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It can become difficult to keep track of the different reporting directives, such as the NFRD, CSRD, and the U.S. – the FASB, or the Financial Accounting Standards Board.
What is the Financial Accounting Standards Board, more often referred to the FASB for short – and how does it work to develop reporting and accounting standards across the United States whilst aspiring to extend those accounting standards across the world?
The main responsibilities of the FASB include setting guidelines for accounting for both public and private companies, assisting the help of their sister organization GASB, or Governmental Accounting Standards Board, to determine set guidelines for both local and state governments, and as of more recently – to assist the International Accounting Standards Board, or IASB, to create worldwide accounting standards.
The FASB was created almost fifty years ago back in 1973 in order to help the Accounting Principles Board, which is the previous board responsible for the development of accounting and reporting standards that was later replaced with the Financial Accounting Standards Board.
Before the FASB was implemented, the Accounting Standards Board was in place – where it laid the groundwork for several other pivotal organizations tied to accounting and reporting standards, such as the GAAP. Without the Accounting Standards Board, ground rules for transparency and consistency in accounting, reporting, and financial statements wouldn't have been as well established when the FASB came about.
After being implemented in 1959, the Accounting Standards Board came to an end as it was replaced with the Financial Accounting Standards Board, or the FASB – which differed from the Accounting Standards Board as it was a non-profit, private organization run by only seven full-time board members as opposed to the eighteen to twenty-one members of the ASB.
The Financial Accounting Standards Board works to create new generally accepted accounting principles, also known as GAAP, across the U.S. for both nonprofit organizations, public, and private companies. The Financial Accounting Standards Board is also seeking to review leases, credit losses, and revenue recognition – adding onto the wide array of FASB standards.
These generally accepted accounting principles, otherwise known as GAAP, are meant to help various companies, governments, and organizations to share their financial standings with transparency – in which doing so can ultimately lead to greater sustainability and investor interest. The FASB is recognized as the primary board responsible for setting accounting standards, as it is recognized by entities such as the Securities and Exchange Commission and the American Institute of Certified Public Accountants.
In order to set accounting standards for a wide array of companies and organizations, the Financial Accounting Standards Board works in collaboration with other entities such as the Financial Accounting Foundation, the Financial Accounting Standards Advisory Council, the Governmental Accounting Standards Board, and the Governmental Accounting Standards Advisory Council. The FASB works in conjunction with these other councils and boards in order to create the most effective and efficient accounting principles.
Activities completed by the FASB are conducted by seven board members, all of whom are asked to leave their jobs from outside companies or organizations prior to joining the FASB in order to ensure for the fair creation of accounting standards. These board members are chosen by the Financial Accounting Foundations, or FAF, and can serve up to two five-year terms.
FASB also works to be readily available, such as by launching their new access to the FASB Accounting Standards Codification (an online research system representing the source of U.S. GAAP) and the Governmental Accounting Research System – both of which provide free access and can help both public companies and those in the private sector better understand accounting rules and to improve financial reporting.
Ultimately, the work of the FASB would not be possible without the expertise and assistance of these other organizations, councils, and boards. Through these collaborative efforts, the FASB is able to achieve its mission of creating new financial reporting and accounting standards while also improving the existing accounting standards. Collectively, the organizations' mission is to improve financial accounting and reporting standards so that the information is useful to investors and other users of financial reports.
Why is the FASB important in the world of accounting and business as these industries gravitate towards sustainability?
There are several benefits to the FASB, with one of the most important pros of the Financial Accounting Standards Board being that it encourages companies to promote transparency and reduce the risk of audits from the Securities and Exchange Commissions, or the SEC, and the Internal Revenue Service.
The FASB is also extremely beneficial for future investors and stakeholders – as the Financial Accounting Standards Board ensures truthful disclosures in reporting financial information with these potential investors, meaning the FASB can help investors and stakeholders decipher which companies are worth their financial contributions.
