Accounting Principles Board;

              THE ACCOUNTING PRINCIPLES BOARD
Accounting principles both guide ac-counting practice and are derived from it. This apparent circularity points up both the utilitarian aspect of account-ing and its orderliness.
The development of accounting prin-ciples involves a quest, and an act of creation: it includes a search for the guides or standards that have been use-ful in portraying the financial position and operations of a business. It also in-cludes creation of a theoretical frame-work which correlates the guides, mak-ing them adaptable to many types of businesses and providing the orderliness that is necessary for comparability.
Comparability of financial statements has always been an important goal of accounting. The need for such compara-bility, as between both businesses and individual years, has grown with the development of a complex capital mar-ket in which investors make choices on the basis of knowledge obtained from financial statements.
Comparability requires differences as well as similarities to be highlighted. One such difference (or similarity) con-cerns management expectations. The financial picture of a business, showing where it has been and where it is, re-flects management attitudes to the ex-tent that they have affected operating decisions. Companies' financial state-ments are not comparable, no matter how uniform they may appear to be, unless they reflect such management expectations, which create the varying economic personalities of businesses. For example, one management will re-place assets in response to certain eco-nomic stimuli, while another will repair its old equipment because it views other factors as more important. Some execu-tives will extend research when business is not good; others will curtail it. Some will diversify operations in the identical circumstances in which others will con-tract or simplify them. Thus deferrals and accruals appropriately reflect man-
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Weldon Powell
agement expectations. These and other complexities affecting comparability make it difficult to articulate compre-hensive accounting principles.
The Accounting Principles Board, now four years old, is the group desig-nated by the American Institute of Cer-tified Public Accountants to supervise the basic research necessary to identify and derive accounting principles, to consider the practical application of such research, and to recommend the extent of their acceptability to the pro-fession. The predecessor group, the Committee on Accounting Procedure, dealt with comparability in selected special circumstances. At various times in its life of just over 21 years, the Com-mittee on Accounting Procedure con-sidered the need for a comprehensive statement of accounting principles, but did not formulate one. Nonetheless, the Committee's pronouncements form a reasonably complete structure of ac-counting principles.
On its establishment in 1959, the Accounting Principles Board set out to
identify the postulates of accounting and the associated broad accounting principles. It was recognized that ex-tensive research would be required for this task. The first four years of the Board, when its chairman was Weldon Powell of our Firm, were given over largely to the formation of a research group, to clarification of purposes and methods of operation, and to consid-eration of several initial studies devel-oped by the newly formed research arm. The early studies dealt with some important matters, including basic pos-tulates and principles, pursued largely through deductive research.
A number of the studies' conclusions have not been tested fully in practice or comprehensively appraised in rela-tion to usefulness. Recognizing such appraisal of these concepts as basic to their general acceptance, the Board in a formal statement said that some expo-sure and testing of the conclusions of the study on broad principles would be necessary to evaluate their practicabil-ity. The laboratory for such testing is,