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Financial Accounting Standards Board
Founded 1973
Headquarters Norwalk, Connecticut
Motto Serving the investment public through transparent information resulting from high-quality financial reporting standards, developed in an independent, private-sector, open due process.
Website fasb.org
Accountancy
Emblem-money.svg
Key concepts
Accountant · Bookkeeping · Trial balance · General ledger · Debits and credits · Cost of goods sold · Double-entry system · Standard practices · Cash and accrual basis · GAAP / IFRS
Financial statements
Balance sheet · Income statement · Cash flow statement · Equity · Retained earnings
Auditing
Financial audit · GAAS · Internal audit · Sarbanes–Oxley Act · Big Four auditors
Fields of accounting
Cost · Financial · Forensic · Fund · Management · Tax

The Financial Accounting Standards Board (FASB) is a private, not-for-profit organization whose primary purpose is to develop 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 U.S. It was created in 1973, replacing the Committee on Accounting Procedure (CAP) and the Accounting Principles Board (APB) of the American Institute of Certified Public Accountants (AICPA).

Contents

Mission statement

The FASB's mission 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."[1] To achieve this, FASB has five goals[1]:

  • Improve the usefulness of financial reporting by focusing on the primary characteristics of relevance and reliability, and on the qualities of comparability and consistency.
  • Keep standards current to reflect changes in methods of doing business and in the economy.
  • Consider promptly any significant areas of deficiency in financial reporting that might be improved through standard setting.
  • Promote international convergence of accounting standards concurrent with improving the quality of financial reporting.
  • Improve common understanding of the nature and purposes of information in financial reports.

Description

The FASB is not a governmental body. The SEC has legal authority to establish financial accounting and reporting standards for publicly held companies under the Securities Exchange Act of 1934. Throughout its history, however, Commission policy has been to rely on the private sector for this function to the extent that the private sector demonstrates ability to fulfill the responsibility in the public interest.

The FASB is part of a structure that is independent of all other business and professional organizations. Before the present structure was created, financial accounting and reporting standards were established first by the Committee on Accounting Procedure of the American Institute of Certified Public Accountants (1936–1959) and then by the Accounting Principles Board, also a part of the AICPA (1959–73). Pronouncements of those predecessor bodies remain in force unless amended or superseded by the FASB.

The FASB is subject to oversight by the Financial Accounting Foundation (FAF), which selects the members of the FASB and the Governmental Accounting Standards Board and funds both organizations. The Board of Trustees of the FAF, in turn, is selected in part by a group of organizations including:

The FASB's structure is very different from its predecessors in many ways. The board consists of five full-time members. [2] These members are required to sever all ties to previous firms and institutions that they may have served prior to joining the FASB. This is to ensure the impartiality and independence of the FASB. All members are selected by the FAF. They are appointed for a five year term and are eligible for one additional five year term.[1] The current members are (with current term end dates indicated)[1]:

  • Robert H. Herz, Chairman (2012)
  • Thomas J. Linsmeier (2011)
  • Leslie F. Seidman (2011)
  • Marc A. Siegel (2013)
  • Lawrence W. Smith (2012)

In additional to the full-time members, there are approximately 68 staff members. These staff are, "professionals drawn from public accounting, industry, academe, and government, plus support personnel."[1]

In 1984, the FASB formed the Emerging Issues Task Force (EITF).[1] This group was formed in order to provide timely responses to financial issues as they emerged. This group includes 15 people from both the private and public sectors coupled with representatives from the FASB and an SEC observer.[2] As issues emerge, the task force considers them and tries to reach a consensus on what course of action to take. If that consensus can be reached, they issue an EITF Issue and FASB doesn't get involved. An EITF Issue is considered just as valid as a FASB pronouncement and is included in the GAAP.[2]

Creation of the Codification

On July 1, 2009, the FASB announced the launch of its Accounting Standards Codification, declaring it to be "the single source of authoritative nongovernmental U.S. generally accepted accounting principles." The Codification organizes the many pronouncements that constitute U.S. GAAP into a consistent, searchable format. [3] The Codification is not to be confused with the FASB's Conceptual Framework, a project begun in 1973 to develop a sound theoretical basis for the development of accounting standards in the United States.

Norwalk Agreement

FASB is pursuing a convergence project with the International Accounting Standards Board (IASB) and International Financial Reporting Standards (IFRS). On Sept. 18, 2002, in Norwalk, Connecticut, FASB and IASB met and issued a Memorandum of Understanding.[4] This document outlined plans to converge IFRS and US GAAP into one set of high quality and compatible standards. As part of the project, FASB has begun moving from the principle of historical cost to fair value.

Independence

In June 2009, FASB was criticized by an advisory panel of investors after making changes on mark-to-market accounting in response to political pressure. Lobbyists had obtained its permission for banks to apply a special accounting treatment for toxic assets.[5]

FASB pronouncements

In order to establish accounting principles, the FASB issues pronouncements publicly, each addressing general or specific accounting issues. These pronouncements are:

  • Statements of Financial Accounting Standards
  • Statements of Financial Accounting Concepts
  • FASB Interpretations
  • FASB Technical Bulletins
  • EITF Abstracts

References

  1. ^ a b c d e f Financial Accounting Standards Board (2007). Facts About FASB. Retrieved on March 17, 2009.
  2. ^ a b c Spiceland, David; Sepe, James; Nelson, Mark; & Tomassini, Lawrence (2009). Intermediate Accounting (5th Edition). McGraw-Hill/Irwin. p. 10. ISBN 9780073526874.
  3. ^ Financial Accounting Standards Board (2009). News Release 07/1/09. Retrieved September 8, 2009.
  4. ^ Financial Accounting Standards Board and International Accounting Standards Board (2002). Memorandum of Understanding, "The Norwalk Agreement".. Retrieved March 17, 2009.
  5. ^ Investor group says FASB is compromised, Accountancy Age, June 23, 2009.

See also

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Current issues

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External links


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