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Financial Accounting Standards Board – Definition

Financial Accounting Standards Board (FASB) Definition

The Financial Accounting Standards Board (FASB) is an independent, private-sector, non-profit organization that is responsible for the formulation and promulgation of financial accounting and reporting standards for public and private companies and not-for-profit organizations that abide by Generally Accepted Accounting Principles (GAAP). The FASB was established in 1973 and is based in Norwalk, Connecticut. It is officially designated as the body responsible for setting accounting standards for public companies through a transparent and inclusive process. The FASB is recognized by the Securities and Exchange Commission (SEC), the American Institute of CPAs (AICPA), and several state Boards of Accountancy.

A Little more on the Financial Accounting Standards Board

The Financial Accounting Standards Board (FASB) functions with support from and under the purview of the Financial Accounting Foundation (FAF) The FAF was set up in 1972 as an independent, private-sector, non-profit organization responsible for the supervision, management, funding, and commissioning of the FASB as well as the Governmental Accounting Standards Board (GASB). The Financial Accounting Foundation is based in Norwalk, Connecticut.

On its own, the FASB endeavors to set the highest-quality standards by way of undertakings that are both robust as well as inclusive. The FASB also shares a collective responsibility with the GASB and the FAF of establishing and enhancing financial accounting and reporting standards in order to provide helpful data to investors and other users of financial reports. Besides, these three organizations are also responsible for educating stakeholders on how to effectively comprehend and implement those standards.

Members of the Financial Accounting Standards Board

The FASB consists of seven full-time members that are entrusted with responsibilities pertaining to accounting and financial reporting. These members are required to sever all ties with the companies or organizations they served before joining the Board. It is the usual norm for the FASB to draw its member from diverse occupational backgrounds. However, the members are expected to act as a team in order to safeguard the interests of investors, other users and the public in general. Besides, the members are also expected to leverage their knowledge and experience in the fields of accounting, finance, business, accounting education, and research. Although FASB board members are appointed for five-year terms, each member is eligible to be reappointed to an additional five-year term.

FASB Staff

The FASB currently boasts over 60 staff members that are collectively responsible for assisting the board members in their accounting and financial reporting duties. The staff members cooperate with the FASB Board as well as various project resource groups, partake in research activities, participate in roundtable meetings and scrutinize suggestions received from the public. They are also responsible for formulating recommendations and creating drafts of documents for consideration by the Board members.

FASB Advisory Groups

The FASB is assisted by several advisory groups. Members of the advisory groups are expected to leverage their experience for the benefit of the Board and express their opinions on matters pertaining to projects undertaken by the FASB, future items on the Board’s agenda, formulation and implementation of new standards, and matters pertaining to the strategy of the organization.

Currently, the FASB has the following advisory groups:

  • Financial Accounting Standards Advisory Council (FASAC)
  • Investor Advisory Committee (IAC)
  • Not-for-Profit Advisory Committee (NAC)
  • Small Business Advisory Committee (SBAC)

Operating Procedures of the Financial Accounting Standards Board

The FASB follows a comprehensive and independent process for the formulation and promulgation of financial accounting and reporting standards. It encourages inclusive participation, while objectively considering the opinions of stakeholders. The FASB is officially supervised by the Board of Trustees of the Financial Accounting Foundation (FAF).

The FASB has adopted a set of procedures that it terms the Rules of Procedure with a view to institute and enhance standards of financial accounting and reporting for non-governmental entities. The Rules of Procedure elaborate the following:

  1. The organizational structure of the FASB.
  2. The mission of the FASB, including ways to accomplish its goals as well as associated principles that regulate the Board’s standards-setting undertakings.
  3. The operating procedures of the FASB, comprising the roles and responsibilities of the Chairman, the organization of the technical staff of the Board, the roles and responsibilities of the various advisory groups, the Emerging Issues Task Force (EITF), and allied public forums.
  4. The different formats of communication such as the formats of the Accounting Standards Updates, Exposure Drafts, and Concepts Statements.
  5. The various protocols associated with the meetings conducted by the FASB, besides voting requirements.
  6. The various directives pertaining to public announcements as well as rules governing the release of information to the public.

References for Financial Accounting Standards Board

Academic Research on Financial Accounting Standards Board – FASB

Audit firm lobbying before the Financial Accounting Standards Board: An empirical study, Puro, M. (1984). Journal of Accounting Research, 624-646. This paper offers a pragmatic analysis of auditor lobbying behavior during the period when the Financial Accounting Standards Board (FASB) was speculating about new standards. The objective of this article is to scrutinize the possible costs as well as benefits for public accounting firms acting as lobbyists. The author contends that the such accounting firms are typically more inclined to lobby in favor of standards that expand their service demand.

