FASB – FINANCIAL ACCOUNTING STANDARD 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 Accounting Principles Board, and has been functioning since 1973. Its accounting standards govern the manner in which non-governmental businesses present information within their financial statements.
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
FUNCTIONS OF FASB
The FASB performs a wide range of functions, ranging from creating new principles to educating the general public
1. ESTABLISH REPORTING STANDARDS
The FASB’s most important function is to ensure that accountants and other intermediaries involved in handling financial information create detailed reports, which are then shared with stakeholders. Following a consistent set of standards enables a more efficient market and economy.
2. IMPROVE ACCOUNTING STANDARDS
The FASB’s mission, advertised strongly on their website, is to continuously update and enable accountants to work with better accounting principles. In the 21st century, the FASB is looking into how technology interacts with the field of accounting so it can utilize some of the benefits it may bring to the world of accounting.
3. ENSURE INFORMATION IS TRANSPARENT AND USEFUL FOR INVESTORS
In capital markets, it is necessary for investors to receive information surrounding a company’s profits and losses. A recent change made by the FASB allows companies to restrict the information that is conveyed to the investors, which may not be as relevant. The rule applies more to biotech and drug companies who conduct trials and testing phases, which may not be as relevant to investors besides the impact of the finished product itself.
4. CREATE NEW ACCOUNTING PRINCIPLES
The FASB is responsible for creating new principles that improve the system. An example of a newly created accounting principle is the disclosure principle, which gives a company the right to publicize its details and structure of costs incurred in the year.
5. ENABLE THE GENERAL PUBLIC TO BE EDUCATED ON ACCOUNTING STANDARDS
Professionals undergo years of education in order to truly understand the already existing principles and accounting standards. However, FASB makes sure to continually educate and update the knowledge and expertise of its accountants and other professionals to uphold its mission and purpose while also enabling transparency.
The collective mission of the FASB, the GASB, and the FAF is to establish and improve financial accounting and reporting standards to provide useful information to investors and other users of financial reports and educate stakeholders on how to most effectively understand and implement those standards. The FASB, the GASB, the FAF Trustees, and the FAF management contribute to the collective mission according to each one’s specific role:
• The FASB AND THE GASB are charged with setting the highest quality standards through a process that is robust, comprehensive, and inclusive.
• The FAF MANAGEMENT is responsible for providing strategic counsel and services that support the work of the standard-setting Boards.
• The FAF TRUSTEES are responsible for providing oversight and promoting an independent and effective standard-setting process.
FASB MEMBER SELECTION PROCESS
FASB members are appointed by the FAF Trustees. To ensure that a balance of perspectives is represented on the FASB, the Appointments committee of the FAF Trustees seeks Board nominations from a wide array of stakeholders, including key stakeholder organizations/associations representing a wide range of financial statement users and preparers, as well as academics, public and private companies and organizations, regulators and other government leaders, and professional search firms.
The primary role of advisory group members is to share their views and experience with the Board on matters related to projects on the Board’s agenda, possible new agenda items, practice and implementation of new standards, and strategic and other matters. Information provided by advisory group members is communicated to the Board in a variety of ways, including public advisory meetings and comment letters.
FASB Advisory Groups are standing resources to the FASB and its staff, and include:
• FINANCIAL ACCOUNTING STANDARDS ADVISORY COUNCIL (FASAC) : Advises the FASB on technical issues on the Board’s agenda, possible new agenda items, project priorities, procedural matters that may require the attention of the FASB, and other matters as may be requested by the FASB or its chairman.
• INVESTOR ADVISORY COMMITTEE (IAC) : Provides advice, from the investors’ perspective, on current and potential FASB agenda projects.
• NOT-FOR-PROFIT ADVISORY COMMITTEE (NAC) : Provides advice on existing guidance, current and proposed technical agenda projects, and longer- term issues related to the not-for-profit sector.
• SMALL BUSINESS ADVISORY COMMITTEE (SBAC) : Provides advice on FASB projects related to the operationality and the anticipated costs, complexities, and benefits of potential solutions principally from a small public company perspective.
In order to ensure the broadest discussion of critical accounting and financial reporting issues, other groups include:
• PRIVATE COMPANY COUNCIL (PCC) : Advises the FASB on private company matters. The PCC uses the Private Company Decision-Making Framework to advise the FASB on the appropriate accounting treatment for private companies for items under active consideration on the FASB’s technical agenda. The PCC also advises the FASB on possible alternatives within GAAP to address the needs of users of private company financial statements. Any PCC proposed changes are subject to endorsement by the FASB.
• EMERGING ISSUES TASK FORCE (EITF) : Assists the FASB in improving financial reporting through the timely identification, discussion, and resolution of financial accounting issues within the FASB Accounting.