Financial Accounting Standards Board (FASB): An Overview

KEY TAKEAWAYS

• The FASB is a leader in creating global accounting standards.
• FASB and IFRS standards are not always aligned. They are constantly working together to align better.
• FASB works in partnership with the International Accounting Standards Board (IASB).
• The goal of the FASB is to create global standards that are consistent and easy to understand.
• The FASB formed the EITF in 1984 to help with issuing timely and accurate financial guidance.
• The EITF is made up of members from various backgrounds. These include auditors, preparers, and users of financial reports.

What Is The Financial Accounting Standards Board (FASB)?

FASB is a private, non-profit organization that establishes financial accounting standards. It also sets reporting standards for public and private companies in the U.S and globally. Companies use these standards to prepare their financial statements. These statements provide an overview of a company’s financial health.

Why Were The Financial Accounting Standards Board (FASB) created?

As mentioned, the Financial Accounting Standards Board (FASB) started in 1973. This was in response to the financial crisis of the 1960s. Congress felt that there was a need for consistent and reliable financial reporting. This allows investors to make informed decisions about where to invest their money.

The FASB also works closely with the SEC and the IASB. These partnerships ensure that all users of financial statements have a common understanding, especially when it comes to these documents.

Who Uses The Financial Accounting Standards Board (FASB) standards?

The primary users of the FASB standards are publicly traded companies and investors. Investors use financial statements to analyze businesses and divide their funds.

The companies need to use these standards to prepare their financial statements. These statements provide an overview of a company’s financial health. This information is used by investors, creditors, and other stakeholders to make educated decisions about the company.

Investors can rely on the FASB to issue authoritative guidance on financial reporting. The FASB uses this to regulate financial accounting and reporting practices.

Financial Accounting For Investors

The goal of this system is to provide investors with accurate and timely information. It offers details about a company’s financial health. Financial statements can help interested parties make educated decisions about the financial performance and strategic goals of a company.

The FASB issues financial accounting standards that are used by companies in the U.S. These compatible standards are also recognized by other countries around the world. The FASB is considered to be a leader in creating global accounting standards.

How Investors Can Use FASB

Investors can use financial accounting standards in a few ways.

1. Investors can use financial statements to assess a company’s financial health. Financial statements can help investors understand how profitable a company is. It can also detail how much debt it has and whether it is able to pay its bills.
2. Investors can compare the financial statements of competitors to determine the best value. 
3. Investors can also use these guidelines to predict whether a company is likely to maintain the current level of revenue.

Financial Accounting Standards For Non-Profits

The FASB also establishes financial accounting standards for non-profit organizations, which are not required to follow the same standards as publicly traded companies. It’s still important for them to be transparent and provide accurate financial information. This information can be used by donors to make decisions about where to donate their money.

These are high-quality, compatible accounting standards. They are used to make sure the donations are being allocated properly. This can help to ensure that non-profit organizations are using donations with integrity.

What Accounting Standards Do Non-Profits Use?

Nonprofits typically use GAAP, or Generally Accepted Accounting Principles. This is the common set of standards and acceptable methods that are used by businesses in the U.S. The FASB does issue specific standards for non-profit organizations.

How Do Businesses And Investors Feel About The New Accounting Standards?

Businesses and investors have mixed feelings about the new accounting standards. Some businesses feel that they are too complex. This can make it difficult to properly complete the reporting requirements and for investors to understand. Investors feel that the standards could more easily interpret information, especially the information needed to analyze a company.

The FASB is constantly trying to improve the standards. They are working on creating new standards that are easier to understand and the reporting process more efficient.

Comparison Of International Standards To U.S. Standards

The FASB is a leader in creating global accounting standards. Their standards are not always the same as international standards. There can be some differences in how certain concepts are interpreted.

The goal of the FASB is to create global standards that are consistent and easy to understand. They are constantly working with other countries. This is to make sure their standards are aligned. This helps to make the process easier for companies that operate abroad.

The International Financial Reporting Standards (IFRS) compiles international standards. Here are some of the main differences that remain between FASB and IFRS.

• Inventory Accounting Differences: GAAP allows LIFO (Last In, First Out) and FIFO (First In, First Out) inventory accounting. The IFRS prohibits companies from using LIFO. IFRS dictates that the same cost formula must be applied to all inventories of a similar nature.

• Long-Lived Assets: GAAP doesn’t allow company assets to be revalued. IFRS allows for some regular revaluation based on fair market value. The depreciation of long lived assets also differs between GAAP and IFRS.

• Required Documents for Financial Accounts: Both IFRS and FASB need a balance sheet as well as an income statement and changes in equity documents. They also need a cash flow statement and all associated footnotes. The FASB also requires statements to report on comprehensive income.

The Emerging Issues Task Force

The FASB formed the Emerging Issues Task Force (EITF) in 1984. Its purpose is to provide timely financial reporting guidance and help notify the FASB of any potential issues. The aim of the EITF is to assist the FASB in improving financial reporting. It does this by addressing accounting concerns. This is within the framework of the FASB Codification. The EITF helps analyze and establish a more consistent set of guidelines. 

The EITF helps reduce the FASB’s need to spend time and effort on certain issues like applications or other emerging concerns that are addressed within GAAP.

Who Makes Up The EITF?

Members of the EITF come from a variety of FASB constituencies. These include auditors, preparers, and users of financial reports. The secretary or deputy secretary of the SEC also attends Task Force meetings on a regular basis.

Summary

The FASB is an important private sector. It helps to control the accounting world, as well as make constant improvements to accounting. 

They set out a series of detailed guidelines as well as accounting rules and various financial instruments for making a clear pathway for businesses or anyone in the accounting profession, or any financial position, to stay compliant. 

Written by Jami Gong, MPAcc, CPA

Jami Gong is a Chartered Professional Account and Financial System Consultant. She holds a Masters Degree in Professional Accounting from the University of New South Wales. Her areas of expertise include accounting system and enterprise resource planning implementations, as well as accounting business process improvement and workflow design. Jami has collaborated with clients large and small in the technology, financial, and post-secondary fields.

Written by Jami Gong, MPAcc, CPA

Jami Gong is a Chartered Professional Account and Financial System Consultant. She holds a Masters Degree in Professional Accounting from the University of New South Wales. Her areas of expertise include accounting system and enterprise resource planning implementations, as well as accounting business process improvement and workflow design. Jami has collaborated with clients large and small in the technology, financial, and post-secondary fields.