A descriptive analysis of select input bases of the Financial Accounting Standards Board, Brown, P. R. (1981). Journal of Accounting Research, 232-246. This paper examines the preference input provided to the Financial Accounting Standards Board (FASB) on select projects in order to evaluate the primary attributes of the input. The author then develops a research design so as to illustrate any systematic groupings or relationships of input preferences, besides any changes in groupings or relationships across projects. This is followed by the generation of correlational evidence in order to describe the alignment that exists between particular input preferences and policy decisions of the FASB.

Private standards, public governance: A new look at the Financial Accounting Standards Board, Bratton, W. W. (2007). BCL Rev., 48, 5. This paper scrutinizes the role played by the New Deal model in ensuring the success of the Financial Accounting Standards Board (FASB). This model emphasizes independence besides prescribing a normative goal to channel the agency’s exercise of discretion. Therefore, the FASB’s founders employed the Conceptual Framework to accommodate as well as administer the FASB’s decisions and thus import legitimacy.

The Securities and Exchange Commission and the Financial Accounting Standards Board: regulation through veto-based delegation,  Melumad, N. D., & Shibano, T. (1994). Journal of Accounting Research, 32(1), 1-37. This article scrutinizes the performance of standard-setting arrangements made between the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB). The Securities Acts of 1933 and 1934 allowed the Congress to delegate authority over accounting standards to the SEC. In turn, the SEC delegated this authority to a series of privately funded organizations. The FASB is the latest of such organizations.

Self-referential lobbying of the accounting standards board: the case of financial reporting standard no. 1, Jupe, R. E. (2000). Critical Perspectives on Accounting, 11(3), 337-359. The author utilizes a Latourian framework to inspect the formal as well as informal lobbying of the Accounting Standards Board (ASB) with regard to its flagship standard on cash flow statements. This paper seeks to disclose how key lobbyists employed a self-referential rhetoric in order to manipulate the ASB into changing its standard in keeping with the transformative practices of some giant corporations. The paper conducts a thorough analysis pertaining to the prospect of including net debt on cash flow statements.

[PDF] Financial accounting, the standards board, and economic development, Hawkins, D. F. (1973). This paper considers the interface between major corporate entities and the total environment. The author seeks to incorporate a new dimension in his previous research paper, titled Behavioral Implications of Generally Accepted Accounting Principles, where he had contended that the Accounting Principles Board should make efforts to formulate a set of generally-accepted accounting principles that was both technically and behaviorally reasonable. In this paper, the author argues that the Financial Accounting Standards Board (FASB) should not only formulate a set of  technically and behaviorally reasonable accounting principles, but should also ensure that such accounting principles are not at variance with the national economic goals and the government’s programs to achieve these goals.

Measuring lobbying influence using the Financial Accounting Standards Board public record, Buckmaster, D., Saniga, E., & Tadesse, S. (1994). Journal of Economic and Social Measurement, 20(4), 331-356. This paper scrutinizes the impact of lobbying groups on the Financial Accounting Standards Board (FASB). Several studies on the field of of lobbying influence have concluded that the influence of accounting firms or non-accounting lobbyists on the FASB cannot be measured. Additionally, the authors contend that various research initiatives conducted with other objectives based upon content analyses of the FASB Public Record as well as studies of lobbying influence are generally not statistically powerful because of certain theoretical and methodological issues that they have identified.

The Work and Workings of the Financial Accounting Standards Board, Armstrong, M. S. (1973). Bus. Law., 29, 145. This paper describes the functions as well as the mechanisms involved in the Financial Accounting Standards Board (FASB). The author outlines the drastic changes that have occurred in the field of public accounting and the several changes that he predicts will occur in the future. The paper also mentions the overall effect that litigations involving CPAs have had on the profession of accountancy.

The evolution of the relationship between the US Financial Accounting Standards Board and the international accounting standard setters: 1973–2008, Kirsch, R. J. (2012). Accounting Historians Journal, 39(1), 1-51. This paper scrutinizes the evolution of the working relationship between the Financial Accounting Standards Board (FASB) and International Accounting Standards Committee/Board (IASC/B) for the period 1973 – 2008, starting with the initial interaction phase in 1973, and going through the transition of the IASC into the IASB, followed by the Convergence Program of 2002, and so on. The author samples archival records and conducts personal interviews as well as correspondence with current and previous employees of both the FASB and the IASC/B.

An experimental investigation of super majority voting rules: Implications for the financial accounting standards board,  King, R. R. (1994). Journal of Economic Behavior & Organization, 25(2), 197-217. This paper seeks to evaluate the fundamental complications typically associated with the outcomes of different voting rules. The author focuses on the impact of two discrete complexities on committee decisions: 1) The impact of simple majority and super majority rules for adoption of committee decisions. 2) The impact of the inclusion of a party with veto power. The author formulates several hypotheses based on the theory of the core and subjects them to a series of experimental tests.

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