Facts about FASB

Since 1973, the Financial Accounting Standards Board (FASB) has been the designated organization in the private sector for establishing standards of financial accounting. Those standards govern the preparation of financial statements. They are officially recognized as authoritative by the Securities and Exchange Commission (SEC) (Financial Reporting Release No. 1, Section 101, and reaffirmed in its April 2003 Policy Statement) and the American Institute of Certified Public Accountants (Rule 203, Rules of Professional Conduct, as amended May 1973 and May 1979). Such standards are important to the efficient functioning of the economy because investors, creditors, auditors, and others rely on credible, transparent, and comparable financial information.

The SEC has statutory authority to establish financial accounting and reporting standards for publicly held companies under the Securities Exchange Act of 1934. Throughout its history, however, the Commission’s policy has been to rely on the private sector for this function to the extent that the private sector demonstrates ability to fulfill the responsibility in the public interest.

The Mission of the Financial Accounting Standards Board

The mission of the FASB is to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information.

Our financial reporting system is essential to the efficient functioning of the economy. That is because it is the means by which investors, creditors, and others receive the credible, transparent, and comparable financial information they rely on to make sound investment and credit decisions. Accounting standards are an important element of the financial reporting system because they govern the minimum required content of financial statements of U.S. public companies.

Consistent with that mission, the FASB maintains the FASB Accounting Standards CodificationTM (Accounting Standards Codification) which represents the source of authoritative standards of accounting and reporting recognized by the FASB to be applied by nongovernmental entities. (Rules and interpretive releases of the SEC under federal securities laws are also sources of authoritative accounting principles for SEC registrants.)

To accomplish its mission, the FASB acts to:

  • Improve the usefulness of financial reporting by focusing on the primary characteristics of relevance and reliability and on the qualities of comparability and consistency;

     
  • Keep standards current to reflect changes in methods of doing business and changes in the economic environment;

     
  • Consider promptly any significant areas of deficiency in financial reporting that might be addressed through the standard-setting process;

     
  • Promote the international convergence of accounting standards concurrent with improving the quality of financial reporting; and

     
  • Improve the common understanding of the nature and purposes of information contained in financial reports.

The FASB develops broad accounting concepts as well as standards for financial reporting. It also provides guidance on implementation of standards. Concepts are useful in guiding the Board in establishing standards and in providing a frame of reference, or conceptual framework, for resolving accounting issues. The framework will help to establish reasonable bounds for judgment in preparing financial information and to increase understanding of, and confidence in, financial information on the part of users of financial reports. It also will help the public to understand the nature and limitations of information supplied by financial reporting.

The Board’s work on both concepts and standards is based on research aimed at gaining new insights and ideas. Research is conducted by the FASB staff and others, including foreign, national, and international accounting standard-setting bodies. The Board’s activities are open to public participation and observation under the “due process” procedures established by the Board. The FASB actively solicits the views of its various constituencies on accounting issues.

The Board follows certain precepts in the conduct of its activities. They are:

  • To be objective in its decision making and to ensure, insofar as possible, the neutrality of information resulting from its standards. To be neutral, information must report economic activity as faithfully as possible without coloring the image it communicates for the purpose of influencing behavior in any particular direction.

     
  • To weigh carefully the views of its constituents in developing concepts and standards. However, the ultimate determinant of concepts and standards must be the Board’s judgment, based on research, public input, and careful deliberation about the usefulness of the resulting information.

     
  • To promulgate standards only when the expected benefits exceed the perceived costs. While reliable, quantitative cost-benefit calculations are seldom possible, the Board strives to determine that a proposed standard will meet a significant need and that the costs it imposes, compared with possible alternatives, are justified in relation to the overall benefits.

     
  • To bring about needed changes in ways that minimize disruption to the continuity of reporting practice. Reasonable effective dates and transition provisions are established when new standards are introduced. The Board considers it desirable that change be evolutionary to the extent that it can be accommodated by the need for relevance, reliability, comparability, and consistency.

     
  • To review the effects of past decisions and interpret, amend, or replace standards in a timely fashion when such action is indicated.

The FASB is committed to following an open, orderly process for standard setting that precludes placing any particular interest above the interests of the many who rely on financial information. The Board believes that this broad public interest is best served by developing neutral standards that result in accounting for similar transactions and circumstances in a like manner and accounting for different transactions and circumstances in a different manner.

An Independent Structure

Financial Accounting Standards Board (FASB)
The FASB is part of a structure that is independent of all other business and professional organizations. Before the present structure was created, financial accounting and reporting standards were established first by the Committee on Accounting Procedure of the American Institute of Certified Public Accountants (AICPA) (1936–1959) and then by the Accounting Principles Board, also a part of the AICPA (1959–1973).

