Financial Accounting Standards Board
Encyclopedia
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).
. 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 Pronouncements of those predecessor bodies remain in force unless amended or superseded by the FASB.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 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 (with current term end dates indicated):
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."
In 1984, the FASB formed the Emerging Issues Task Force (EITF). 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.
(IASB) and International Financial Reporting Standards
(IFRS). 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 from the principle of historical cost
to fair value
.
s.
Generally Accepted Accounting Principles (USA)
In the U.S., Generally Accepted Accounting Principles are accounting rules used to prepare, present, and report financial statements for a wide variety of entities, including publicly traded and privately held companies, non-profit organizations, and governments. The term is usually confined to the...
(GAAP) within the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
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
Committee on Accounting Procedure
The Committee on Accounting Procedure was the first private sector organization that had the task of setting accounting standards in the United States. It was a committee run by the American Institute of Accountants...
(CAP) and the Accounting Principles Board
Accounting Principles Board
The Accounting Principles Board is the former authoritative body of the American Institute of Certified Public Accountants . It was created by the American Institute of Certified Public Accountants in 1959 and issued pronouncements on accounting principles until 1973, when it was replaced by the...
(APB) of the American Institute of Certified Public Accountants
American Institute of Certified Public Accountants
Founded in 1887, the American Institute of Certified Public Accountants is the national professional organization of Certified Public Accountants in the United States, with more than 370,000 CPA members in 128 countries in business and industry, public practice, government, education, student...
(AICPA).
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." To achieve this, FASB has five goals:- 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 1934Securities Exchange Act of 1934
The Securities Exchange Act of 1934 , , codified at et seq., is a law governing the secondary trading of securities in the United States of America. It was a sweeping piece of legislation...
. 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
Committee on Accounting Procedure
The Committee on Accounting Procedure was the first private sector organization that had the task of setting accounting standards in the United States. It was a committee run by the American Institute of Accountants...
of the American Institute of Certified Public Accountants
American Institute of Certified Public Accountants
Founded in 1887, the American Institute of Certified Public Accountants is the national professional organization of Certified Public Accountants in the United States, with more than 370,000 CPA members in 128 countries in business and industry, public practice, government, education, student...
(1936–1959) and then by the Accounting Principles Board
Accounting Principles Board
The Accounting Principles Board is the former authoritative body of the American Institute of Certified Public Accountants . It was created by the American Institute of Certified Public Accountants in 1959 and issued pronouncements on accounting principles until 1973, when it was replaced by the...
, 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
Financial Accounting Foundation
The Financial Accounting Foundation is located in Norwalk, Connecticut. It was organized in 1972 as a non-stock, Delaware Corporation. It is an independent, organization in the private sector...
(FAF), which selects the members of the FASB and the Governmental Accounting Standards Board
Governmental Accounting Standards Board
The Governmental Accounting Standards Board is currently the source of generally accepted accounting principles used by State and Local governments in the United States of America...
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 AssociationAmerican Accounting AssociationThe American Accounting Association is an "organization of persons interested in accounting education and research". It was formed in 1916. Its main publication, The Accounting Review, was first published in 1926. It is the principal professional association of accounting academics in the United...
- American Institute of Certified Public AccountantsAmerican Institute of Certified Public AccountantsFounded in 1887, the American Institute of Certified Public Accountants is the national professional organization of Certified Public Accountants in the United States, with more than 370,000 CPA members in 128 countries in business and industry, public practice, government, education, student...
- CFA InstituteCFA InstituteCFA Institute is headquartered in the United States of America at Charlottesville, Virginia, with offices in Hong Kong and London. Formerly known as the Association for Investment Management and Research , CFA Institute awards the Chartered Financial Analyst designation...
- Financial Executives International
- Government Finance Officers Association
- Institute of Management AccountantsInstitute of Management AccountantsInstitute of Management Accountants is a professional organization headquartered in Montvale, New Jersey more than 60,000 professionals worldwide...
- National Association of State Auditors, Comptrollers and TreasurersNational Association of State Auditors, Comptrollers and TreasurersThe National Association of State Auditors, Comptrollers and Treasurers is an organization for U.S. state officials dealing with the financial management of state governments. Headquartered in Lexington, Kentucky, NASACT was founded in 1915...
- Securities Industry AssociationSecurities Industry AssociationThe Securities Industry Association was an association of firms and people who handle securities . In 2006 it merged with the Bond Market Association to form the Securities Industry and Financial Markets 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 (with current term end dates indicated):
- Leslie F. Seidman, Chairman (2013)
- Daryl E. Buck (2015)
- Russell G. Golden (2012)
- Thomas J. Linsmeier (2016)
- R. Harold Schroeder (2015)
- 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."
