The Financial Accounting Standards Board (FASB) is a private standard-setting body whose primary purpose is to establish and improve Generally Accepted Accounting Principles (GAAP) within the United States in the public’s interest. The Securities and Exchange Commission (SEC) designated the FASB as the organization responsible for setting accounting standards for public companies in the US.
What is the Financial Accounting Standards Board?
The Financial Accounting Standards Board (FASB) creates accounting standards for use within the Generally Accepted Accounting Principles (GAAP) framework. The FASB is the successor to the
Its accounting standards govern the manner in which non-governmental businesses present information within their financial statements. These standards are crucial for ensuring that financial information is presented in a consistent manner across industries.
The accounting standards issued by the FASB are recognized by the Securities and Exchange Commission (SEC) as being authoritative, and so must be followed by publicly-held companies filing reports with the SEC. These standards have been aggregated into the Accounting Standards Codification, which is designed to make the standards more searchable.
Members of the Financial Accounting Standards Board
The FASB consists of seven full-time members that are entrusted with responsibilities pertaining to accounting and financial reporting. These members are required to sever all ties with the companies or organizations they served before joining the Board.
It is the usual norm for the FASB to draw its member from diverse occupational backgrounds. However, the members are expected to act as a team in order to safeguard the interests of investors, other users and the public in general. Besides, the members are also expected to leverage their knowledge and experience in the fields of accounting, finance, business, accounting education, and research.
Although FASB board members are appointed for five-year terms, each member is eligible to be reappointed to an additional five-year term.
Functions of FASB
Establish and interpret GAAP
FASB has the power to create accounting principles that will become the standard for all financial reporting. They define best practices and interpretation of these GAAP principles, giving businesses the information they need to make good business decisions.
Develop and improve the implementation of GAAP
This is in order to provide financial reporting objectives that promote a transparent discussion of the reporting entity’s financial position, results from its operations, and cash flows.
Issue Statements with Accounting Standards
The FASB issues accounting statements, which are used by companies as guidelines when preparing their own financial reports. These statements are called Statements of Financial Accounting Standards (SFASs).
Overseeing changes to existing set standards, and making sure proposed changes meet legal requirements.
FASB is in charge of devising or changing standards that are meant to improve the reliability of financial data by eliminating factors that distort reported information.
Oversight over SEC’s staff decisions, draft reporting requirements, and compliance with FASB reporting.
FASB works toward maintaining its standards after they are implemented by companies through the Securities Exchange Act of 1934.
Who selects the Board members?
The Financial Accounting Foundation (FAF), which was incorporated to operate exclusively for charitable, educational, scientific, and literary purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code, is responsible for selecting the members of the FASB and its advisory council, ensuring adequate funding of their activities and for exercising general oversight with the exception of the FASB’s resolution of technical issues.
What is the goal of the Financial Accounting Standards Board (FASB)?
The primary goal of the FASB is to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information.
FASB attempts to keep accounting rules current, with respect to changes in the business environment, and to promptly consider areas of deficiency, and improve the understanding of the nature and purposes of financial information.
Impact of the FASB
As mentioned earlier, investors are one of the most impacted by the efforts of the FASB. GAAP allows stakeholders and investors to interpret a company’s financial position and condition through the financial statements, which allow comparisons with other companies and help make informed investment decisions.
Other users of the GAAP accounting standards include, but are not restricted to, creditors, competitors, employees, and regulatory bodies that are evaluating companies.
FASB vs. IASB
Established in 1973, the FASB is the independent, private-sector organization that establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow Generally Accepted Accounting Principles (GAAP).
The FASB is recognized by the Securities and Exchange Commission as the designated accounting standard setter for public companies. FASB standards are recognized as authoritative by many other organizations, including state Boards of Accountancy and the American Institute of CPAs (AICPA).
The London-based International Accounting Standards Board (IASB), founded in 2001 to replace an older standards organization, is responsible for the International Financial Reporting Standards (IFRS), which are now used in many countries throughout the world. In recent years, the FASB has been working with the IASB on an initiative to improve financial reporting and the comparability of financial reports globally.