The Financial Accounting Standards Board is a private, non-profit organization whose mission is to enhance the process by which publicly traded corporations are given financial accounting standards.
It does this through collaborating with other organizations to establish what criteria should be used for their statements, providing training for relevant parties, and publishing Statements of Financial Accounting Standards (SFASs).
Companies’ annual reports, including details like financial condition and operational outcomes, must adhere to certain requirements known as “accounting standards.”
Generally Accepted Accounting Principles (GAAP) are the principles used by the Financial Accounting principles Board.
Generally Accepted Accounting Principles are the foundation for how businesses report their financial data.
Background on the Group
The Securities Exchange Act of 1934 mandated the formation of the Financial Accounting Standards Board (FASB) with the goal of establishing accounting principles that would make corporate transactions clear to investors.
American Institute of Certified Public Accountants (AICPA), American Accounting Association (AAA), and National Association of Accountants (NA) collaborated to form the FASB.
The Financial Foundation Act of 1973 combined these three groups into a single 128-person board.
The Financial Accounting Foundation (FAF) was established in 2001 after the Financial Accounting Standards Board split off to focus only on developing accounting rules that increase disclosure to investors.
In order to better inform investors and other users of financial reports, as well as educate stakeholders on how to most effectively understand and implement those standards, “the collective mission of the FASB, the GASB, and the FAF is to establish and improve financial accounting and reporting standards.”
1. Define and explain GAAP
FASB has the authority to establish accounting principles that will be universally adopted. By standardizing the definition and application of GAAP principles, they equip businesses with the knowledge they need to make sound decisions.
2.) Expand and refine how GAAP is used
This is done so that readers can get a clear picture of the reporting entity’s financial health by reading about its assets, liabilities, profits, and losses as well as its cash flow and other operating activities.
Statements Using Accounting Principles
Financial reports prepared by businesses are based on the FASB’s accounting statements. Statements of Financial Accounting Standards (SFASs) are the official names for these documents.
4.) ensuring that any suggested adjustments to established standards comply with applicable law.
The Financial Accounting rules Board (FASB) is in charge of creating and revising rules that aim to increase the accuracy of reported financial data by removing potential sources of error.
5.) Monitoring of FASB reporting compliance, SEC staff decisions, and draft reporting requirements.
After corporations have adopted FASB’s standards in accordance with the Securities Exchange Act of 1934, FASB works toward preserving them.
6.) Make sure that information reaches investors.
Profit and loss statements should be made available to investors. The Financial Accounting Standards Board (FASB) is charged with facilitating this dissemination of material information to investors.
It ensures that accounting principles and financial data are handled correctly so that businesses can report reliably to their shareholders.
Part FASB Plays
U.S. Generally Accepted Accounting Principles (GAAP) are established, interpreted, and enforced by the Financial Accounting Standards Board (FASB) for all reporting entities in U.S. publicly traded firms.
For example, investors rely heavily on annual reports filed by corporations and 10-K reports provided by firms in order to make investment decisions, and accountants are guided in their application of these concepts.
FASB vs. IASB
Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) both play a significant role in regulating how businesses disclose their financial data.
Both bodies have the authority to draft new regulations, provide interpretations of existing ones, establish compliance measures, and monitor the compliance of reporting organizations (businesses).
The fundamental distinction between FASB and the International Accounting Standards Board is that the former bases its conclusions on US financial accounting regulations and the latter on international financial accounting principles.
Their organizational structures are also distinct from one another.
The Financial Accounting Standards Board is an independent, non-profit body within the purview of the SEC. The International Accounting Standards Board is a non-governmental body that sets global standards for accounting.
While the Financial Accounting Standards Board (FASB) is tasked with establishing GAAP, the worldwide Accounting Standards Board (IASB) is charged with creating standards that will lead to greater worldwide accounting standard harmonization.
The Summing Up
To sum up, Congress passed the Securities Exchange Act of 1934, which authorized the SEC to establish generally accepted accounting principles and established the Financial Accounting Standards Board to oversee their implementation.
The primary objective of the FASB is to develop updated and efficient reporting requirements for all businesses operating in the United States.
Their secondary responsibility is to monitor the implementation of any requested amendments to GAAP (Generally Accepted Accounting Principles) by Congress.
At this time, the FASB is more concerned with ensuring that corporations report financial facts in a consistent manner from one year to the next.
Globally accepted accounting principles (GAAP) and greater international harmonization of accounting standards are two of the IASB’s primary goals.