What is the Financial Accounting Standards Board (FASB)?
The Financial Accounting Standards Board (FASB) is an independent body that sets accounting standards in the private sector. It is in charge of setting accounting standards for financial reporting in the United States, and it adheres to FASB Standards, commonly known as Generally Accepted Accounting Principles (GAAP). Furthermore, it collaborates with the International Accounting Standards Board (IASB), which is in charge of the International Financial Reporting Standards, to produce universal accounting standards. So, to help you get familiar with all you should know about these standards, we will be going through the important stuff. These will include the Financial Accounting Standards Board (FASB) codification, functions, history, and so on.
The History of the Financial Accounting Standards Board
The Financial Accounting Standards Board (FASB) was founded in 1973. Its primary goal was to fill the void left by the Accounting Principles Board. The Accounting Principles Board had existed from 1959 to 1973 and fulfilled the same mission as FASB.
The Financial Accounting Foundation, the Financial Accounting Standards Advisory Council (FASAC), the Governmental Accounting Standards Advisory Council (GASAC), and the Governmental Accounting Standards Board are all part of an independent structure that includes the FASB.
They work together to improve financial reporting in the United States. They also equip and educate stakeholders on how to read and understand accounting rules. It is beneficial not just to investors, but also to the market.
How the Financial Accounting Standards Board (FASB) Works
The Financial Accounting Standards Board is responsible for establishing and interpreting generally accepted accounting standards (GAAP). These standards apply to public and private enterprises as well as nonprofit organizations in the United States. Basically, GAAP refers to a set of guidelines that businesses, organizations, and governments should adhere to while generating and presenting financial accounts, including any related party transactions.
Read Also: GAAP: Overview, Importance, History, Limitations
The FASB is recognized by the Securities and Exchange Commission (SEC) as the accounting standard setter for public firms. This recognition also spreads beyond just public forms. State accounting boards, the American Institute of Certified Public Accountants (AICPA), and other organizations in the profession recognize it as well.
Furthermore, the Financial Accounting Standards Board is part of a larger, nonprofit organization that 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 was founded in 1984 to develop accounting and financial reporting standards for state and local governments across the United States; similar to the FASB. However, the FASB and the GASB are both overseen by the FAF. Both advisory bodies offer advice in their respective fields.
The Financial Accounting Foundation (FAF) Goal
The organizations’ collective goal is to develop financial accounting and reporting standards. This is in a bid to ensure information is relevant to investors and other financial report users. The organizations also provide training to stakeholders on how to best comprehend and use the standards.
The FASB is governed by a board of seven full-time members. These members must, however, sever ties to the firms or organizations for which they work before joining the board. The FAF’s board of trustees appoints board members for a five-year tenure, with the option to serve for up to ten years.
The Financial Accounting Standards Board Accounting Standards (FASB) Codification, an online research tool created by the FAF in 2009 as a single source for authoritative, nongovernmental, generally accepted accounting standards in the United States, was introduced in 2009.
The tool “reorganizes the thousands of US GAAP announcements into about 90 accounting subjects and displays all topics using a consistent framework,” according to the FAF.
Accounting Foundation (FASB Codification)
In certain areas, the website also provides applicable Securities and Exchange Commission (SEC) guidance. A “basic view” version comes free, while a more “professional view” is available for a fee.
Functions of the Financial Accounting Standards Board
The FASB has a wide range of responsibilities, from developing new accounting standards to teaching the general public. Let’s go through them one at a time. (hitechgazette)
#1. Develop reporting guidelines
The FASB’s most significant role is to ensure that accountants and other financial information intermediaries produce comprehensive reports. These reports subsequently move to the stakeholders. A more efficient market and economy can be achieved by adhering to a set of consistent norms.
#2. Enhance accounting practices
The FASB’s aim is to continuously update and empower accountants to work with better accounting principles. According to the FASB official website, it is now investigating how technology interacts better with accounting in the twenty-first century. Obviously, they intend to take advantage of some of the numerous technological benefits.
#3. Ensure that information is clear and valuable to investors
In the capital markets, investors often have access to information about a company’s profits and losses. The FASB, however, recently approved a reform that permits corporations to limit the information they provide to investors, which may not be as useful.
