What you’ll learn to do: Describe organizations and rules that govern accounting

After the stock market crash of 1929, the Securities and Exchange Commission (SEC) and Congress gave the accounting industry an ultimatum: figure out a way to govern yourselves, or we still step in and do it for you. Although early efforts to create generally accepted accounting principles were somewhat a failure (the Committee on Accounting Procedure, 1934–1959, and the Accounting Principles Board, 1959–1973), the American Institute of Certified Public Accountants (AICPA) finally turned rule-making over to a new, independent Financial Accounting Standards Board (FASB).

The FASB and its predecessors have created a body of work called Generally Accepted Accounting Principles (GAAP) that govern accounting practices for publicly traded companies, and because those principles are used by major companies, many smaller, privately held companies use those same rules.

In this section, you’ll explore the history and role of the FASB in more detail, including how GAAP came to be, and how it is applied by big and small companies.