What Is a Financial Accounting Standards Board?
There can be only one. The power of the Financial Accounting Standards Board (FASB) is that it is the single organization in the United States charged with the development of accounting standards. All U.S. based, publicly traded companies are obliged to issue regular financial statements in accordance with FASB regulations.
Identification
The Securities and Exchange Commission (SEC) has statutory authority to establish financial accounting and reporting standards for publicly held companies, but has historically relied on the private sector for development of effective standards. In 1973, the SEC designated the FASB as the organization responsible for establishing official accounting standards. FASB is also recognized in this capacity by the American Institute of Certified Public Accountant.
Function
The primary function of FASB is the creation of the Generally Accepted Accounting Principles, or GAAP, standards designed for the guidance and education of the public, including issuers, auditors and users of financial information. Through the GAAP standards, FASB focuses corporations and accountants on the most useful accounting techniques, and keeps accounting practices current to reflect changes in ways business is conducted.
Features
FASB is a seven-member board that is part of a larger non-profit organization independent of all other business and professional groups. The board's decision-making process is largely transparent and even-handed, with public comment a regular part of its routine. The board's agenda is largely determined by the suggestion of professional organizations and the SEC. When contemplating new issues, the board considers the pervasiveness of an issue, all possible solutions, technological factors and professional consensus.
Significance
The FASB is an important part of an efficient market in stocks and securities, since transparent, credible and understandable information is essential to business investors. GAAP standards regulate the drafting of accounting reports and problem-solving in a timely and uniform manner across the financial markets. Though observers are not permitted to participate in FASB meetings, they are open to the public at the FASB offices in Norwalk, Connecticut.
Considerations
Though FASB creates the accounting principles, it is not an enforcement agency, and is, in fact, not an arm of the federal government. Enforcement of FASB guidelines, where necessary, is conducted by the SEC or by enforcement agencies within the Department of Treasury. The minutes of FASB meetings are published on its website and emailed to interested parties through action alerts.
