GAAP as a symbol of legitimacy: New York State's decision to adopt generally accepted accounting principles

Article Abstract:

The decision-making process that resulted in the State of New York's adoption of generally accepted accounting principles (GAAP) for external financial reporting was examined to better understand the factors compelling the public sector to accept this accounting system. The state's decision to embrace the GAAP was greatly influenced by the financial crisis New York City was plunged into in 1975. Power interests at the interorganizational level came together and pushed for the adoption of the GAAP for external financial reporting of state and local governments. The GAAP was made a requirement primarily to regain public confidence in the state's financial reporting practices. However, there is evidence that the accounting system is not helping to resolve New York's financial management problems. The accumulated deficit of the state's General Fund, for instance, has risen by $1 billion since the adoption of the GAAP in 1981.

Economic policy, New York, New York, State government

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Professional judgement and accounting standards

Article Abstract:

The relationship between accounting standards and people's judgements and inferences is examined. Such standards serve as incomplete guidelines, and as such, require auditors to exercise their professional judgement. J. Demski's analysis of this incompleteness led him to define accounting standards as 'social-preference incomplete,' a reference to the observation that subjective decisions cause people to always either prefer one accounting standard to another, or be indifferent between them. This analysis finds that standards are also 'decisions-procedure incomplete,' meaning that these standards cannot provide decision procedures for all possible contingencies. This incompleteness exists on three levels related to the kinds of professional judgements entailed by accounting tasks: semantic, pragmatic and institutional.

Psychological aspects, Research, Accountants, Practical judgment

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Getting the accounting "right": accounting and the savings and loan crisis

Article Abstract:

The savings and loan (S&L) crisis provides a telling illustration of how different sets of accounting practices are used as regulatory tools. For example, prior to the S&L crisis, accounting was used to allow regulators to monitor the financial conditions of individual savings and loans. Upon the onset of the crisis, however, the regulatory use of accounting changed, with accounting becoming a tool for rationalizing inaction by regulators. Then, as the S&L crisis became apparent to observers, accounting was used to indicate organizational bankruptcy. Finally, after the crisis had erupted, accountancy was used to show both organizational weaknesses while also acting as a check on regulators.

Savings & Loan Assns, Savings Institutions, Analysis, Savings and loan associations, Savings and Loan Associations Bailout Crisis, 1987-

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