What Is the Financial Accounting Standards Board (FASB)?
The Financial Accounting Standards Board (FASB) is an independent nonprofit organization responsible for establishing accounting and financial reporting standards for companies and nonprofit organizations in the United States, following generally accepted accounting principles (GAAP). The FASB was formed in 1973 to succeed the Accounting Principles Board and carry on its mission. It is based in Norwalk, Conn.
Key Takeaways:
- The Financial Accounting Standards Board (FASB) sets accounting rules for public and private companies and nonprofits in the United States.
- A related organization, the Governmental Accounting Standards Board (GASB), sets rules for state and local governments.
- In recent years, the FASB has been working with the International Accounting Standards Board (IASB) to establish compatible standards worldwide.
How the Financial Accounting Standards Board (FASB) Works
The Financial Accounting Standards Board has the authority to establish and interpret generally accepted accounting principles (GAAP) in the United States for public and private companies and nonprofit organizations. GAAP is a set of standards that companies, nonprofits, and governments should follow when preparing and presenting their financial statements, including any related party transactions.
The Securities and Exchange Commission (SEC) recognizes the FASB as the accounting standard setter for public companies. It is also recognized by state accounting boards, the American Institute of Certified Public Accountants (AICPA), and other organizations in the field.
The Financial Accounting Standards Board is part of a larger, independent nonprofit group that also includes the Financial Accounting Foundation (FAF), the Financial Accounting Standards Advisory Council (FASAC), the Governmental Accounting Standards Board (GASB), and the Governmental Accounting Standards Advisory Council (GASAC).
The GASB, which is similar in function to the FASB, was established in 1984 to set accounting and financial reporting standards for state and local governments across the United States. The FAF oversees both the FASB and the GASB. The two advisory councils provide guidance in their respective areas.
Collectively, the organization's mission is to improve nonprofit financial accounting and reporting standards so that the information is useful to investors and other users of financial reports. The organizations also educate stakeholders on how to understand and implement the standards most effectively.
The FASB is governed by seven full-time board members, who are required to sever their ties to the companies or organizations they work for before joining the board. Board members are appointed by the FAF's board of trustees for five-year terms and may serve for up to 10 years.
In 2009, the FAF launched the FASB Accounting Standards Codification, an online research tool designed as a single source for authoritative, nongovernmental, generally accepted accounting principles in the United States. According to the FAF, the tool "reorganizes the thousands of U.S. GAAP pronouncements into roughly 90 accounting topics and displays all topics using a consistent structure." The website also provides relevant Securities and Exchange Commission (SEC) guidance on those topics. A "basic view" version is free, while the more comprehensive "professional view" is available by paid subscription.
FASB vs. IASB
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.
FAQs
The Financial Accounting Standards Board (FASB) is an independent nonprofit organization responsible for establishing accounting and financial reporting standards for companies and nonprofit organizations in the United States, following generally accepted accounting principles (GAAP).
What is the FASB and what do they do? ›
Established in 1973, the Financial Accounting Standards Board (FASB) is the independent, private- sector, not-for-profit organization based in Norwalk, Connecticut, that establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow Generally ...
What is Accounting Standards Board and its functions? ›
The main function of the ASB is to formulate Accounting Standards so that such standards may be established by the ICAI in India. While formulating the Accounting Standards, the ASB will take into consideration the applicable laws, customs, usages and business environment prevailing in India. 3.
What is FASB primarily responsible for? ›
The Financial Accounting Standards Board (FASB) is the independent body responsible for setting accounting standards and guidelines for publicly traded companies and non-profit organizations. Its primary role is to develop and improve generally accepted accounting principles (GAAP) in the United States.
What is accounting standard how it works? ›
Accounting standards are authoritative standards for financial reporting and are the primary source of generally accepted accounting principles (GAAP). Accounting standards specify how transactions and other events are to be recognized, measured, presented and disclosed in financial statements.
What is the primary function of financial accounting standards? ›
1. Measuring the level of business activities of an organization. 2. To communicate and inform about those activities to the creditors, investors, and other outsiders for the purpose of analyzing and decision-making purposes.
What is the process of the FASB? ›
The FASB accomplishes its mission through a comprehensive and independent process that encourages broad participation, objectively considers all stakeholder views, and is subject to oversight by the Financial Accounting Foundation's Board of Trustees.
What is the role of financial accounting standards? ›
Accounting standards ensure the financial statements from multiple companies are comparable. Because all entities follow the same rules, accounting standards make the financial statements credible and allow for more economic decisions based on accurate and consistent information.
What is the overall purpose of the accounting standards? ›
Their main aim is to ensure transparency, reliability, consistency, and comparability of the financial statements. They do so by standardizing accounting policies and principles of a nation/economy. So the transactions of all companies will be recorded in a similar manner if they follow these accounting standards.
What is the Financial Accounting Standards Board statement? ›
The Statement of Financial Accounting Standards (SFAS) describes standards for professional accounting practices and procedures in the United States. Furthermore, it is published by the Financial Accounting Standards Board (FASB).
* * Rulemaking: * * The FASB issues accounting standards in the form of Statements of Financial Accounting Standards ( SFAS ) , Interpretations, Technical Bulletins, and Staff Positions.
What is the benefit of FASB? ›
The FASB is also extremely beneficial for future investors and stakeholders – as the Financial Accounting Standards Board ensures truthful disclosures in reporting financial information with these potential investors, meaning the FASB can help investors and stakeholders decipher which companies are worth their ...
Who does the FASB oversee? ›
The Securities and Exchange Commission (SEC) designated the FASB as the organization responsible for setting accounting standards for public companies in the U.S. The FASB replaced the American Institute of Certified Public Accountants' (AICPA) Accounting Principles Board (APB) on July 1, 1973.
What is the function of the accounting standards Board? ›
The main functions of ASB is to formulate accounting standards so that such standards may be established by the Council of the Institute in India. While formulating the accounting standards, ASB will take into consideration the applicable law, customs, usages and business environment.
What is the accounting standard rule? ›
The Indian Accounting Standards (Ind AS), as notified under section 133 of the Companies Act 2013, have been formulated keeping the Indian economic & legal environment in view and with a view to converge with IFRS Standards, as issued by and copyright of which is held by the IFRS Foundation.
What are the summary accounting standards? ›
Quick Summary
Accounting Standards are regulations concerning recognition, measurement, treatment, presentation, and disclosure of financial transactions. Enterprises are classified into Level I, Level II, and Level III based on specific criteria.
What is the FASB responsible for? ›
The Financial Accounting Standards Board (FASB) is an independent nonprofit organization responsible for establishing accounting and financial reporting standards for companies and nonprofit organizations in the United States, following generally accepted accounting principles (GAAP).
What is the purpose of the FASB concept statements? ›
The FASB Concepts Statements are intended to serve the public interest by setting the objectives, qualitative characteristics, and other concepts that guide selection of economic phenomena to be recognized and measured for financial reporting and their display in financial statements or related means of communicating ...
What is the difference between FASB and GAAP? ›
Generally accepted accounting principles, or GAAP, are standards that encompass the details, complexities, and legalities of business and corporate accounting. The Financial Accounting Standards Board (FASB) uses GAAP as the foundation for its comprehensive set of approved accounting methods and practices.
What are the major goals of the FASB ASC? ›
The ASC was created by the FASB in 2009 as a new structure for presenting accounting standards. The goal was to streamline and simplify accounting principles in the United States.