Financial Accounting Standards Advisory Council (FASAC) 
The FASAC has responsibility for advising the FASB on technical issues on the Board’s agenda, project priorities, matters likely to require the attention of the FASB, and such other matters as may be requested by the FASB or its chairman. At present, the Council has more than 30 members who represent a broad cross section of the FASB’s constituency.

Financial Accounting Foundation (FAF) 
The Foundation, which was incorporated to operate exclusively for charitable, educational, scientific, and literary purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code, is responsible for selecting the members of the FASB and its advisory councils, ensuring adequate funding of their activities, and exercising general oversight with the exception of the FASB’s resolution of technical issues.

Governmental Accounting Standards Board (GASB)
In 1984, the Foundation established the GASB to set standards of financial accounting and reporting for state and local governmental units. As with the FASB, the Foundation is responsible for selecting its members, ensuring adequate funding, and exercising general oversight.

Trustees
The Foundation’s Board of Trustees is an independent body of leaders in their professions with diverse backgrounds and expertise in areas of business, finance, investment, accounting, government, investor advocacy, education, and other professions involved in the activities of the financial and capital markets. The Board is currently comprised of 16 members and, other than the chairman, Trustees serve a single five-year term and until their successors are elected and qualified. To provide for appropriate continuity of leadership, the Trustee serving in the capacity as chair may be re-elected to successive terms without limitations on the number of terms he or she may serve. The Trustees, in their capacity as the members of the Foundation, have sole authority to elect all Trustees. Three Trustees must have extensive experience as financial officers or as elected officials of state or local governments and candidates for these positions are nominated by the nine governmental organizations that helped form the GASB under the Foundation. Nominations for the remaining at-large Trustee positions are solicited from a broad array of market participants.

Members of the FAF Board of Trustees

Members of the FASB

FASB Staff

An Open Decision-Making Process

Actions of the FASB have an impact on many organizations within the Board’s large and diverse constituency. It is essential that the Board’s decision-making process be evenhanded. Accordingly, the FASB follows an extensive “due process” that is open to public observation and participation. This process was modeled on the Federal Administrative Procedure Act and, in several respects, is more demanding.

The FASB's Technical Agenda

The FASB receives many requests for action on various financial accounting and reporting topics from all segments of its diverse constituency, including investors and the SEC. The auditing profession is sensitive to emerging trends in practice and, consequently, it is a frequent source of requests. Requests for action include both new topics and suggested review or reconsideration of existing pronouncements.

The FASB is alert to trends in financial reporting through observation of published reports, liaison with interested organizations, and discussions with the Emerging Issues Task Force (EITF). In addition, the staff receives many technical inquiries, which may provide evidence that a particular topic, or aspect of an existing pronouncement, has become a problem. The FASB also is alert to changes in the financial reporting environment that may be brought about by new legislation or regulatory decisions.

The Board turns to many other organizations and groups for advice and information on various matters, including its agenda. As part of the agenda process, the Board may make available for public comment agenda proposals that concisely describe the scope of potential projects. The FASAC regularly reviews the Board’s agenda priorities and advises on major technical projects. The FASB’s Investors Technical Advisory Committee, Investors Task Force, Small Business Advisory Committee, and Private Company Financial Reporting Committee also serve as resources to the Board both in formulating the FASB technical agenda and in advising on specific agenda projects.

After receiving input from the constituency and consultation with the other members of the FASB, FASAC, and others as appropriate, the FASB chairman decides what projects to add to the Board’s technical agenda. To aid in that decision-making process, the following is a list of factors used to assist in thoroughly evaluating potential projects. Those factors include consideration of:

  • Pervasiveness of the issue—the extent to which an issue is troublesome to users, preparers, auditors, or others; the extent to which there is diversity of practice; and the likely duration of the issue (i.e., whether transitory or likely to persist);

     
  • Alternative solutions—the extent to which one or more alternative solutions that will improve financial reporting in terms of relevance, reliability, and comparability are likely to be developed;

     
  • Technical feasibility—the extent to which a technically sound solution can be developed or whether the project under consideration should await completion of other projects;

     
  • Practical consequences—the extent to which an improved accounting solution is likely to be acceptable generally, and the extent to which addressing a particular subject (or not addressing it) might cause others to act, e.g., the SEC or Congress;

     
  • Convergence possibilities—the extent to which there is an opportunity to eliminate significant differences in standards or practices between the U.S. and other countries with a resulting improvement in the quality of U.S. standards; the extent to which it is likely that a common solution can be reached; and the extent to which any significant impediments to convergence can be identified;

     
  • Cooperative opportunities—the extent to which there is international support by one or more other standard setters for undertaking the project jointly or through other cooperative means with the FASB; and

     
  • Resources—the extent to which there are adequate resources and expertise available from the FASB, the International Accounting Standards Board (IASB), or another standard setter to complete the project; and whether the FASB can leverage off the resources of another standard setter in addressing the issue (and perhaps thereby add the project at a relatively low incremental cost).

