What Is the Financial Accounting Standards Board (FASB)?
The Financial Accounting Standards Board (FASB) is an independent nonprofit organization that is responsible for establishing accounting and financial reporting standards for companies and nonprofit organizations in the United States, following generally accepted accounting principles (GAAP). The FASB was formed in 1973 to succeed the Accounting Principles Board and carry on its mission. It is based in Norwalk, Conn.
How the Financial Accounting Standards Board (FASB) Works
The Financial Accounting Standards Board has the authority to establish and interpret generally accepted accounting principles (GAAP) in the United States for public and private companies, as well as for nonprofit organizations. GAAP refers to a set of standards for how companies, nonprofits, and governments should prepare and present their financial statements, including any related party transactions.
The Securities and Exchange Commission (SEC) recognizes the FASB as the accounting standard setter for public companies. It is also recognized by state accounting boards, the American Institute of Certified Public Accountants (AICPA), and other organizations in the field.
The Financial Accounting Standards Board is part of a larger, independent nonprofit group that also 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 is similar in function to the FASB, was established in 1984 to set accounting and financial reporting standards for state and local governments across the U.S. The FAF oversees both the FASB and the GASB. The two advisory councils provide guidance in their respective areas.
- The Financial Accounting Standards Board (FASB) sets accounting rules for public and private companies, as well as 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.
Collectively, the organizations' mission 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 is governed by seven full-time board members, who are required to sever their ties to the companies or organizations they worked for before joining the board. As a group, they are chosen to provide "knowledge of accounting, finance, business, accounting education, and research.” Board members are appointed by the FAF's board of trustees for five-year terms and may serve for up to 10 years.
In 2009, the FAF launched the FASB Accounting Standards Codification, an online research tool designed as a single source for authoritative, nongovernmental, generally accepted accounting principles in the United States. It "reorganizes the thousands of U.S. GAAP pronouncements into roughly 90 accounting topics and displays all topics using a consistent structure," the organization says. The website also provides relevant Securities and Exchange Commission (SEC) guidance on those topics. A "basic view" version is free, while the more comprehensive "professional view" is available by paid subscription.
FASB vs. IASB
The London-based International Accounting Standards Board (IASB), founded in 2001 to replace an older standards organization, is responsible for the International Financial Reporting Standards (IFRS), which are now used in many countries throughout the world. In recent years, the FASB has been working with the IASB on an initiative to improve financial reporting and the comparability of financial reports globally.