The Financial Accounting Standards Board is a private, non-profit organization
whose primary purpose is to establish and improve generally accepted
accounting principles within the United States in the public's interest. The
Securities and Exchange Commission 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' Accounting Principles Board on July 1, 1973.
Mission The FASB's mission is "to establish and
improve standards of financial accounting and reporting that foster
financial reporting by nongovernmental entities that provides decision-useful
information to investors and other users of financial reports."
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." 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 Accountants and then by the Accounting Principles Board, a part of
the American Institute of Certified Public Accountants. 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those predecessor bodies remain in force unless amended or superseded by the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, 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: American Accounting Association
American Institute of Certified Public Accountants
CFA Institute Financial Executives International
Government Finance Officers Association Institute of Management Accountants
National Association of State Auditors, Comptrollers and Treasurers
Securities Industry Association The FASB's structure is very different
from its predecessors in many ways. The board consists of seven full-time
members. 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. The current members are:
Russell G. Golden, Chairman James L. Kroeker, Vice Chairman
Daryl E. Buck Thomas J. Linsmeier
R. Harold Schroeder Marc A. Siegel
Lawrence W. Smith In addition 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." In 1984, the FASB formed the Emerging
Issues Task Force. 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. 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. 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. 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.
= Conceptual Framework= FASB and the International Accounting
Standard Board are working closely together to develop a common Conceptual
Framework. The goal is develop standards that are objectives-based, internally
consistent, and internationally converged. Currently Statement of
Financial Accounting Concepts No. 8 “Conceptual Framework for Financial
Reporting” is being used in the United States. The Conceptual Framework
include: measurement attributes used to measure and report economic
transactions, events, and arrangements in financial statements; and accounting
principles and assumptions that guide recognition, derecognition, and
disclosure, as well as the classification and presentation of
information in financial statements. Fundamental qualitative characteristics,
relevance and faithful representation allow for decision usefulness.
Information that is capable of making a difference in decisions made by
financial statement users is relevant. The three components of relevance are:
Predictive Value – information that should help users form expectations
about the value Confirmatory Value – information that
provides feedback to confirm or correct prior predictions and expectations
Materiality – refers to the nature and magnitude of an omission or misstatement
of accounting information that would influence the judgment of a reasonable
person relying on that information Faithful representation is when the
words and numbers accurately predict the economic substance of what they purport
to represent. The three components of faithful representation are:
Complete representation – provides a user with full disclosure of all
information necessary to understand the information being reported, with all
necessary facts, descriptions, and explanations
Neutral representation – not biased, slanted, emphasized or otherwise
manipulated to achieve a pre-determined result or to influence users’ behavior
in a particular direction Free from error – the information is
measured and described as accurately as possible, using a process that reflects
the best available inputs Norwalk Agreement
FASB is pursuing a convergence project with the International Accounting
Standards Board and International Financial Reporting Standards. On Sept.
18, 2002, in Norwalk, Connecticut, FASB and IASB met and issued a Memorandum of
Understanding. 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 away 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.
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 FASB 11 concepts
Money measurement Entity
Going concern Cost
Dual aspect Accounting period
Conservation Realization
Matching Consistency
Materiality See also
International Public Sector Accounting Standards
International Financial Reporting Standards
FASB 133 FIN46
= Current issues= Stock option expensing
FAS 157 Mark-to-Market Fair Value Accounting
= Related associations= International Accounting Standards Board
References External links
FASB Official Website FASB and IASB: Dependence Despite
Independence Lawrence A. Cunningham, Private
Standards in Public Law, Michigan Law Review
CFO Summary: The Implications of the FASB Pension Disclosure Guidelines