It is not possible to evaluate the above factors in precisely the same way and to the same extent in every instance, but identification of factors to be considered helps to bring about consistent decisions regarding the Board’s technical agenda.

Accessibility of Meetings

The core of the Board’s due process is open decision-making meetings and exposure of proposed standards for public comment. All technical decisions are made in meet­ings (usually held at the FASB’s offices) that are open to public observation, although observers do not participate in the discussions. A live audio webcast of such meetings generally is available free of charge on the FASB website. Each meet­ing webcast is also archived and available for replay on the FASB website for one month after the meeting. Each public meeting is announced in advance at www.fasb.org. Deci­sions reached also are published on the FASB website.

The staff presents written material, including analysis and recommendations, to the Board members in advance as the basis for discussion in a Board meeting. The writ­ten material is the result of extensive research by the staff, including a detailed review and analysis of all of the signifi­cant alternative views for each issue to be discussed at the meeting. The meeting format calls for oral presentation of a summary of the written materials by the staff, followed by Board discussion of each issue presented and question­ing of the staff on the points raised. The Board may reach conclusions on one or more of the issues presented. Any conclusions reached are tentative and may be changed at future Board meetings.

Public Exposure of Standards

The FASB is required to issue for public comment all proposed amendments to the authoritative standards in the Accounting Standards Codification. When the Board has reached conclusions on the issues, it directs the staff to prepare an Exposure Draft for consideration by the Board. After further discussion and revisions, Board members vote by written ballot to issue the Exposure Draft. A majority vote of the Board is required to approve a document for issuance as an Exposure Draft. Alternative views, if any, are explained in the document that is posted on the FASB website. 

The Exposure Draft sets forth the proposed amendments to the Accounting Standards Codification, the proposed effective date and method of transition, background information, and an explanation of the basis for the Board’s conclusions.

In determining the comment period length, the FASB weighs the nature and complexity of the proposal, the amount of time its constituents need to consider and comment the proposal, and the urgency of the need for change. The following examples illustrate the range of comment periods that would likely result when applying that principle in some common situations:

  • A comprehensive amendment of a major topic or subtopic within the Accounting Standards Codification generally would be exposed for a period of 60 days or longer.
  • An amendment that changes, interprets, or provides application guidance in a narrower area generally would be exposed for a period of 25 days or longer.
  • Narrow amendments that are not expected to cause a major change in accounting practice for a significant number of entities, minor technical corrections of existing requirements, or proposed deferrals of effective dates would generally be exposed for a period of 25 days or less.
In exceptional circumstances, when the need for the guidance is particularly urgent, the FASB may establish a comment period of less than 15 days, subject to consultation with the Foundation’s Board of Trustees (or designated committee thereof).

At the end of the exposure period, all comment let­ters and position papers are analyzed by the staff. This is a search for new information and persuasive arguments regarding the issues; it is not intended to be simply a “head count” of how many support or oppose a particular point of view. In addition to studying this analysis, Board members re­view the comment letters to help them in reaching conclusions. 

Further Deliberation of the Board

After the comments have been analyzed and studied, the Board redeliberates the issues. As in earlier stages of the process, all Board meetings are open to public observation. The Board considers comments received on the Exposure Draft, and often incorporates suggested changes in the final document. If substantial modifications appear to be necessary, the Board may decide to issue a revised Exposure Draft for additional public comment. When the Board is satisfied that all reasonable alternatives have been considered adequately, the staff is directed to prepare a draft of a final document for consideration by the Board. A vote is taken on the final document, again by written ballot. A simple majority of three votes is required to amend the Accounting Standards Codification.

Accounting Standards Updates

The final product of most technical projects is an Accounting Standards Update (Update). An Update is not itself an authoritative standard; rather, it is a document that communicates the specific amendments that change the Accounting Standards Codification. It also provides other information to help a user of U.S. GAAP understand how and why U.S. GAAP is changing and when the changes will be effective. The contents of a final Update is similar to that of an Exposure Draft of a proposed Update; it sets forth the actual amendments of the Accounting Standards Codification, the effective date and method of transition, background information, a brief summary of research done on the project, and the basis for the Board’s conclusions, including the reasons for rejecting significant alternative solutions. It also identifies members of the Board voting for and against its issuance and includes reasons for any dissents.

