The stock market crash of 1929 ushered in an era of economic uncertainty that saw many businesses shutter, banks fail, and life savings evaporate. This economic cataclysm triggered the development of new accounting standards that are still in use today. Here we’ll examine the world’s two primary sets of accounting standards and some related organizations, events, and laws. 

Financial Disaster Catalyzes Government Action 

The federal government deemed questionable practices of publicly traded companies as one culprit behind the 1929 crash. To stabilize the economy, reestablish trust in financial institutions, and prevent similar fiascos in the future, legislators turned to regulation. 

President Franklin D. Roosevelt signed the Securities Act of 1933 into law—the first federal legislation regulating the stock market. The act established a uniform, centralized set of rules to safeguard investors from fraud. The law was overseen by the Securities and Exchange Commission (SEC), established the following year. With this, the most consequential set of accounting standards was just starting to take shape. 

GAAP Grabs the Reins 

A 1936 report by the American Institute of Accountants (AIA) first mentions the term “generally accepted accounting principles,” later typically referred to as GAAP. These rules help ensure that financial reports are consistent, accurate, and transparent. Public companies are required to follow GAAP, and it’s also commonly used in government accounting.  

Early Organizations and Efforts 

Established in 1939 by the AIA, the Committee on Accounting Procedure (CAP) addressed accounting concerns through Accounting Research Bulletins. Two decades later, CAP was replaced by the Accounting Principles Board (APB), which was designed to offer more extensive guidance. However, this board was deemed slow to respond to developing accounting concerns and criticized for being too beholden to the accounting profession. 

The “10 Commandments” of U.S. Accounting 

The Financial Accounting Standards Board (FASB), established in 1973, manages GAAP and regularly revises and publishes rules centered around ten principles

  1. Regularity 
  1. Consistency 
  1. Sincerity 
  1. Permanence of Methods 
  1. Non-Compensation 
  1. Prudence 
  1. Continuity 
  1. Periodicity 
  1. Materiality 
  1. Utmost Good Faith 

IFRS: Accounting Standards on the International Stage 

While GAAP has been the main set of guiding principles inside the U.S., most of the outside world adheres to the International Financial Reporting Standards. Established in 2001, the IFRS applies to other countries, including those in the EU, and is administered by the International Accounting Standards Board (IASB).  

IFRS and GAAP share the common aim of keeping publicly traded companies honest in their financial reporting, though IFRS has a broader definition of revenue and is more lenient in expense reporting than GAAP. Further, IFRS is built around standards, while GAAP is a rules-based accounting approach. 

A Single Set of Rules for the World? 

In a global economy, it’s logical to wonder if there ever might be a single set of accounting principles worldwide. An alignment of GAAP and IFRS has been underway since 2002: a slow, incremental process that’s seen the SEC allow foreign companies registered in the U.S. to use IFRS exclusively and most S&P 500 companies now using some IFRS measures in financial statements.  

Still, the SEC remains reluctant to fully switch to IFRS, so, like a U.S. conversion to the metric system, it may not come to fruition. While this means that international accounting practices may never be truly seamless, the allowances in recent years suggest a potentially smoother path for global business ahead. 

Corporate Scandals Remind Us Why We Have GAAP 

Just as the 1929 stock market crash stoked government action on accounting practices, fraudulent financial reporting by corporate entities such as Enron, WorldCom, and Tyco prompted renewed government action. The Sarbanes-Oxley Act of 2002 created new rules for accountants and anyone connected to public company finances and included criminal penalties for some violations. 

Insist on the Highest Standards for Your Accounting Education 

Explore multiple facets of accounting and business from the traditional to the leading edge in one of The University of Texas Permian Basin’s online accounting degree programs. We have options for where you are in your educational journey now and where you want to go in your career tomorrow—accessible online from virtually anywhere in the world. 

Online Bachelor of Business Administration in Accounting 

A bachelor’s degree is usually required to enter the accounting profession. Our AACSB-accredited BBA in accounting—available online exclusively at this UT System institution—is designed to equip you with the essential skills and knowledge needed for accounting and related roles in government, public, private, and non-profit organizations. 

Explore career options and potential salaries with this degree. 

Online Master of Business Administration With Accounting Track 

If you’ve already earned your bachelor’s degree and are ready for a graduate degree, expand your business acumen and enhance your expertise in accounting principles, strategic analysis, and decision-making through our AACSB-accredited online MBA program with an accounting track.  

  • Choose our optional CPA track if you plan to seek CPA certification. 
  • Alternatively, pursue broader accounting studies in our non-CPA track. 
  • Complete your degree in as little as four semesters. 

Explore career options and potential salaries with this degree. 

Online Master of Professional Accountancy 

Hone your skills in both historical and contemporary accounting methodologies while enhancing your decision-making and strategic-thinking abilities—all with the goal of becoming a CPA—in our online Master of Professional Accountancy program.  

  • Complete your degree in as little as one year. 

Explore career options and potential salaries with this degree. 

Ready to get started? Apply now! 

Sources: 
https://www.investopedia.com/ask/answers/021315/when-and-why-were-gaap-first-established.asp
https://tax.thomsonreuters.com/blog/understanding-gaap-rules/#what-are-the-main-principles-of-the-gaap-framework
https://www.forbes.com/advisor/business/generally-accepted-accounting-principles-gaap-guide/
https://www.ifrs.org/issued-standards/list-of-standards/ifrs-1-first-time-adoption-of-ifrs/