Financial Accounting Standards Board (FASB)
What Is the Financial Accounting Standards Board (FASB)?
The Financial Accounting Standards Board (FASB) is an independent nonprofit organization responsible for establishing accounting and financial reporting standards for companies and nonprofit organizations in the United States. These standards are known as Generally Accepted Accounting Principles (GAAP).
FASB’s mission is to improve the clarity, consistency, and transparency of financial reporting so investors, lenders, and regulators can make informed decisions.
Why It Matters
Financial reports are essential tools for understanding the financial health of businesses. By setting standardized accounting rules, FASB ensures that financial statements are prepared consistently across organizations.
This consistency helps investors compare companies more easily and improves trust in financial markets.
How FASB Works
FASB develops accounting standards through a structured public process.
The process typically includes:
- research and consultation with stakeholders
- issuing proposed accounting standards
- gathering public comments
- finalizing and publishing new standards
Once adopted, companies must follow these standards when preparing financial statements.
Example
When companies report earnings in their quarterly financial statements, they must follow GAAP standards established by FASB.
FASB vs SEC
- FASB establishes accounting standards.
- The Securities and Exchange Commission (SEC) oversees securities markets and enforces financial reporting requirements for public companies.
FAQs About FASB
What is GAAP?
GAAP stands for Generally Accepted Accounting Principles, the accounting standards created by FASB.
Does FASB regulate companies?
No. FASB sets accounting standards, but regulatory agencies enforce compliance.
Who uses FASB standards?
Businesses, investors, accountants, auditors, and regulators rely on these standards.
Related Terms
- Generally Accepted Accounting Principles (GAAP)
- Securities and Exchange Commission (SEC)
- Public Company
- Financial Reporting
- Accounting
