What is the policy function performed by bodies such as the FASB and the SEC? List and discuss the three sources of inputs to the policy-making function.
What will be an ideal response?
ANSWER:
The policy function performed by the FASB and the SEC is called standard setting (or rule making) and specifically refers to the process of arriving at pronouncements issued by these bodies. The three sources of inputs to the policy-making function are economic conditions, political factors, and accounting theory. The steep inflation of the 1970s, which led the FASB to require the disclosure of information concerning price changes, is an example of an economic condition that affected policy making. Auditors, preparers of financial statements, investors, management of major firms, industry trade associations, and the public itself, who might be represented by Congress or government agencies, are all political factors influencing the policy-making process. Accounting theory is developed and refined by the process of accounting research. This research is primarily performed by accounting professors, but many individuals from policy-making organization, public accounting firms, and private industry also play an important part in the research process.
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