accounting principles, (U.S. GAAP), are principally set by
the private sector. These standards are currently set by the Financial Accounting
Standards Board (FASB). The SEC has historically recognized and relied on the
FASB’s authority to promulgate accounting standards and generally refrains from
prescribing accounting methods to be used in the presentation of financial statements.
The SEC first established this policy of looking to the private sector to establish
accounting principles and standards in Accounting Series Release (ASR) No. 4, dated
April 25, 1938. An ASR is an interpretive release issued by the SEC to develop uni-
form standards and practices in connection with major accounting questions. In ASR
No. 4, the SEC stated that any financial statements prepared in accordance with ac-
counting principles for which there is no authoritative support will be considered
misleading.
As a result, the Committee on Accounting Procedure of the American Institute of
Accountants (now the American Institute of Certified Public Accountants, or AICPA)
began to issue pronouncements known as Accounting Research Bulletins (ARBs).
This committee’s effectiveness began to be questioned, however, and, as a result, the
Accounting Principles Board (APB), which functioned under the guidance of the
AICPA, was created in 1959. The APB functioned until 1972, when the FASB, an in-
dependent accounting standard-setting body, was established. The establishment of
the FASB was supported by the SEC in ASR No. 150 (December 20, 1973), in which
the SEC stated that principles, standards, and practices promulgated by the FASB in
its Statements and Interpretations would be considered by the Commission as having
substantial authoritative support and those contrary to such FASB promulgations
would be considered to have no such support. In 1984, the FASB established the
Governmental Accounting Standards Board (GASB) to set standards for state and
local governmental accounting and reporting, but the FASB remains the key standard
setter.
14 • 4 GLOBALIZATION OF WORLD FINANCIAL MARKETS