Accounting Principles Board (APB)

What is the Accounting Principles Board (APB)?

The Accounting Principles Board (APB) was an authoritative body tasked with creating and promulgating accounting standards and principles. Part of the American Institute of Certified Public Accountants (AICPA), the APB existed from 1959 until its disbandment in 1973. It was eventually replaced by the Financial Accounting Standards Board (FASB).

Functions and Objectives

The APB aimed to:

Develop an overall conceptual framework for accounting.
Issue opinions and statements on various accounting issues.
Guide the accounting profession in standards and practices.

Key Contributions

The APB issued 31 opinions and four statements on a range of accounting topics, significantly influencing the accounting practices and principles in place today.

Examples

APB Opinion No. 6: This opinion focused on the treatment of certain inventories and the method of inventory measurement.
APB Opinion No. 17: Provided guidelines on intangible assets, such as goodwill, and how to account for them in financial statements.
APB Opinion No. 21: Addressed the concept of interest on receivables and payables, prescribing specific accounting treatments.

Frequently Asked Questions (FAQs)

Q1: Why was the APB replaced by the FASB?

A1: The APB was replaced due to criticisms concerning its independence, slow issuance of accounting standards, and the perceived complexity of its standard-setting process. The Financial Accounting Standards Board (FASB) was established to be an independent, private-sector body dedicated solely to setting accounting standards.

Q2: Are APB opinions still relevant today?

A2: Yes, although some APB opinions have been superseded by FASB statements, many of the principles laid out by the APB still form the foundation of current accounting standards.

Q3: What is the difference between the APB and the FASB?

A3: The APB was part of the AICPA, whereas the FASB is an independent organization. The FASB is considered more comprehensive and systematic in its approach to establishing accounting standards.

Q4: How were APB members selected?

A4: Members of the APB were chosen from professionals in accounting firms, industry companies, and academia, reflecting a broad spectrum of expertise within the accounting profession.

Q5: What is the significance of APB opinion No. 23?

A5: APB Opinion No. 23 pertained to accounting for income taxes, specifically the allocation of income taxes to various accounting periods, influencing subsequent standards on tax accounting.

Financial Accounting Standards Board (FASB): The organization that succeeded the APB in setting accounting principles in the United States.
Generally Accepted Accounting Principles (GAAP): A common set of accounting principles, standards, and procedures issued by the FASB.
American Institute of Certified Public Accountants (AICPA): A professional organization for CPAs in the United States involved in standard-setting until the establishment of the FASB.
Intangible Assets: Non-physical assets such as patents and goodwill, which were addressed in APB instead of fixed assets that have physical forms.
Accounting Standards Codification (ASC): The source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities.

Online References

Suggested Books for Further Studies

Intermediate Accounting by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield
Financial Accounting: An Integrated Approach by Ken Trotman
Accounting Principles by Weygandt, Kimmel, and Kieso
Principles of Accounting by Belverd E. Needles

Accounting Basics: “Accounting Principles Board (APB)” Fundamentals Quiz

### What was the primary purpose of the APB? - [x] To set and promote accounting principles and standards - [ ] To audit financial statements for compliance - [ ] To oversee tax collection procedures - [ ] To manage public accounting records > **Explanation:** The primary objective of the APB was to set and promote consistent accounting principles and standards within the accounting profession. ### How many opinions did the APB issue during its existence? - [ ] 10 - [ ] 24 - [ ] 50 - [x] 31 > **Explanation:** The APB issued a total of 31 opinions on different accounting issues before it was disbanded. ### What body replaced the APB in 1973? - [ ] The American Institute of Certified Public Accountants (AICPA) - [ ] The Canadian Institute of Chartered Accountants (CICA) - [x] The Financial Accounting Standards Board (FASB) - [ ] The Governmental Accounting Standards Board (GASB) > **Explanation:** In 1973, the Financial Accounting Standards Board (FASB) was established to replace the APB. ### APB Opinion No. 17 dealt with which of the following? - [x] Intangible Assets - [ ] Inventory Valuation - [ ] Revenue Recognition - [ ] Lease Accounting > **Explanation:** APB Opinion No. 17 provided guidelines on the accounting for intangible assets such as goodwill. ### APB opinions have largely influenced which set of standards? - [ ] International Financial Reporting Standards (IFRS) - [ ] European Union Accounting Directives - [x] Generally Accepted Accounting Principles (GAAP) - [ ] Sarbanes-Oxley Act (SOX) > **Explanation:** APB opinions have significantly influenced the Generally Accepted Accounting Principles (GAAP) in the United States. ### Why was the APB disbanded? - [ ] It had completed its purpose. - [x] It faced criticism for lack of independence and slow issuance of standards. - [ ] It was replaced due to lack of funding. - [ ] It was a temporary body from the start. > **Explanation:** The APB was disbanded due to criticisms regarding its lack of independence, the slow issuance of standards, and the complexity of its processes. ### What is the relationship between the AICPA and the APB? - [x] The APB was part of the AICPA. - [ ] The AICPA oversees the APB. - [ ] They are unrelated entities. - [ ] The AICPA dissolved and formed the APB. > **Explanation:** The APB was part of the American Institute of Certified Public Accountants (AICPA) and operated under its auspices. ### Which of the following was a criticism faced by the APB? - [x] Lack of independence from accounting firms. - [ ] Too many opinions issued. - [ ] Inconsistent application of standards. - [ ] Not auditing properly. > **Explanation:** The APB faced criticism for lacking independence from accounting firms and the perceived complexity and slow movement in issuing new standards. ### What significant change occurred in 1973 in accounting standard-setting? - [ ] The APB was established. - [x] The FASB replaced the APB. - [ ] International standards were adopted in the U.S. - [ ] Audit practices were revised entirely. > **Explanation:** A significant change in 1973 was the establishment of the Financial Accounting Standards Board (FASB), which replaced the APB. ### How did the formation of the FASB address previous issues with the APB? - [ ] By reducing the number of standards - [x] By being an independent, private-sector body - [ ] By limiting participation to accountants only - [ ] By focusing solely on auditing procedures > **Explanation:** The formation of the FASB as an independent, private-sector body was intended to address criticisms of independence and improve the standard-setting process in accounting.

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