The Financial Accounting Standards Board (FASB) establishes generally accepted accounting principles (GAAP) in the United States. It works with organizations like the Financial Accounting Foundation, Financial Accounting Standards Advisory Council, Securities and Exchange Commission, and American Institute of Certified Public Accountants to develop accounting standards through a multi-step process. This process involves adding projects, conducting research, issuing exposure drafts, and finalizing new standards to improve the usefulness of financial reporting for investors and other users of financial statements.

1. FASB
& Standard Setting
By Violeta A Mercado, MBA

2. FAR Environment
• Financial accounting and reporting provides information to external
users of the financial statement in order to:
• Make investment and credit decisions
• To assess amount and timing of cash flows
• To assess economic resources and obligations

3. GAAP – General Accepted Accounting
Principles
• To ensure that financial reporting meets these objectives:
• Recognition – when recorded on financial statement - (A recognized
item is recorded in a an account and ultimately affects the financial
statements)
• Measurement – how recorded on financial statements – ( Concerns
the dollar amount assigned to an item)
• Disclosure – anything that is not on the financial statement – ( Many
unrecognized amounts are reported in the footnotes to complete the
portrayal of the firm’s financial positions and performance. )
• Assets reported at their historical cost, rather than at current
market value

4. Organizations /Developing Accounting
Standards
• Financial Accountings Standards Board (FASB)
• Securities and Exchange Commissions (SEC)
• American Institute of Certified Public Accountants (AICPA)

5. FASB
• The current private sector body that establishes GAAP and financial
accounting standards for business entities.
• Seven full time members – Effective 2011
Mission to improve the usefulness of financial reporting
• Improve the usefulness of financial reporting
• Maintain current accounting standards
• Promptly address deficiencies in accounting standards
• Improve the common understanding of the nature and purposes of
information in financial reports

6. FASB & STANDARD SETTING
• Financial accounting and reporting is concerned with providing
relevant information to :
• Investors
• Creditors
• Other parties
Purpose:
• Allocation decisions
• New releases
• Future securities offering

7. FASB STRUCTURE
FASB
FAF
Provides founding
FASAC
Provides guidance
on policy

8. FAF
Financial Accounting Foundation exercises oversight of the Financial
Accounting Standards Board (FASB)
• Appoints the Board Members & Advisory Councils
• Ensure funding
• Exercises Oversights

9. Standard Setting Process
Add
projects
to
agenda
Conducts
research
and
issues
DM
Public
Hearing Issues
ED
Modifies
ED
Finalizes
and
Issues
ASU

10. FASAC
Financial Accounting Standard Advisory Council (FASAC)
• Provides guidance on policy issues.
• Project priorities and formation of task forces

11. First 3 steps FASB uses when issuing a new
accounting standard
• 1.Considers whether to add a project to its agenda in consultation
with the Financial Accounting Foundation (FAF)
• 2. Conducts research
• 3. Holds a public hearing on the topic

12. The 3 final steps in the standard setting
process
• 1. Evaluate research and comments from interested parties and issue
an exposure draft
• 2. Solicit additional comments
• 3. Finalize new accounting guidance and issue Accounting Standard
Update (ASU)

13. American Institute of Certified Public
Accountants (AICPA)
The mission is to provide its members with resources, information ,
and leadership
• Professional organization for practicing CPAs
• Substantial input into the standard setting process.
• All past standard setting process were created by the AICPA

14. SEC
The main purpose of the SEC is to promote efficient allocation of capital by maintaining open,
orderly, and fair securities markets.
• The federal government agency that administers the securities laws
of the U.S.
• Securities Act of 1933
• Securities Exchange Act of 1934
• SEC has exercised its right to reverse or modify an accounting
standard adopted by the private sector body.
• SEC has pressured the FASB to establish certain principles

15. FASB: Note
• The FASB operated with seven Board members from its inception 1973 until
2008 when the board was reduced to five members. The Board membership
increased back to seven in early 2011.
• The FAF Chairman, Jack Brennan, gave this rationale for the change:
“Returning the Board to the seven-member structure will enhance the FASB’s
investment in the convergence agenda with the international Accounting
Standard Board (IASB), while addressing the unprecedented challenges
facing the American capital markets in the months and years ahead.”