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In Brief
During the first half of the 20th century, few official bodies were dedicated to the promulgation of financial accounting standards, and accounting theory provided the primary basis for accounting education. Since the second half of the 20th century, however, the guidance issued by national accounting standards setting bodies has formed the primary basis for the practice and teaching of accounting. At present, the role of accounting theory and of national accounting standards setting bodies is beginning to diminish in the wake of the movement toward uniform international accounting standards. However developed and implemented, accounting standards can shape the behavior of businesses, governments, and individuals. This article traces the historical evolution of standards setting from accounting theory to conceptual framework, and explores some consequences of this evolution.
Accounting theory in Europe and the United States has often been based on debates related to the resolution of practical issues, such as the proper way to measure assets and liabilities, the proper way to measure business performance, the determination of allowable dividend payments, the protection of creditors in the event of bankruptcy, and the taxation of corporations. The ways in which these issues have been addressed have differed among accounting theorists, and even among countries.
Accounting standards can significantly influence the behavior of enterprises, governments, and individuals, but the wider spectrum of stakeholders (i.e., employees, consumer groups, environmental groups, and the public) generally do not actively participate in the standards-setting process, and their interests are often not represented. Thus, an understanding of the evolution of the standards setting process is important for understanding its economic and societal consequences.
The Development of Accounting Theory and Doctrine
Germany played a prominent role in the development of accounting theory in the late 19th and early 20th centuries (R. Mattessich, H. Küpper, "Accounting Research in the Gemían Language Area: First Half of the 20th Century," Review of Accounting and Finance, 2003, vol. 2, no. 3, pp. 106-137). The creation of uniform German accounting law dates to 1861, when the Gemían Code of Commerce (ADHGB) required all companies to keep accounts and to prepare an annual balance sheet. This law did not, however, specify recognition and measurement criteria for financial statements, and disputes arose around the meaning of a particular section...