Accounting Principles Board (APB)

What Is the Accounting Principles Board?

The Accounting Principles Board (APB) was the authoritative body of the American Institute of Certified Public Accountants (AICPA) from 1959 until 1973. It was replaced in 1973 by the Financial Accounting Standards Board (FASB).

The purpose of the APB was to issue guidelines and rules on accounting principles. Some of the opinions released by the APB still stand as part of the Generally Accepted Accounting Principles (GAAP), but most have been either amended or entirely superseded by FASB statements.

Understanding the Accounting Principles Board

The APB served an important role in its time, laying the foundation for GAAP, the set of accounting standards and procedures that are intended to ensure consistency, transparency, and integrity in U.S. corporate financial statements.

Virtually all public corporations that operate in the U.S. follow the GAAP standards, which make it easier for investors and auditors to review financial statements and compare one company's results to those of others.

Those standards began to be developed by the APB, which was charged with creating guidelines for accounting and issuing pronouncements related to accounting theory and practice. Its membership consisted of between 18 and 21 representatives of accounting firms, corporate executives, and academics. A two-thirds vote of the members was required to issue an opinion.

Early Days

Some work on accounting standards began as early as the 1930s, as a reaction to the 1929 stock market crash that was at least partially blamed on dubious corporate accounting practices. The Securities Act of 1933 encouraged better practices but did little to mandate them.

The APB itself was a successor organization to the Committee on Accounting Procedure, a group that first attempted to create and impose a set of standards for financial reporting. The committee was not considered effective and was moribund by the end of World War II.

The APB issued 31 opinions during its brief existence, including guidelines related to accounting for leases, income taxes, business combinations, intangibles, stock issued to employees for compensation, and early extinguishment of debt. It also published opinions on disclosure of accounting policies and reporting interim financial data and the results of discontinued operations.

However, it appears that the APB could not keep pace with the growing complexity of transactional activity that required financial reporting.

FASB Created

It was replaced in the early 1970s by FASB, a private, non-profit organization led by seven full-time board members.

For corporations based in the European Union, the International Financial Reporting Standards (IFRS) rules are the equivalent of GAAP.

The board gained considerable clout in 1973 when the Securities and Exchange Commission announced it would accept the board's rules and pronouncements regarding financial reporting as authoritative.

Today, government agencies and non-profit organizations as well as public corporations generally adopt GAAP standards. The main alternative is the International Financial Reporting Standards (IFRS), which sets the standards in all European Union nations and many other countries.