The origins and development of accounting should receive more attention today. Sometimes accountants fail to appreciate accounting history due to their focus on current or emerging issues. As a result, they ignore some practices that still have relevance today.
For example, in 1959, the AICPA created the Accounting Principles Board (APB). Its major objective was to issue official pronouncements, called opinions, on accounting principles. These opinions represented part of the development of financial reporting standards—generally accepted accounting principles (GAAP).
One of the opinions that still exists today is APB Opinion 12, Omnibus Opinion, issued in December 1967. Paragraphs 9 and 10 dealing with capital changes have gone unchanged. Accordingly, there is no requirement for a statement of retained earnings in GAAP-based financial statements. However, disclosure of the changes in the separate accounts constituting stockholders’ equity (in addition to retained earnings) and in the number of shares of equity securities during the reporting is required in the financial statements. A statement of stockholders’ equity is the best way to satisfy this requirement, and today most corporations present changes in retained earnings in this manner.
While some accountants profess that a statement of retained earnings is one of the required basic financial statements, the history lesson from 1967 provides evidence to the contrary. In this case, the past indeed has relevance to the present.
Andrew D. Sharp, CPA