As an accounting student, you must have heard the term GAAP or Generally Accepted Accounting Principles. Ever wondered who came up with these principles? It is the FASB along with Governmental Accounting Standards Board (GASB) that has set these universally accepted principles. FASB (financial account standards board) is responsible for reforming and amending the financial reporting methods as and when the need arises. It is an amazing standard-setting body for public companies, private companies, and then non-profit companies.
Based in Norwalk, Connecticut, this independent, non-profit private company was initiated in 1973. As of 2022, it is headed by Richard R. Jones acting as the chairman. FASB is a seven-member board including the chairman. Each member is responsible for providing diverse views on their respective subject head. The tenure for the board members is also 5 years, however, they may serve up to (Maximum of) 10 years.
FASB is recognized by the United States (US) Securities and Exchange Commission and other authoritative bodies like AICPA.
Who is the focus of the financial account standards board – FASB?
The objective behind FASB, amending the accounting and reporting standards, is to provide the investors and other users of financial reports with transparent and easy-to-understand information. The idea is to help the investors and other stakeholders in making informed decisions and allocating capital reasonably.
The improvements made are not directed to induce any particular outcome. It is done to an amazing maintain of transparency of financial information, reliability of financial information, and then usability of financial information. The amendments may prove favorable or unfavorable to the companies as the case may be. But the main concern for FASB is the stakeholders like investors and creditors. FASB also works to educate the stakeholders on how to understand most effectively and implement those updated standards.
How does FASB improve the accounting and reporting standards?
Identification of topic
The issue on which an amendment is required is to be identified. Usually, these are brought to the Board’s notice by stakeholders or through other means.
Conduct Pre-Agenda Research
A staff-prepared analysis of the issues is done to find out if there are any real problems associated with the accounting and reporting standards. Would a change be better or not?
Making Agenda Decision
Based on the above research, the Board decides to add the item as a project to its agenda.
Deliberate At Public Meetings
The Board deliberates various identified issues associated with the project taken up in the agenda.
Issue of Exposure Draft
An exposure draft stating the requirement of change in a particular standard is issued. This is done to solicit inputs (I/P) from interested parties in the early stages.
The board may hold a round table meeting on the Exposure Draft.
An analysis of the inputs and discussions and their research on the project is done by the FASB staff. The Board, then deliberates in a public meeting/s, the provisions made, while making special consideration on the stakeholder inputs.
Issue Final Standard
After all considerations, the Board issues an updated accounting standard with details of the amendments.
The cost-benefit analysis is an important guideline while making an amendment. The cost, here, means the cost of educating and implementing the change. The benefit means how much the amendment shall increase the relevancy and transparency for the users of financial information. The benefits must be higher than the cost involved. With that stated, the user’s benefit is highly regarded by financial account standards board (FASB).