(Models for Setting GAAP) Presented below are three models for setting GAAP.

1. The purely political approach, where national legislative action decrees GAAP.

2. The private, professional approach, where GAAP is set and enforced by private professional actions only.

3. The public/private mixed approach, where GAAP is basically set by private-sector bodies that behave as though they were public agencies and whose standards to a great extent are enforced through governmental agencies.

Instructions

(a) Which of these three models best describes standard-setting in the United States? Provide justification for your answer.

(b) Why do companies, financial analysts, labor unions, industry trade associations, and others take such an active interest in standard-setting?

(c) Cite an example of a group other than the FASB that attempts to establish accounting standards. Speculate as to why another group might wish to set its own standards.