The Financial Accounting Standards Board (FASB) is an independent nonprofit organization responsible for creating accounting and financial reporting standards for companies and nonprofit organizations in the United States. These standards follow generally accepted accounting principles (GAAP). Established in 1973 to succeed the Accounting Principles Board, the FASB operates out of 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 collaborated with the International Accounting Standards Board (IASB) to develop compatible global standards.
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 and [nonprofit organizations]. GAAP is a set of standards that companies, nonprofits, and governments should follow when preparing and presenting their financial statements, including any related party transactions.
The Securities and Exchange Commission (SEC) recognizes the FASB as the official accounting standards setter for public companies. It is also recognized by state accounting boards, the American Institute of Certified Public Accountants (AICPA), and other significant organizations in the field.
The FASB 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, performing a role similar to the FASB, was established in 1984 to set accounting and financial reporting standards for state and local governments across the United States. The FAF oversees both the FASB and the GASB, with two advisory councils providing guidance in their respective areas.
Collectively, the mission is to improve nonprofit financial accounting and reporting standards so that the information is useful to investors and other users of financial reports. The organizations also educate stakeholders on understanding and effectively implementing the standards.
The FASB is governed by seven full-time board members who must sever ties with their companies or organizations before joining the board. Board members are appointed by the FAF’s board of trustees for five-year terms, and they may serve up to 10 years.
In 2009, the FAF introduced the FASB Accounting Standards Codification, an online research tool created as a single authoritative source for GAAP in the U.S. It organizes thousands of GAAP pronouncements into roughly 90 accounting topics and uses a consistent structure. The website offers relevant Securities and Exchange Commission (SEC) guidance, with a free “basic view” and a more comprehensive “professional view” available via paid subscription.
FASB vs. IASB
The London-based International Accounting Standards Board (IASB), established in 2001 to replace an older standards organization, is responsible for the International Financial Reporting Standards (IFRS), now used by many countries worldwide. In recent years, the FASB has teamed up with the IASB on an initiative to improve financial reporting and enhance the comparability of global financial reports.
Related Terms: Generally Accepted Accounting Principles, International Financial Reporting Standards, Securities and Exchange Commission, Financial Accounting Foundation.
