FASB stands for Financial Accounting Standard Board. It was established by the Security and Exchange Act in 1973, as an independent, private sector, not-for-profit organization that establishes accounting principles and accounting procedures.
The body of this principle and procedures called General Accounting-Accepted Principal (GAAP). FASB regulated by the Security and Exchange Commission and the Financial Accounting Foundation.
Mission of FASB
The collective mission of the FASB, the Governmental Accounting Standards Board (GASB) and the FAF is to establish and improve financial accounting and reporting standards to provide useful information to investors and other users of financial reports and educate stakeholders on how to most effectively understand and implement those standards.
The seven members of the FASB serve full time and, to foster their independence, are required to sever connections with the firms or institutions they served before joining the Board. While they individually have diverse backgrounds, each has a concern for investors, other users, and the public interest in matters of accounting and financial reporting and they collectively have “knowledge of accounting, finance, business, accounting education, and research.”
Working of the FASB
The Financial Accounting Standard Board also works with the International Accounting Standard Board to ensure that financial statements and documents used in the United States can also be used in the international market. The FASB has the authority to set the Accounting Standards, but not enforce these accounting standards.
The enforcement of these accounting standards falls under the jurisdiction of the Security Exchange Commission (SEC). When devising and improving Accounting Standard the FASB takes recommendations from the SEC and the AIPA; however, it is not required. It also takes feedback from the business when making changes to the current business.
The Financial Accounting Standard Board has a unique position in the accounting process and the main goal of the FASB is to provide leadership for public companies in establishing the accounting methods used to prepare the financial statements.
The main purpose of FASB is to establish and improve financial accounting and reporting standard for the public and private companies and not-for-profit organizations. They provide useful information for the guidance and education of the public including auditors, issuers, and users of financial information.
Goals and Functions of FASB
The goal of the Financial Accounting Standard provides information about the financial statements to stakeholder so he takes the investment decisions on the basis of these honest financial statements.
The functions of the Financial Accounting Standard Board are such as:
- Maintain the standards up to date to reflect changes in the method of preparing the financial statements and in the economy
- Considering those specific areas which are insufficiency in the financial areas that might be improved through standard-setting; support international convergence of Accounting Standard concurrent with improvement in the quality of financial reporting;
- Describing the usefulness of financial reporting by focusing on characteristics of reliability and relevance;
- FASB also explains the usefulness of financial reporting by focusing on consistency and comparability.
The standards are designed in such a way to promote transparency in financial reporting. When information is transparent, it is visible and understandable to users of these statements. It will enable the users of these statements (investors and creditors) to make accurate evaluations of business finance. Financial Accounting Standards Boards also help the board of director of the companies to assess the management’s effectiveness.
The FASB developed the Accounting Standards that directly impact how the business reports items such as inventory cost, assets, debts, revenue, stakeholder’s equity and taxation. The FASB currently issued set of pronouncement in which include;
- the statement of Financial Accounting Concepts;
- FASB interpretations and clauses; and
- the FASB technical Bulletins and abstract and statement of Financial Accounting Standards.
The main benefit of the FASB is that it helps to set the current Accounting Standard and eliminate outdated ones. It helps to encourage international compliance and develop the process the resolve the accounting misinterpretations.