Project Updates

Principles-based Approach to U.S. Standard Setting

Last Updated: February 2, 2005 (Updated sections are indicated with an asterisk *)

In the third quarter of 2002, the Board began discussing the feasibility of adopting a principles-based approach to U.S. standard setting to reduce the level of detail and complexity in accounting standards.

At its September 25, 2002 meeting, the Board agreed that, in contrast to many existing standards, principles-based standards should have few, if any, exceptions and that the FASB (and others) should provide less interpretive and implementation guidance, encouraging increased use of professional judgment in applying the standards. Because those changes to the standards would require changes involving all participants in the U.S. financial accounting and reporting process, the Board decided to issue for public comment FASB Proposal, Principles-Based Approach to U.S. Standard Setting (Proposal). The Proposal was issued in October 2002.

Comment Letters

On December 16, 2002, the Board held a public roundtable meeting with some constituents to discuss various aspects of the Proposal.

Roundtable Meeting Materials

At its March 26, 2003 meeting, the Board discussed respondents' comments.

Meeting Handout
Meeting Minutes

Based on those comments and input received from other constituents:

  • *In October 2004, the Board added a joint project to its agenda to develop a common conceptual framework, based on and built on the existing IASB and FASB frameworks that both Boards would use as a basis for their accounting standards.

     

  • In June 2003, the Board added a project to its agenda to codify and improve the guidance for measuring fair value.

     

  • The Board established a near-term objective of using identical style and wording in the standards issued by the FASB and IASB on joint projects. The Board directed the FASB staff to discuss with the IASB staff the changes that would need to be made to the standards to achieve that objective. (As a first step towards that objective, the FASB and the IASB are currently developing common Exposure Drafts of their proposed Statements on accounting for business combinations. Those Exposure Drafts will incorporate (1) the decisions reached in the Boards’ joint purchase method procedures project (Phase II) and (2) the decisions reached in the Boards’ separate Phase I projects, which led to the issuance of FASB Statement No. 141, Business Combinations, and IASB IFRS 3, Business Combinations.)

     

  • The Board decided to initiate other specific improvements in connection with its ongoing internal efforts to (1) improve process efficiency by, among other things, increasing the level of user involvement in developing the standards, reviewing its issue identification and deliberations processes to identify opportunities for improvements, focusing on the quality and timeliness of the standards, and performing post-issuance quality reviews of selected standards, (2) improve its process for providing interpretive and implementation guidance, and (3) improve accessibility and retrievability of the accounting literature. (The FAF Trustees approved the codification and retrieval project in September 2004).

     

SEC Report to Congress

The Sarbanes-Oxley Act of 2002 required the SEC to conduct a study on “the adoption by the United States financial reporting system of a principles-based system” and to submit a report on the results of the study to the Congress by July 2003 (refer to Section 108(d) of the Act). The SEC submitted its report to Congress on July 25, 2003 (the SEC Report). The FASB’s response to the SEC Report was sent to the SEC staff on July 14, 2004.

Related Articles

On the Road to an Objectives-Oriented Accounting System (The FASB Report, August 2004)

Improving the Effectiveness of the FASB’s Process (The FASB Report, August 2003)

Principles-Based Approach to Standard Setting (The FASB Report, November 2002)

The FASB Addresses Standards Overload through New Projects (The FASB Report, February 2002)