Additional Due Process

For major projects, the Board generally goes beyond the core due process described above. Soon after a major project is placed on the Board’s technical agenda, a resource group may be formed, including prepar­ers, auditors, and users of financial information who are knowledgeable about the subject matter. Experts from other disciplines also may be included. Care is taken to ensure that various points of view on the issues involved are represented.

The resource group provides information and practical insights from constituents’ perspectives on FASB agenda projects. The FASB staff seeks information from resource group members as needed throughout the life of a project, for example, as it initially identifies issues to be addressed and as it issues and develops its analysis of possible alternative approaches. Resource group members may be asked to review drafts of Exposure Drafts and final Updates.

During a project, often before issuance of an Exposure Draft, the Board may choose to conduct field visits or field tests for the purpose of assessing the costs, benefits, and operationality of the proposed standards.

After a discussion paper or an Exposure Draft is issued for public comment, the Board often holds public roundtable meetings with interested constituents. Those meetings provide an opportunity for the Board and staff to ask questions about information and viewpoints offered by constituents who participated in the comment process. Staff of the SEC, Public Company Accounting Oversight Board, and others usually participate as observers.

Statements of Concepts

In addition to maintaining the Accounting Standards Codification, the FASB also issues Statements of Financial Accounting Concepts. Concepts Statements guide the Board in developing sound accounting standards and provide the Board and its constituents with an understanding of the appropriate content and inherent limitations of financial statements. Statements of Concepts do not establish new standards or require any change in the application of existing account­ing standards. The framework defined in the Statements of Concepts helps the Board identify the right questions to ask in structuring technical projects and contributes to a consistent approach over time. Because of their long-range importance, Statements of Concepts are developed under the same extensive due process the FASB follows in developing an Accounting Standards Update.

Emerging Issues Task Force (EITF)

The EITF was formed in 1984 in response to the recommendations of the FASB’s task force on timely financial reporting guidance and a FASB Invitation to Comment on those recommendations. Task Force members are drawn from a cross section of the FASB’s constituencies, including auditors, preparers, and users of financial statements. The chief accountant of the Securities and Exchange Commission (or his/her designee) attends EITF meetings regularly as an observer with the privilege of the floor. The FASB technical director serves as chairman of the EITF.

Composition of the EITF is designed to include persons in a position to be aware of emerging issues before they become widespread and before divergent practices regarding them become entrenched. Therefore, if the group can reach a consensus on an issue, usually that consensus is taken by the FASB as an indication that no separate Board action is needed. A consensus is defined as an agreement, provided that no more than three of the fourteen voting members object.

Consensus guidance of the EITF amends the Accounting Standards Codification if approved by a majority of the FASB. Those amendments are communicated through the issuance of an Accounting Standards Update.

The EITF meets at least four times a year. Meetings are open to the public and, generally, are attended by substantial numbers of observers; meetings are also broadcast on the FASB website. Because interest in the EITF is high, the FASB has separate subscription plans for keeping up-to-date on the issues. EITF materials are available free of charge on the FASB website.

Availability of Publications

To encourage public comment, Exposure Drafts, discussion papers, and other documents are made available free of charge on the FASB website.

A basic view of the Accounting Standards Codification is available free of charge on the FASB website. A Professional View, which includes various advanced features, is available from the FASB website for an annual subscription fee.

FASB Website

The FASB website includes general information about the Board and its activities, information on upcoming public meetings, announcements of Board actions, summaries and status of all active technical agenda projects, minutes of Board meetings, comment letters, the technical plan for FASB projects, and information about the FAF, as well as information on how to order publications online, by phone, or by mail.

The website can be accessed at www.fasb.org.

The Public Record

Letters of comment and position papers, research reports, and other relevant materials on projects leading to issuance of pronouncements become part of the Board’s public record. The public records on all projects are available for inspection in the public reference room at the FASB offices in Norwalk, Connecticut. Many documents are also available on the FASB website. Copies of public records also may be purchased at prices that vary according to the volume of material that has to be copied by accessing the FASB website at www.fasb.org or by contacting Records Retention at (203) 956-5270 for more information.

Additional Information

General Information

For further information about the FASB, including Board meeting schedules, access the FASB website at www.fasb.org, call or write Financial Accounting Standards Board, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116, telephone (203) 847-0700 or e-mail questions to director@fasb.org.

To Order Publications

Documents published by the FASB may be obtained by placing an order on the FASB website at www.fasb.org or by contacting the FASB Order Department at 1-800-748-0659, weekdays 8:30 a.m. to 5:00 p.m. eastern time.

Public Roundtable Meetings and Comment Letters

For information about submitting written comments on documents or about public roundtable meetings, access the FASB website at www.fasb.org or contact the FASB Project Administration Department at (203) 956-5389.
 

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