Definition of the Accounting Principles Board (APB)

The Accounting Principles Board (APB) was a former U.S. accounting standard-setting body established by the American Institute of Certified Public Accountants (AICPA). It operated from 1959 to 1973 and played an important role in developing and improving generally accepted accounting principles (GAAP) in the United States.

The APB replaced the earlier Committee on Accounting Procedure and attempted to establish more consistent accounting principles for U.S. businesses. In 1973, it was succeeded by the Financial Accounting Standards Board (FASB), which introduced a more independent, full-time approach to accounting standard-setting.

The APB represents an important stage in the development of modern U.S. financial reporting. Its work addressed issues such as income taxes, accounting changes, business combinations, and financial statement presentation.

Purpose and Role of the Accounting Principles Board

The APB was established by the AICPA to:

1. Develop Accounting Principles – Establish guidance for financial accounting and reporting in the United States.
2. Improve Financial Reporting – Promote more useful and consistent financial information.
3. Address Emerging Accounting Issues – Develop guidance for accounting matters requiring greater standardization.
4. Reduce Inconsistencies – Work toward limiting unnecessary differences in accounting practices.
5. Advance U.S. Standard-Setting – Contribute to the development of the standard-setting system that eventually led to the creation of the FASB.

Key Contributions of the Accounting Principles Board

During its existence, the APB issued 31 APB Opinions addressing a variety of financial accounting and reporting issues.

1. Accounting for Income Taxes

APB Opinion No. 11 addressed accounting for income taxes and provided guidance on recognizing the tax effects of differences between financial and taxable income.

2. Accounting Changes

APB Opinion No. 20 established guidance for accounting changes, including changes in accounting principles and estimates and corrections of errors. Its requirements influenced later FASB guidance on accounting changes and error corrections.

3. Business Combinations

APB Opinion No. 16 addressed accounting for business combinations and established guidance that influenced how mergers and acquisitions were reported before later FASB standards replaced it.

4. Basic Accounting Concepts

In 1970, the APB published Statement No. 4, Basic Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises. The statement described many of the concepts and principles underlying financial accounting at the time.

Why Was the Accounting Principles Board Replaced?

The APB faced several challenges during its existence:

• Limited Independence – The APB operated within the AICPA, leading to concerns about the structure of the standard-setting process.
• Part-Time Membership – APB members served on a part-time basis rather than working exclusively as accounting standard-setters.
• Slow Response to Complex Issues – The Board was criticized for difficulty responding efficiently to controversial and rapidly developing accounting issues.
• Lack of a Strong Conceptual Framework – The APB struggled to develop a comprehensive conceptual foundation that could consistently guide standard-setting.

These concerns contributed to a review of the U.S. accounting standard-setting process. The Wheat Study recommended creating a new independent, full-time standards board.

In 1973, the FASB began operations as the APB's successor and introduced a more independent and structured standard-setting process.

Impact on U.S. Accounting Standards

The APB played an important transitional role in the development of U.S. GAAP. Its work helped shape the evolution of accounting standard-setting from professional committees toward the independent structure used today.

The transition from the APB to the FASB contributed to:

• A More Independent Standard-Setting Process – FASB was established outside the AICPA structure.
• Full-Time Standard-Setting – FASB members could focus specifically on developing accounting standards.
• Development of a Conceptual Framework – FASB subsequently developed a broader conceptual framework for financial accounting and reporting.
• Continued Evolution of U.S. GAAP – Many accounting issues previously addressed by APB Opinions were later amended, replaced, or incorporated into subsequent authoritative accounting guidance.

Advantages and Disadvantages of the APB

Advantages

• Advanced U.S. Accounting Standards – Helped develop and improve accounting guidance before the creation of FASB.
• Addressed Important Accounting Issues – Issued guidance covering income taxes, business combinations, accounting changes, and other areas.
• Helped Shape Modern Standard-Setting – Its successes and limitations influenced the structure adopted for FASB.

Disadvantages

• Limited Independence – Its position within the AICPA raised concerns about the independence of the standard-setting process.
• Part-Time Structure – Board members did not serve as full-time standard-setters.
• Difficulty Developing a Conceptual Framework – The APB did not establish the comprehensive framework originally envisioned for its work.
• Challenges Addressing Controversial Issues – Its structure sometimes made timely standard-setting difficult.

Related Terms

• APB vs. FASB – The APB was an AICPA standard-setting body that operated from 1959 to 1973, while FASB became its independent successor and continues to establish financial accounting and reporting standards for nongovernmental entities in the United States.
• APB vs. Committee on Accounting Procedure (CAP) – CAP preceded the APB and issued Accounting Research Bulletins before the AICPA reorganized its standard-setting activities in 1959.
• GAAP vs. IFRS – U.S. GAAP is the primary financial reporting framework for U.S. entities subject to GAAP requirements, while IFRS Accounting Standards are used in many jurisdictions internationally.

Interesting Fact

Did you know? The Accounting Principles Board issued 31 APB Opinions during its existence, addressing topics ranging from income taxes and accounting changes to business combinations and interim financial reporting.

Statistic

The Accounting Principles Board operated for 14 years, from 1959 to 1973, before the U.S. accounting standard-setting system transitioned to the Financial Accounting Standards Board.

Frequently Asked Questions (FAQ)

1. What was the main purpose of the Accounting Principles Board?

The APB was created to develop and improve accounting principles and provide guidance for financial accounting and reporting in the United States.

2. Why was the APB replaced?

The APB faced concerns involving its independence, part-time structure, responsiveness to complex accounting issues, and difficulty developing a comprehensive conceptual framework. These concerns contributed to the creation of FASB.

3. How did the APB influence U.S. accounting standards?

The APB issued guidance on numerous accounting topics and represented an important stage in the development of U.S. GAAP. Its work and structural limitations also influenced the design of the FASB standard-setting system.

4. What is the difference between APB and FASB?

The APB operated within the AICPA and consisted primarily of part-time members. FASB was established as an independent, full-time standard-setting board and became the APB's successor in 1973.

5. Does the APB still exist today?

No. The APB ceased operations in 1973 and was succeeded by FASB, which continues to establish financial accounting and reporting standards for nongovernmental entities in the United States.