Generally accepted accounting principles

The accounting principles were needed in the mercantile economy of Luca Pacioli’s time. The modern economy, transactions are more complex and the need for sound accounting principles is far greater. The industrial revolution necessitated figuring out how to depreciate long–lived assets such as railroad lines and steel mills. The Committee on Accounting Procedure (CAP) decided at its inception to address specific accounting problems rather than try to write a comprehensive set of accounting principles. The financial statements came to be prepared according to “generally accepted” accounting principles, but not necessarily “logically consistent,” “theoretically sound,” or “economically relevant” accounting principles. The composition of the Accounting Principles Board is similar to that of the CAP. The most controversial component of Accounting Research Study No. 3 was its suggestion that inventories and fixed assets be reported at current values. The American Bankers Association fought a proposed rule regarding accounting for losses on sales of securities.