What Is the Financial Accounting Standards Board (FASB)?
Let me explain what the Financial Accounting Standards Board, or FASB, really is. It's an independent nonprofit organization that takes charge of setting accounting and financial reporting standards for companies and nonprofit organizations in the United States, all in line with generally accepted accounting principles, known as GAAP. The FASB got started back in 1973 to pick up where the Accounting Principles Board left off, and it's headquartered in Norwalk, Connecticut.
Key Takeaways
- The Financial Accounting Standards Board (FASB) sets accounting rules for public and private companies and nonprofits in the United States.
- A related organization, the Governmental Accounting Standards Board (GASB), sets rules for state and local governments.
- In recent years, the FASB has been working with the International Accounting Standards Board (IASB) to establish compatible standards worldwide.
How the Financial Accounting Standards Board (FASB) Works
You need to know that the Financial Accounting Standards Board holds the authority to establish and interpret generally accepted accounting principles (GAAP) in the United States for public and private companies as well as nonprofit organizations. GAAP consists of standards that these entities must follow when preparing and presenting their financial statements, which includes handling any related party transactions.
The Securities and Exchange Commission (SEC) officially recognizes the FASB as the standard setter for public companies. It's also acknowledged by state accounting boards, the American Institute of Certified Public Accountants (AICPA), and other relevant organizations.
The FASB operates as part of a broader independent nonprofit group 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, which functions similarly to the FASB, was set up in 1984 to establish accounting and financial reporting standards for state and local governments throughout the United States. The FAF oversees both the FASB and the GASB, while the two advisory councils offer guidance in their specific domains.
Together, these organizations aim to enhance financial accounting and reporting standards for nonprofits, ensuring the information proves useful to investors and other users of financial reports. They also focus on educating stakeholders about understanding and implementing these standards effectively.
The FASB is run by seven full-time board members who must cut ties with their previous employers or organizations before joining. These members are appointed by the FAF's board of trustees for five-year terms, with the possibility of serving up to 10 years.
Back in 2009, the FAF introduced the FASB Accounting Standards Codification, an online research tool that serves as a single source for authoritative, nongovernmental GAAP in the United States. As the FAF describes it, this tool reorganizes thousands of U.S. GAAP pronouncements into about 90 accounting topics, displaying them in a consistent structure. The site also includes relevant SEC guidance on those topics. You can access a basic view for free, but the more detailed professional view requires a paid subscription.
FASB vs. IASB
Now, consider the International Accounting Standards Board (IASB), based in London and founded in 2001 to replace an earlier standards body. The IASB handles the International Financial Reporting Standards (IFRS), which are adopted in many countries around the world. In recent years, the FASB has collaborated with the IASB on efforts to improve financial reporting and make financial reports more comparable on a global scale.
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