Apart from the influence of the finished product itself, the rule applies more to biotech and drug businesses that perform trials and testing phases. Information such as this may not be as significant to investors.
#4. Develop novel accounting principles
The FASB is in charge of developing new accounting principles to improve the system. The disclosure principle, for example, is a recent accounting concept that allows a corporation to reveal the information and structure of its costs incurred over the year.
#5. Make it possible for the general public to learn about accounting rules
Years of schooling are required of professionals in order to thoroughly comprehend the present principles and accounting standards. To uphold its objective and purpose while also enabling openness, FASB ensures that accountants and other professionals regularly receive education and updates. The goal is to help them improve on their knowledge and experience.
The FASB’s Impact
As previously stated, the FASB’s initiatives have a significant impact on investors. GAAP enables stakeholders and investors to interpret a company’s financial status and condition through financial statements. This allows for comparisons with other companies and assistance in the making of educated investment decisions.
Creditors, competitors, employees, and regulatory bodies that evaluate companies are just a few of the other users of GAAP accounting standards.
What Is the FASB’s Role in the United States?
Accounting standards are critical for an efficient market. And the FASB plays a critical role in the operations of several regulatory bodies in the United States.
When assessing financial records of firms, non-profits, or the government, the Securities and Exchange Commission (SEC) accepts GAAP as the accounting standard and considers it authoritative.
The goal of standard accounting principles is to improve reporting so that the public and those involved in the process of regulating financial information in the United States can comprehend it better.
The Financial Accounting Standards Board (FASB) vs. the International Accounting Standards Board (IASB)
While the FASB is primarily concerned with setting standards and rules for accounting professionals in the United States, the International Accounting Standards Board (IASB) is concerned with international accounting standards and rules. Due to the global nature of today’s businesses, the FASB and IASB frequently cross paths, fostering cooperation on the issue of improving global accounting standards.
Almost 110 countries use the IASB’s International Financial Reporting Standards (IFRS). The FASB is a major contributor to the development and creation of the International Financial Reporting Standards (IFRS), as well as maintaining GAAP, its own accounting standards.
However, FASB collaborates with IASB through platforms like the IASB’s Account Standards Advisory Forum (ASAF), since foreign perspectives help FASB develop and improve GAAP.
Financial Accounting Standards Board Codification
The FASB reorganized its standards under the FASB Codification on July 1, 2009. The Codification is an online research resource that serves as the authoritative nongovernmental source of US GAAP. There are two ways to subscribe to the FASB Codification:
- Professional view; which includes text searching, cross-references, and access to previous versions of content, as well as topically organized access to all authoritative nongovernmental US GAAP, including relevant SEC content. For a single continuous use, an annual subscription costs US$850. Free access is, however, available to accounting educators and students.
- Basic view; with limited supporting utilities, provides topically organized access to all authoritative nongovernmental US GAAP, including relevant SEC content. It’s completely free.
Meanwhile, at the FASB Official Website, you can find more information about the FASB Codification.
What Does FASB Stand For?
The FASB stands for Financial Accounting Standards Board. It is a body that provides accounting standards for both public and private organizations in the US.
What Is the Financial Accounting Standards Board and What Is Its Purpose?
The Financial Accounting Standards Board (FASB) is an independent body that sets accounting standards in the private sector. It is responsible for setting accounting standards for financial reporting in the United States, and it adheres to FASB Standards, commonly known as Generally Accepted Accounting Principles (GAAP). Its purpose is to develop financial accounting and reporting standards.
What Is the Difference Between GAAP and FASB?
The Financial Accounting Standards Board (FASB) is responsible for establishing and interpreting generally accepted accounting standards (GAAP). In other words, the GAAP are principles that guide the accounting process in the US while the FASB ensures that these principles are adhered to.
What Is FASB and How It Is Different From IASB?
While the FASB is primarily concerned with setting standards and rules for accounting professionals in the United States, the International Accounting Standards Board (IASB) is concerned with international accounting standards and rules.
What are the four objectives of accounting standards?
Accounting Standards’ principal goal is to:
- To provide a standard for various accounting practices and principles.
- To eliminate the incompatibility of financial statements.
- To improve the financial statements’ dependability.
- To present users with standards that are clear.