In addition, the FASB helps to educate organizations on the importance of practicing transparency – as without the financial reporting and accounting standards set by FASB, many companies would simply ignore these standards and remain incognizant of the benefits that could be had for their business. The FASB can guide these unaware organizations on how to implement the standards most effectively.
The FASB allows for equal standards to be set for all businesses across the United States. Think of the FASB as high school students in the U.S. taking their SATs or ACTs, which are standardized academic tests that measure one's preparedness to attend a college university.
The FASB works in a similar way, as it helps to provide a standard benchmark for all companies to meet regardless of size, location, or industry. Through the standard accounting guidelines provided by the FASB, it makes it easier for accounting and financial reporting issues to be clarified.
Without the FASB, it would be difficult to rectify these accounting issues as there would be no set standards for accounting or financial reporting. The FASB is successful in finding these accounting discrepancies by monitoring the issue, and then modifying the current accounting issue at hand. Therefore, another benefit of the FASB is its ability to remain flexible and quickly course correct any accounting or financial reporting issues.
Another benefit of the FASB is that due to its private nature and ability to function without interference from the U.S. government, the FASB helps to remove pressure from the U.S. government to remain aware of these financial and accounting discrepancies. Therefore, the FASB can help both the SEC and the U.S. government to work more efficiently.
Is the FASB the only board to assist with accounting and financial reporting standards?
Since 2002, the FASB has collaborated with the IASB in order to create globally recognized standards for accounting and financial reporting. Therefore, it's easy to think of the IASD, or the International Accounting Standards Board based in London, and the FASB as the same thing – but the two accounting and financial reporting directives aren't exactly the same.
Both the FASB, or the Financial Accounting Standards Board, and the IASB, or the International Accounting Standards Board – deal with the standardization of accounting, but their approaches to achieving the regulation of accounting and financial reporting standards are different.
The IASB is much newer than the FASB, with the International Accounting Standards Board having been proposed in early 2001 and the Financial Accounting Standards Board coming into fruition in 1973.
The main difference between the IASB and the FASB is that the International Accounting Standards Board The IASB is responsible for the creation of International Financial Reporting Standards, whereas the FASB seeks to develop generally accepting accounting principles.
Ultimately, the main goal of the FASB, with the help of other boards and organizations such as the GASB and FAF, or the Governmental Accounting Standards Board and the Financial Accounting Foundations respectively, is to ameliorate the current circumstance surrounding financial reporting and accounting standards in order to rectify the experiences of potential and current investors, while also mitigating financial risks.
Another goal of the FASB is to ensure that stakeholders and potential investors are provided with the most accurate information possible prior to making an investment decision through the use of standardized financial accounting and reporting. Therefore, the FASB is responsible for seeking to establish all of these accounting and financial reporting measures as effectively as possible, and provide stakeholders and potential investors with the resources necessary to make a wise investment decision.
The main missions of the FASB are achieved with the help of the GASB and FAF. The FASB and GASB are the ones responsible for setting accounting standards, whereas the FAF management and trustees are responsible for creating services to support the implementation and promotion of these standards.
However, that isn't to say that the FASB doesn't experience challenges – as one of the biggest roadblocks to the FASB achieving continued success is how sporadically monitoring certain accounting issues can prevent corrective and efficient courses of action. In other words, while the FASB helps to reduce stress on the U.S. government – there are still many tasks that the FASB must tackle with time constraints.
Ultimately, the FASB has successfully established itself and its value over the last fifty years – but given how the importance of transparency is on the rise, it isn't improbable to think that the FASB may need to recruit more help on their side to remain successful.
If reading this article on the Financial Accounting Standards Board, or FASB, has made you interested in reducing your carbon emissions to further fight against climate change – Greenly can help you!
The Financial Accounting Standards Board, or FASB, is just one of the many environmental regulations your company might have to comply with. Check out our legislation tracker here to see which rules your company has to adhere to.
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