Newsletter Subscribe
Enter your email address below and subscribe to our newsletter
Table of Contents
What is the Financial Accounting Standards Board (FASB)?
The Financial Accounting Standards Board (FASB) represents an independent, private-sector organization responsible for establishing and improving financial accounting and reporting standards in the United States. These standards, known as U.S. Generally Accepted Accounting Principles (GAAP), guide how companies prepare financial statements.
Definition
The FASB is the primary body that sets authoritative accounting standards for U.S. public and private companies and nonprofit organizations.
Table of Contents
- What is the Financial Accounting Standards Board (FASB)?
- Key Takeaways
- Understanding the Financial Accounting Standards Board
- Formula (If Applicable)
- Real-World Example
- Importance in Business or Economics
- Types or Variations
- Related Terms
- Sources and Further Reading
- Quick Reference
- Frequently Asked Questions (FAQs)
- Who funds the FASB?
- Is FASB part of the U.S. government?
- What industries does FASB impact?
Key Takeaways
- FASB issues and updates U.S. GAAP, the foundation of U.S. financial reporting.
- It enhances transparency, consistency, and comparability in financial statements.
- FASB operates independently but is recognized by the SEC as the designated standard setter.
Understanding the Financial Accounting Standards Board
Established in 1973, the FASB replaced the Accounting Principles Board to create a more structured and independent standard-setting process. FASB’s mission is to develop financial reporting standards that provide useful information to investors, creditors, donors, and other users.
The Board issues Accounting Standards Updates (ASUs) to refine GAAP and responds to changes in business practices, emerging industries, and global financial conditions.
FASB also works closely with the International Accounting Standards Board (IASB) to promote global accounting harmonization.
Formula (If Applicable)
Although not formula-based, key mechanisms include:
Standard-Setting Process:
- Identify issue → 2. Research → 3. Public outreach → 4. Exposure draft → 5. Final ASU
Real-World Example
In 2016, FASB issued ASC 606 – Revenue from Contracts with Customers, a major overhaul of revenue recognition standards. This update improved global consistency and impacted virtually every industry, from software to manufacturing.
Importance in Business or Economics
FASB standards ensure:
- High-quality financial reporting
- Efficient capital markets
- Reduced information asymmetry
- Investor confidence and economic stability
Businesses rely on GAAP to communicate financial performance clearly and legally.
Types or Variations
U.S. GAAP: Standards issued by FASB for U.S. entities.
ASC Codification: Centralized structure of GAAP standards.
ASUs: Updates that improve or modify existing GAAP.
Related Terms
- Generally Accepted Accounting Principles (GAAP)
- International Accounting Standards Board (IASB)
- Financial Reporting Standards
Sources and Further Reading
- FASB Official Website: https://www.fasb.org
- U.S. Securities and Exchange Commission (SEC): https://www.sec.gov
- IFRS Foundation / IASB: https://www.ifrs.org
- Investopedia – FASB: https://www.investopedia.com/terms/f/fasb.asp
Quick Reference
- FASB sets U.S. GAAP standards.
- Enhances transparency and comparability of financial statements.
- Issues ASUs to refine and modernize standards.
Frequently Asked Questions (FAQs)
Who funds the FASB?
Primarily through fees from public companies, overseen by the Financial Accounting Foundation (FAF).
Is FASB part of the U.S. government?
No—it is an independent, private-sector body.
What industries does FASB impact?
All industries that prepare GAAP-based financial statements.
