What is the 'Financial Accounting Standards Board - FASB'
The Financial Accounting Standards Board (FASB) is a seven-member independent board consisting of accounting professionals who establish and communicate standards of financial accounting and reporting in the United States. FASB standards, known as generally accepted accounting principles (GAAP), govern the preparation of corporate financial reports and are recognized as authoritative by the Securities and Exchange Commission (SEC).
BREAKING DOWN 'Financial Accounting Standards Board - FASB'
Accounting standards are crucial in an efficient market, as information must be transparent, credible and understandable. The FASB sets out to improve corporate accounting practices by enhancing guidelines set out for accounting reports, identifying and resolving issues in a timely manner, and creating a uniform standard across the financial markets.
The FASB was established in 1973 as the designated organization for championing the financial standards that govern accounting practices and the preparation of financial reports in the private sector. In fact, it is the SEC itself that gives the FASB its governing authority. The SEC technically has statutory authority to establish and manage financial reporting standards under the Securities Exchange Act of 1934 but has chosen to give that power to the privately held FASB to self-manage the private sector.
The Mission of the FASB
The stated mission of the FASB is to establish and improve financial accounting and reporting standards and to provide useful information to investors and other people who use financial reports. The FASB seeks to actively achieve this mission by facilitating an open and independent reporting process that allows broad participation from company stakeholders. The mission and activity of the FASB are overseen by the Financial Accounting Foundation’s (FAF) Board of Trustees.
As of 2016, the current and primary priority of the FASB is to integrate U.S. GAAP with the International Financial Reporting Standards (IFRS). This allows for more transparent and translatable financial practices internationally. Specifically, the FASB aims to address the differences in reporting between revenue recognition, leases, financial instruments and insurance.
The Overall Structure of the Entity
The FASB is part of a larger, nonprofit, private institution that is independently structured from all other business entities and professional organizations. The overall structure is comprised of the FASB, the FAF, the Financial Accounting Standards Advisory Council (FASAC), the Governmental Accounting Standards Board (GASB) and the Governmental Accounting Standards Advisory Council (GASAC).
The FAF is responsible for all the oversight, administration and finances of the FASB and the GASB. The FAF's advisory board is also responsible for the council of the FASAC and the GASAC. The FAF's primary responsibilities include protecting the standards setting process and appointing members of the other organizations.
The FASAC was created to advise the FASB on issues, agendas and priorities. The FASAC is integral to the successful operations of the FASB and is comprised of more than 30 members. Both the GASB and the GASAC are geared toward governmental oversight.