In 1984, the FASB formed the Emerging Issues Task Force (EITF). 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.Norwalk Agreement
FASB is pursuing a convergence project with the International Accounting Standards BoardInternational Accounting Standards Board
The International Accounting Standards Board is an independent, privately funded accounting standard-setter based in London, England.The IASB was founded on April 1, 2001 as the successor to the International Accounting Standards Committee...
(IASB) and International Financial Reporting Standards
International Financial Reporting Standards
International Financial Reporting Standards are principles-based standards, interpretations and the framework adopted by the International Accounting Standards Board ....
(IFRS). On Sept. 18, 2002, in Norwalk, Connecticut
Norwalk, Connecticut
Norwalk is a city in Fairfield County, Connecticut, United States. According to the 2010 U.S. Census, the population of the city is 85,603, making Norwalk sixth in population in Connecticut, and third in Fairfield County...
, FASB and IASB met and issued a Memorandum of Understanding
Memorandum of understanding
A memorandum of understanding is a document describing a bilateral or multilateral agreement between parties. It expresses a convergence of will between the parties, indicating an intended common line of action. It is often used in cases where parties either do not imply a legal commitment or in...
. 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
Historical cost
In accounting, historical costs is the original monetary value of an economic item. Historical cost is based on the stable measuring unit assumption. In some circumstances, assets and liabilities may be shown at their historical cost, as if there had been no change in value since the date of...
to fair value
Fair value
Fair value, also called fair price , is a concept used in accounting and economics, defined as a rational and unbiased estimate of the potential market price of a good, service, or asset, taking into account such objective factors as:* acquisition/production/distribution costs, replacement costs,...
.
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 assetToxic asset
Toxic asset is a popular term for certain financial assets whose value has fallen significantly and for which there is no longer a functioning market, so that such assets cannot be sold at a price satisfactory to the holder...
s.
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
- EntityEntityAn entity is something that has a distinct, separate existence, although it need not be a material existence. In particular, abstractions and legal fictions are usually regarded as entities. In general, there is also no presumption that an entity is animate.An entity could be viewed as a set...
- Going concernGoing concernA going concern is a business that functions without the threat of liquidation for the foreseeable future, usually regarded as at least within 12 months.-Definition of the 'going concern' concept:...
- CostCostIn production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost. In this...
- Dual aspect
- Accounting periodAccounting periodAn accounting period is a period with reference to which United Kingdom corporation tax is charged. It helps dictate when tax is paid on income and gains...
- Conservation
- RealizationRealizationrealization and realisation may be:* Realization , a sport climbing route in Ceüse, France* Realization , the pricing of security at market value* Realization , an actually observed value of random variable...
- MatchingMatchingIn the mathematical discipline of graph theory, a matching or independent edge set in a graph is a set of edges without common vertices. It may also be an entire graph consisting of edges without common vertices.- Definition :...
- ConsistencyConsistencyConsistency can refer to:* Consistency , the psychological need to be consistent with prior acts and statements* "Consistency", an 1887 speech by Mark Twain...
- MaterialityMaterialityMateriality is a concept or convention within auditing and accounting relating to the importance/significance of an amount, transaction, or discrepancy...
See also
- International Public Sector Accounting StandardsInternational Public Sector Accounting StandardsInternational Public Sector Accounting Standards are a set of accounting standards issued by the IPSAS Board for use by public sector entities around the world in the preparation of financial statements...
- International Financial Reporting StandardsInternational Financial Reporting StandardsInternational Financial Reporting Standards are principles-based standards, interpretations and the framework adopted by the International Accounting Standards Board ....
- FASB 133FASB 133Statements of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, commonly known as FAS 133, is an accounting standard issued in June 1998 by the Financial Accounting Standards Board that requires companies to measure all assets and liabilities on...
- FIN46
Current issues
- Stock option expensingStock option expensingStock option expensing is a method of accounting for the value of share options, distributed as incentives to employees, within the profit and loss reporting of a listed business....
- FASB 157 Mark-to-Market Fair Value Accounting
External links
- FASB Official Website
- FASB and IASB: Dependence Despite Independence
- Lawrence A. Cunningham, Private Standards in Public Law (Article on FASB's Policy of Copyrighting and Selling its Materials Despite Being Funded by Public Company Fees), Michigan Law Review (2005)
- CFO Summary: The Implications of the FASB Pension Disclosure Guidelines