In the 1930s, when the SEC was created, it was not clear whether the SEC would simply set all accounting standards, or whether it would let the private sector, and private bodies of accountants, take the lead on setting standards. The decision by the SEC to allow private standard-setting bodies to take the lead on accounting principles came on a 3–2 vote in 1938 (Davidson and Anderson 1987). As noted in the text, U.S. and international standards are set by private organizations, the FASB and the IASB, and not mainly by governments.

A. What are reasons that the standards should have been set by governments instead of private bodies?

B. What are reasons that private bodies would do a better job of setting standards than governments?