The history of U.S. Generally Accepted Accounting Principles begins with the 1929 stock market crash and runs through nearly a century of institutional reinvention. Congress created the Securities and Exchange Commission in 1934, the SEC handed the technical work of writing accounting rules to the private sector in 1938, and three successive standard-setting bodies have held that job since: the Committee on Accounting Procedure, the Accounting Principles Board, and, since 1973, the Financial Accounting Standards Board. The rules they wrote now live in a single organized document called the Accounting Standards Codification.
Before There Were Rules
American companies had no authoritative accounting rulebook before the 1930s. Each business picked whichever methods suited its purposes, and two companies in the same industry could report wildly different income figures for identical activity. Investors had no reliable way to compare them.
The Stock Market Crash of 1929 and the Great Depression that followed exposed how dangerous that opacity was. Corporate financial statements had hidden deteriorating conditions behind inconsistent reporting, investors lost fortunes relying on numbers that turned out to be meaningless, and public confidence in the markets collapsed.
The Securities Acts and the SEC’s Delegation
Congress responded with two laws. The Securities Act of 1933 required accurate financial information from companies offering securities to the public. The Securities Exchange Act of 1934 created the Securities and Exchange Commission to police the markets on an ongoing basis.1Securities and Exchange Commission. Statutes and Regulations
The SEC had legal authority to write detailed accounting rules itself. It chose not to. In April 1938, the Commission issued Accounting Series Release No. 4, which established that financial statements prepared using principles lacking “substantial authoritative support” would be presumed misleading. That single release built the framework still in place today: the private sector develops accounting standards, the SEC accepts those standards so long as they meet its threshold, and the SEC keeps the right to override or supplement them at any time.
The Committee on Accounting Procedure (1939–1959)
The SEC’s move prompted the American Institute of Accountants, predecessor of today’s AICPA, to reorganize and expand its Committee on Accounting Procedure in 1939. The CAP grew to roughly two dozen members and became the first formal private-sector body responsible for authoritative accounting guidance.2Securities and Exchange Commission Historical Society. The Richard C. Adkerson Gallery on the SEC Role in Accounting Standards Setting
The CAP’s tool was the Accounting Research Bulletin. Over two decades it issued 51 ARBs, and several survive in modified form inside current GAAP. But every member was a part-time volunteer with a full-time job elsewhere. Research capacity was thin, conflicts of interest were built into the structure, and the committee tended to tackle problems one at a time as they flared up rather than build a coherent framework. The result was a patchwork of rules that sometimes contradicted each other. By the late 1950s, the growing complexity of the U.S. economy had outstripped what a volunteer committee could do.
The Accounting Principles Board (1959–1973)
The AICPA dissolved the CAP in 1959 and replaced it with the Accounting Principles Board. The APB was larger, its official pronouncements (APB Opinions) were meant to be binding on all AICPA members, and it commissioned Accounting Research Studies to lay analytical groundwork before issuing Opinions.
The same structural weakness carried over. Members were still part-time volunteers with day jobs at accounting firms, corporations, and universities. Reaching consensus among people representing such different interests proved difficult, and politically sensitive topics tended to stall.
The Investment Tax Credit Controversy
The episode that most damaged the APB’s credibility involved the investment tax credit created by the Revenue Act of 1962. The credit gave companies a percentage reduction in taxes based on the cost of certain new business assets. The accounting question was whether the tax savings should hit the income statement all at once in the year the credit was claimed, or be spread over the useful life of the asset.3Financial Accounting Standards Board. APB 2 – Accounting for the Investment Credit
The APB concluded in Opinion No. 2 that spreading the benefit over time (the deferral method) best reflected the economic substance of the credit, since earnings come from using equipment, not from buying it. The board hedged by also calling immediate recognition “acceptable.” Intense pressure from companies and even the Kennedy administration favored immediate recognition, which made earnings look stronger. In January 1963, the SEC issued Accounting Series Release No. 96 accepting both methods, effectively overruling the APB’s attempt to narrow the options. A volunteer board under the AICPA’s umbrella, the episode showed, lacked the independence to withstand political pressure on controversial topics.
The Wheat Committee
By 1971 the AICPA acknowledged the problem. Its president appointed a seven-member study group chaired by Francis M. Wheat, a former SEC Commissioner, to evaluate the failures and recommend a path forward.4Securities and Exchange Commission Historical Society. Establishing Financial Accounting Standards The report’s diagnosis was direct: part-time volunteers with competing professional loyalties could not produce authoritative standards fast enough or independently enough. The committee recommended a fully independent, full-time board with dedicated funding and no organizational ties to the AICPA.
The Financial Accounting Standards Board
The FASB began operations in 1973, implementing nearly all of the Wheat Committee’s recommendations. Board members serve full-time and must sever professional ties with previous employers, eliminating the conflict-of-interest problem that had plagued the CAP and APB.5Financial Accounting Standards Board. About the FASB
The FASB sits within a governance structure built to balance independence with accountability. The Financial Accounting Foundation, an independent nonprofit established in 1972, oversees the FASB, appoints its seven members, and secures funding.6Financial Accounting Foundation. About the FAF The Financial Accounting Standards Advisory Council provides technical advice and channels the perspectives of investors, preparers, and auditors into the process.
