Since 1973, the
Financial Accounting Standards Board (FASB) has been the
designated organization in the private sector for establishing standards of
financial accounting and reporting (US GAAP).
Those standards govern the preparation of financial reports. They are
officially recognized as authoritative by the Securities and Exchange
Commission (SEC) (Financial Reporting Release No. 1, Section 101) and
the American Institute of Certified Public Accountants (AICPA) (Rule
203, Rules of Professional Conduct, as amended May 1973 and May 1979). Such
standards are essential to the efficient functioning of the economy because
investors, creditors, auditors and others rely on credible, transparent and
comparable financial information.
The Securities and Exchange Commission (SEC) has statutory authority to
establish financial accounting and reporting standards for publicly held
companies under the Securities Exchange Act of 1934. Throughout its history,
however, the Commission’s 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 Mission of the Financial Accounting Standards Board
The FASB 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.
Accounting standards are essential to the efficient functioning of the
economy because decisions about the allocation of resources rely heavily on
credible, concise, transparent and understandable financial information.
Financial information about the operations and financial position of
individual entities also is used by the public in making various other kinds
The FASB develops broad accounting concepts as well as standards for
financial reporting. It also provides guidance on implementation of
standards. Concepts are useful in guiding the Board in establishing
standards and in providing a frame of reference, or conceptual framework,
for resolving accounting issues. The framework will help to establish
reasonable bounds for judgment in preparing financial information and to
increase understanding of, and confidence in, financial information on the
part of users of financial reports. It also will help the public to
understand the nature and limitations of information supplied by financial
The Board’s work on both concepts and standards is based on research aimed
at gaining new insights and ideas. Research is conducted by the FASB staff
and others, including foreign national and international accounting
standard-setting bodies. The Board’s activities are open to public
participation and observation under the "due process" mandated by formal
Rules of Procedure. The FASB actively solicits the views of its various
constituencies on accounting issues.
To accomplish its
mission, the FASB acts to:
- 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 changes in the economic environment;
- Consider promptly any significant areas of deficiency in financial
reporting that might be improved through the standard-setting process;
- Promote the international convergence of accounting standards
concurrent with improving the quality of financial reporting; and
- Improve the common understanding of the nature and purposes of
information contained in financial reports.
The Board follows certain precepts in the conduct of its activities:
¨ To be objective in its decision making and to ensure, insofar as
possible, the neutrality of information resulting from its standards. To be
neutral, information must report economic activity as faithfully as possible
without coloring the image it communicates for the purpose of influencing
behavior in any particular direction.
¨ To weigh carefully the views of its constituents in developing
concepts and standards. However, the ultimate determinant of concepts and
standards must be the Board’s judgment, based on research, public input and
careful deliberation about the usefulness of the resulting information.
¨ To promulgate standards only when the expected benefits exceed the
perceived costs. While reliable, quantitative cost-benefit calculations
are seldom possible, the Board strives to determine that a proposed standard
will meet a significant need and that the costs it imposes, compared with
possible alternatives, are justified in relation to the overall benefits.
¨ To bring about needed changes in ways that minimize disruption to
the continuity of reporting practice. Reasonable effective dates and
transition provisions are established when new standards are introduced. The
Board considers it desirable that change be evolutionary to the extent that
it can be accommodated by the need for relevance, reliability, comparability
¨ To review the effects of past decisions and interpret, amend or
replace standards in a timely fashion when such action is indicated.
The FASB is committed to following an open, orderly process for standard
setting that precludes placing any particular interest above the interests
of the many who rely on financial information. The Board believes that this
broad public interest is best served by developing neutral standards that
result in accounting for similar transactions and circumstances in a like
manner and different transactions and circumstances should be accounted for
in a different manner.
An Independent Structure
Financial Accounting Standards Board (FASB)
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.
Financial Accounting Standards Advisory Council (FASAC)
FASAC has responsibility for consulting with the FASB as to technical issues
on the Board’s agenda, project priorities, matters likely to require the
attention of the FASB, selection and organization of task forces and such
other matters as may be requested by the FASB or its Chairman. At present,
the Council has more than 30 members who are broadly representative of
preparers, auditors and users of financial information.
Financial Accounting Foundation (FAF)
The FAF, which was incorporated to operate exclusively for charitable,
educational, scientific and literary purposes within the meaning of Section
501(c)(3) of the Internal Revenue Code, is responsible for selecting the
members of the FASB and its advisory council, ensuring adequate funding of
their activities and for exercising general oversight with the exception of
the FASB’s resolution of technical issues.
In 1984, the Foundation established a Governmental Accounting Standards
Board (GASB) to set standards of financial accounting and reporting
for state and local governmental units. As with the FASB, the Foundation is
responsible for selecting its members, ensuring adequate funding and
exercising general oversight. The Foundation also receives funds and
approves the FASB budget.
The Foundation is separate from all other organizations. However, its Board
of Trustees is made up of members from constituent organizations having
interest in financial reporting. Nominees from constituent organizations are
approved by the Trustees. There also are Trustees-at-large who are not
nominated by those organizations, but are chosen by the sitting Trustees.
The constituent organizations are:
* American Accounting Association
* American Institute of Certified Public Accountants
* Association for Investment Management and Research
* Financial Executives International
* Government Finance Officers Association
* Institute of Management Accountants
* National Association of State Auditors, Comptrollers and Treasurers
* Securities Industry Association
Convergence of IAS and
On October 29th, 2002
the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board
(IASB) have issued a memorandum of understanding marking a
significant step toward formalizing their commitment to the convergence of
U.S. and international accounting standards. The agreement between the FASB
and IASB represents their latest commitment, following their September joint
meeting, to adopt compatible, high-quality solutions to existing and future
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