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Why did the CAP and APB fail? How has the FASB avoided failure?

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Final answer:

The CAP and APB failed due to inherent structural weaknesses and inconsistent pronouncements. The FASB has avoided these pitfalls through a full-time independent board, structured standard-setting processes, and international collaboration to ensure consistency and authority in financial reporting.

Step-by-step explanation:

The Committee on Accounting Procedure (CAP) and the Accounting Principles Board (APB) were predecessor organizations to the Financial Accounting Standards Board (FASB). These organizations failed primarily due to their inability to provide timely, interpretations, consistent, and authoritative guidelines; their part-time, volunteer-based structure; and their issuing of numerous and sometimes conflicting pronouncements.

One of the reasons the FASB has avoided similar failures is by establishing a full-time, independent board with a more structured standard-setting process and smaller committees for faster action. Moreover, the FASB has greater autonomy and improved procedures for public accountability. It also works closely with international bodies to converge on global accounting standards, which aids in mitigating inconsistencies and conflicts in financial reporting. Solutions to similar governance problems, such as those that lead to the failure of Lehman Brothers, have been proposed, including enhancing the oversight responsibilities of the Board of Directors, focusing on long-term stability rather than short-term gains, and improving the financial knowledge among board members so they can engage more deeply with the operational details of the firm.

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