In 2003, the SEC formally reaffirmed the FASB’s status, recognizing its standards as “generally accepted” for purposes of the federal securities laws under criteria established by the Sarbanes-Oxley Act. Public companies must comply with FASB standards when filing with the SEC unless the Commission directs otherwise.7Federal Register. Commission Statement of Policy Reaffirming the Status of the FASB as a Designated Private-Sector Standard Setter
The Conceptual Framework
Neither the CAP nor the APB had attempted to define what financial statements were fundamentally supposed to accomplish. Starting in the late 1970s, the FASB issued a series of Statements of Financial Accounting Concepts that defined the objectives of financial reporting, the qualitative characteristics that make information useful, and the elements that make up financial statements: assets, liabilities, and equity among them.
The Conceptual Framework wasn’t a set of rules for specific transactions. It provided the intellectual foundation that future rules would rest on, giving the board a principled starting point when new accounting questions arose rather than forcing ad hoc solutions. That philosophical shift most distinguished the FASB era from what came before.
Sarbanes-Oxley and What It Changed
The early 2000s brought the severest test of U.S. financial reporting since the Depression. Accounting frauds at Enron, WorldCom, and other major companies destroyed billions in investor wealth and revealed that existing oversight had failed. Congress responded with the Sarbanes-Oxley Act of 2002.8Public Company Accounting Oversight Board. Sarbanes-Oxley Act of 2002
The law imposed mandatory internal control assessments, CEO and CFO certifications of financial statements, and stricter auditor independence rules. It created the Public Company Accounting Oversight Board to inspect and regulate audit firms, a function the profession had previously handled through self-regulation. For GAAP itself, Sarbanes-Oxley codified the SEC’s authority to recognize a private-sector standard setter and set explicit criteria the body had to meet. The FASB gained a statutory foundation it had previously lacked.
The 2009 Codification
By the mid-2000s, GAAP had become hard to navigate. Decades of pronouncements from the CAP, the APB, the FASB, and other bodies had produced thousands of pages of overlapping guidance spread across multiple document series. Finding the right standard for a specific transaction sometimes meant searching through ARBs, APB Opinions, FASB Statements, Interpretations, Technical Bulletins, and Emerging Issues Task Force abstracts.
The FASB fixed this by creating the Accounting Standards Codification, which became the single authoritative source of nongovernmental U.S. GAAP on July 1, 2009. Every existing standard was reorganized into one topically arranged framework. Revenue recognition, for example, now lives under ASC Topic 606 regardless of which historical pronouncement originally set the rule.9Financial Accounting Standards Board. ASU 2016-10 – Revenue from Contracts with Customers (Topic 606)
Since 2009, the FASB changes GAAP only through Accounting Standards Updates that amend the Codification. The old system of numbered Statements is gone. Accountants no longer need to trace a standard’s genealogy through forty years of documents to confirm it still applies.
The Attempt to Converge With IFRS
Alongside the Codification project, the FASB and the International Accounting Standards Board pursued something more ambitious: aligning U.S. GAAP with the International Financial Reporting Standards used by most of the rest of the world. Starting in the early 2000s, the two boards ran joint projects on major topics, including revenue recognition and lease accounting.
The joint work produced real results. ASC Topic 606 on revenue recognition and ASC Topic 842 on leases both emerged from convergence and fundamentally changed how U.S. companies account for those transactions. The lease standard required companies to bring most leases onto their balance sheets for the first time, ending decades of off-balance-sheet treatment.
Full convergence never arrived. The SEC commissioned a staff study to evaluate whether U.S. companies should be required to adopt IFRS entirely, and the staff’s 2012 final report found that wholesale adoption lacked support from most participants in U.S. capital markets. The SEC never issued a final decision mandating the switch. U.S. GAAP and IFRS remain separate systems with significant differences.
Private Companies and Governments Sit Outside the Main Line
The history above runs through publicly traded companies, but GAAP reaches further. Private companies apply GAAP when their lenders, investors, or other stakeholders require it. Because standards designed for large public corporations can impose disproportionate costs on smaller businesses, the FASB established the Private Company Council in 2012 to advise on where private companies need different treatment. Private companies can, for example, elect to amortize goodwill over a set period rather than test it annually for impairment.10Financial Accounting Standards Board. Private Company Council11Financial Accounting Standards Board. FASB Issues Accounting Alternative for Private Companies on Identifiable Intangible Assets
State and local governments follow an entirely separate set of standards written by the Governmental Accounting Standards Board, established in 1984 under the same FAF umbrella that oversees the FASB. Governmental accounting differs fundamentally from corporate accounting because governments answer for how they use taxpayer funds rather than for generating profits.12Governmental Accounting Standards Board. About the GASB
The standard-setting bodies have changed three times since 1938, and the scope of GAAP has widened considerably. The underlying arrangement, though, is the same one the SEC set up in Accounting Series Release No. 4: the Commission holds ultimate authority, and an independent private-sector board writes the rules.