What is due process, and how has the political nature of regulation affected the CAP, the APB, and the FASB?
What will be an ideal response?
ANSWER:
Due process means that a regulatory agency seeks to involve all affected parties in its deliberations. Due process is important in maintaining the legitimacy of the regulatory process. The CAP and APB failed as regulatory bodies for at least two reasons:
(1) They had only a weak mandate to regulate financial reporting. Until the issue of ASR 150 in 1973, the SEC did not officially endorse private-sector standard setting.
(2) Their apparent lack of due process sometimes led to a low level of acceptance by affected parties.
From a regulatory viewpoint, the FASB is functioning much more successfully than did the CAP and the APB. Its standards were endorsed by the SEC in ASR 150 and due process has been adopted as standard procedure in debating and developing accounting policy.
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