What We Do: FAF

The Financial Accounting Foundation (FAF) may be the most important financial oversight body most Americans don’t know about. Formed in 1972, its mission is straightforward: to act as the apolitical, independent organization focused on establishing and improving financial accounting standards and, thus, enhancing the information found in financial reports. The FAF also is charged with educating constituents about new and improved standards.

Today, the FAF oversees the work of the bodies tasked with setting private sector and public sector accounting standards: the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB).

The roots of a strong, independent standard-setting body in the United States can be traced back to the Great Depression. In the early 1930s, in the depths of global economic turmoil, the U.S. Congress established the Securities and Exchange Commission (SEC). Among other tasks, the SEC was charged with creating standards for drafting financial reports. In 1938, the SEC decided to delegate this responsibility to the private sector—a practice that continues to this day.

In 1938, the American Institute of Accountants – the predecessor of the American Institute of Certified Public Accountants (AICPA) – established the part-time Committee on Accounting Procedure, or CAP, to take on this role. Twenty-one years later, the AICPA handed the job over to another part-time group, the Accounting Principles Board, or APB. But by the early 1970s, many in the professional community were calling for the creation of a full-time, independent standard-setting group. This led to the formation of the FAF in 1972, and the creation of the FASB a year later.

Today’s FAF: committed to independence, objectivity

The contemporary FAF is organized to ensure the group’s independence from political influence and maximize the involvement of constituents who depend upon consistent, transparent and reliable accounting standards and financial reporting.

U.S. capital markets and state and local governments have many stakeholders with competing demands and interests. Both the capital markets and the public sector operate on the basis of objectivity and integrity. The FAF is dedicated to maintaining its independence from political or commercial influence to deliver that objectivity and integrity to the U.S. financial reporting system.

The FASB and GASB currently has senior executives with significant experience in the private and public sectors as well as others who have a deep background in the process of setting accounting standards. The FAF also has 17 trustees who comprise a group of thought leaders in the realms of accounting and financial reporting. The trustees represent various constituencies with an interest in continually improving accounting standards and financial reporting.

In order to ensure the broadest discussion of these critical accounting and financial reporting issues, the FAF also oversees two advisory groups:
  • Financial Accounting Standards Advisory Council (FASAC)
    The FAF selects the members of FASAC, including the chairman, and broadly oversees its operations. The FASAC comprises approximately 35 members who represent a broad cross section of the FASB’s constituency. The FASAC consults with the FASB on technical issues, project priorities and other matters likely to concern the FASB.

    The FASAC meets once each quarter. Like the FASB, the FASAC is committed to following an open, orderly process that is open to public observation. The members of the FASB, its director of major projects and technical activities, several members of the FASB’s staff and the chief accountant of the SEC accompany the FASAC members at each meeting.
  • Governmental Accounting Standards Advisory Council (GASAC)
    The GASAC is responsible for consulting with the GASB on technical issues on the Board's agenda, project priorities, selection and organization of task forces and other matters likely to require the attention of the GASB. The GASAC also is responsible for helping to develop the GASB's annual budget and aiding the FAF in raising funds for the Board. The Council has more than 25 members who are broadly representative of preparers, auditors and users of financial information.

Funding and finances

In keeping with its independent and apolitical nature, the FAF does not receive any financial support from the federal government. The FAF’s primary sources of revenue are accounting support fees paid proportionately by companies that issue publicly-traded securities in U.S. capital markets (for the FASB); accounting support fees paid by municipal bond traders (for the GASB); revenue from subscriptions and publications; and investment revenue.

The Foundation’s financial statements are presented in accordance with GAAP and reflect the specific reporting requirements of not-for-profit organizations. The following are the key highlights of the activities and financial position of the Foundation for fiscal year 2012.
  • The Foundation ended the year with net operating revenues exceeding expenses by $6.3 million in 2012, compared to $1.3 million in 2011.
  • Net operating revenue increased to $51.5 million in 2012 from $45.2 million in 2011, reflecting the first-time addition of $8.5 million in accounting support fees for the GASB – the result of a permanent GASB funding mechanism put in place by the Dodd-Frank Act.
  • Total program and support expenses increased $1.3 million to $45.2 million. Program expenses represent approximately 80 percent of total expenses in both 2012 and 2011.
  • Net assets increased to $75.7 million in 2012 from $67.9 million, reflecting an operating surplus of $6.3 million.

