- Describe the role of the FASB in setting accounting standards
In 1973, the FASB established financial accounting and reporting standards for public and private companies and not-for-profit organizations.
The FASB is governed and funded by the Financial Accounting Foundation (FAF), which was established in 1972 as an independent, private-sector, not-for-profit organization. The FAF is responsible for the oversight, administration, financing, and appointing of members for both the FASB and the Governmental Accounting Standards Board (GASB).
The SEC has designated the FASB as the accounting standard setter for publicly traded companies. In addition, FASB standards are recognized as authoritative by many other organizations, including state Boards of Accountancy and the American Institute of CPAs (AICPA).
The advantage of the accounting industry creating the rules, instead of Congress, is that rule-making is less of a political give-and-take and more based on logic and professional opinion.
You can view the transcript for “FASB Has Standards That Work” here (opens in new window).
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 non-profit FASB is funded primarily through accounting support fees, which are paid by U.S. corporations that issue publicly traded securities. This funding method was written into the Sarbanes-Oxley Act of 2002, as amended (the Sarbanes-Oxley Act). The FASB also receives revenue from the sales of subscriptions and publications.