PROBLEM 2–1 Financial statement users often liken accounting standard setting to a political process. One user asserted that: My view is that the setting of accounting standards is as much a product of political action as of flawless logic or empirical findings. Why? Because the setting of standards is a social decision. Standards place restrictions on behavior; therefore, they must be accepted by the affected parties. Acceptance may be forced or voluntary or some of both. In a democratic society, getting acceptance is an exceedingly complicated process that requires skillful marketing in a political arena. Many parties affected by proposed standards intervene to protect their own interests while disguising their motivations as altruistic or theoretical. People often say, “If you like the answer, you’ll love the theory.” It is also alleged that those who are regulated by the standard-setting process have excessive influence over the regulatory process. One FASB member declared: “The business community has much greater influence than it’s ever had over standard setting. I think it’s unhealthy. It is the preparer community that is really being regulated in this process, and if we have those being regulated having a dominant role in the regulatory process, that’s asking for major trouble.”

Required:

Discuss the relevance of the accounting standard-setting process to analysis of financial statements.