Recent accomplishments

The FAF’s financial health continues to enable the Foundation to invest in enhancing the standard-setting process in the United States. The FAF currently is focused on four major issues.

International Issues and Convergence

In 2012, as the FAF and the FASB contemplated the winding down of the remaining joint projects with the International Accounting Standards Board (IASB), the FAF considered how to ensure that the decade-long progress made by the FASB and the IASB in creating more converged global accounting standards would proceed. The FAF envisions a new model of cooperation and collaboration in which the FASB works cooperatively with the IASB and other standard setters around the globe as the two Boards redefine their relationships in the “post MoU” environment.

The FAF was involved in the process that led to the establishment of the Accounting Standards Advisory Forum (ASAF), a new group of national and regional standard setters that will confer with the IASB as it develops International Financial Reporting Standards (IFRS). The FAF participated in the comment process, and in early 2013 nominated the FASB for membership in the new advisory forum. In March, the IFRS Foundation announced that it had selected the FASB for membership.

The FAF believes that FASB participation is an important opportunity to represent U.S. interests in the IASB’s standard-setting process. It also represents a valuable opportunity to work together with other standard setters around the world to promote high quality financial reporting, both at the international and national level. And finally, the FASB’s membership in the ASAF will help continue the process of improving and converging U.S. Generally Accepted Accounting Principles (GAAP) and IFRS.

Private Company Council

The FAF in 2012 launched the Private Company Council (PCC), which was established by the FAF to work with the FASB to determine whether and when to develop modifications to U.S. GAAP for private companies . The PCC also will serve as the primary advisory body to the FASB on the appropriate treatment for private companies for standards under active consideration by the Board. In September, the FAF appointed ten members to the PCC, drawing from an exceptionally qualified field of candidates The PCC held its inaugural meeting in December.

GASB Scope

As part of its oversight activities, the FAF in 2012 released an independent academic study that documented and analyzed stakeholders’ views on the appropriate scope of the GASB’s standard-setting authority. The study found that stakeholders have differing views about the appropriate scope of the GASB’s activities and involvement in government accountability reporting beyond basic financial statements, notes to the basic statements and supplementary information.

Following release of the study, the FAF and the GASB in February 2013 issued for public comment a proposal for revising the agenda-setting process for the GASB to assist the Trustees in assessing the scope of the GASB’s standard-setting activity. The Trustees expect to take action on the proposal after the conclusion of the comment period.

Post-Implementation Review

The first Post-Implementation Review was completed in January 2012. The review examined FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). The review found that the 2006 standard generally achieves its purpose, although some stakeholders believe it could be improved. The PIR report also recommended process improvements, which the FASB has said it will consider.

In 2012, the FAF announced four new standards to undergo PIR Review:
  • FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information (FAS 131)—requires that public companies report financial and descriptive information about their reportable operating segments. (Completed in January 2013)
  • FASB Statement No. 141R, Business Combinations (FAS 141R)—requires an acquiring organization to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired organization at the acquisition date, measured at their fair values as of that date, with limited exceptions. (Completed in May 2013)
  • GASB Statements No. 3, Deposits with Financial Institutions, Investments (including Repurchase Agreements), and Reverse Repurchase Agreements, and No. 40, Deposit and Investment Risk Disclosures—require note disclosures about deposits and investments, including related credit risks. In addition, Statement 3 also provides accounting guidance for repurchase and reverse repurchase agreements. (Completed in February 2013)
In each of these activities, the FAF has sought to fulfill its responsibility to both oversee and support the standard-setting work of the FASB and the GASB. But the FAF cannot accomplish that mission without the active participation and assistance of its stakeholders.