Financial Accounting Standards Board Functions
- Establishment of Accounting Principles
- Maintain Reporting Standards
- Policy Research and Evaluation
- Public Communication and Feedback
- Education and Implementation
The Financial Accounting Standards Board (FASB) is a non-profit organization that sets accounting standards in the United States. The organization operates under the oversight of the Financial Accounting Foundation (FAF), which also controls appointments and administration for the Governmental Accounting Standards Board (GASB). Since its establishment in 1973, the FASB has been responsible for several essential functions associated with its primary mission of creating fair, transparent and effective accounting standards for companies and other organizations.
1. Establishment of Accounting Principles
One of the chief responsibilities of the FASB is the development of generally accepted accounting principles (GAAP), which are the principles enforced by the US Securities and Exchange Commission (SEC). These principles serve to protect investors, or potential investors, by creating an environment that encourages open disclosure of relevant information. Essentially, these accounting principles ensure that investors and companies can interact on even ground.
2. Maintain Reporting Standards
Accounting reporting standards are a more defined and detailed set of rules that must be followed by all professional accountants in the country. Maintaining standardized accounting practices allows for accurate assessment of company records in the event of an acquisition, merger or audit. They also allow accounting professionals to transfer knowledge and experience from one employer to the next since they all use common nomenclature and procedures. The FASB is also tasked with improving these standards as necessary through periodic revisions or additions.
3. Policy Research and Evaluation
As a decision-making body, the FASB has a duty to thoroughly research its policies before bringing them forward. This includes the examination of case studies and broad statistical analysis to identify potential issues with current principles or standards. The FASB must also evaluate the success of their current policies by measuring them through quantifiable metrics to ensure they are achieving the desired goals. The organization sponsors smaller committees and agencies to investigate specific issues facing accounting policy, like recent developments in information technology.
4. Public Communication and Feedback
The policy review process goes through many steps before reaching a conclusion, including hosting public hearings and discussions, according to the Financial Accounting Foundation. The board issues documents notifying the public of upcoming hearings for major projects so they can receive input before deliberating. Public comments and further research are weighed by decision makers before they issue their final standard for publication.
5. Education and Implementation
While the FASB is not in charge of enforcing the principles and rules they create, they are responsible for educating and informing the public of policy changes. Certified accountants must finish an appropriate degree and other educational requirements, but that doesn’t mean they know everything. The board must also look for ways to better educate accounting professionals and ensure that all accountants are fully aware of recent policy changes that could have an impact on their employers.
Accounting has been an essential professional practice in the United States since its founding centuries ago, so it’s not surprising that there is still a need for dedicated oversight agencies. Financial standards are part of the foundation of a strong economy because they allow investors and businesses to interact with one another with transparency and accountability. All of the functions of the Financial Accounting Standards Board can be reduced to the simple goal of creating a fair and competitive marketplace for all participants.
