FASB

Definition

FASB, or the Financial Accounting Standards Board, is the independent, private-sector organization responsible for establishing and improving financial accounting and reporting standards in the United States. It plays a crucial role in the context of the balance sheet, as it sets the guidelines and principles for how companies should record, classify, and report their assets, liabilities, and equity on this key financial statement.

5 Must Know Facts For Your Next Test

1. FASB was established in 1973 to replace the previous Accounting Principles Board and improve the quality of financial reporting in the United States.
2. FASB is responsible for issuing Accounting Standards Updates (ASUs), which are new or amended accounting standards that companies must follow when preparing their financial statements.
3. The primary objective of FASB is to ensure that financial information provided to investors, creditors, and other stakeholders is relevant, reliable, and comparable.
4. FASB's standards are recognized as authoritative by the Securities and Exchange Commission (SEC) and are required for publicly traded companies in the U.S.
5. FASB's standard-setting process involves extensive research, public comment periods, and collaboration with various stakeholders to ensure the standards are well-informed and meet the needs of financial statement users.

Review Questions

• Explain the role of FASB in the context of the balance sheet.
  • FASB plays a crucial role in the context of the balance sheet by establishing the standards and principles for how companies should record, classify, and report their assets, liabilities, and equity. The standards set by FASB ensure that the information presented on the balance sheet is relevant, reliable, and comparable across companies, allowing stakeholders to make informed decisions about the financial health and performance of the organization.
• Describe the relationship between FASB and Generally Accepted Accounting Principles (GAAP).
  • FASB is responsible for setting the Generally Accepted Accounting Principles (GAAP) in the United States. GAAP refers to the standard framework of guidelines, rules, and procedures that companies must follow when compiling their financial statements, including the balance sheet. FASB's accounting standards and pronouncements are the foundation for GAAP, and companies must adhere to FASB's standards when preparing their financial reports to ensure compliance with GAAP.
• Analyze how FASB's standard-setting process contributes to the reliability and comparability of financial information on the balance sheet.
  • FASB's standard-setting process involves extensive research, public comment periods, and collaboration with various stakeholders to ensure the standards are well-informed and meet the needs of financial statement users. This rigorous process helps to ensure that the accounting standards issued by FASB are relevant, reliable, and consistently applied across companies. By providing a common set of principles and guidelines for recording, classifying, and reporting balance sheet items, FASB's standards enhance the comparability of financial information, allowing stakeholders to make more informed decisions about a company's financial position and performance.

Related terms

Generally Accepted Accounting Principles (GAAP):

GAAP refers to the standard framework of guidelines, rules, and procedures that companies must follow when compiling their financial statements, as established by FASB and other authoritative bodies.

Accounting Standards Codification (ASC): The ASC is the single source of authoritative, nongovernmental U.S. generally accepted accounting principles (GAAP) recognized by FASB, which is used to organize the various accounting pronouncements that FASB has issued.

Financial Accounting Standards Advisory Council (FASAC): The FASAC is an advisory council to FASB that provides input and advice on FASB's agenda, project priorities, and other matters to assist FASB in improving financial accounting and reporting standards.