Financial Accounting Standards Board (FASB)

Definition

The Financial Accounting Standards Board (FASB) is an independent organization responsible for establishing and improving financial accounting and reporting standards in the United States. It ensures that financial statements are transparent, comparable, and useful for investors, creditors, and others who rely on financial information.

5 Must Know Facts For Your Next Test

1. FASB issues Generally Accepted Accounting Principles (GAAP) which are the standard guidelines for financial accounting in the U.S.
2. FASB is recognized by the Securities and Exchange Commission (SEC) as the designated accounting standard setter for public companies.
3. One of FASB's key tasks is to improve the relevance, reliability, and comparability of financial reporting using accrual accounting principles.
4. FASB operates under a due process system that allows for extensive public input on new standards or amendments to existing ones.
5. FASB updates its standards through Accounting Standards Updates (ASUs) which provide detailed guidance on specific areas of accounting.

Review Questions

• What role does FASB play in financial accounting and reporting?
• How does FASB ensure transparency and comparability in financial statements?
• Why is FASB's issuance of GAAP important for investors and creditors?

Related terms

GAAP:

Generally Accepted Accounting Principles are a set of rules governing financial statement preparation.

SEC:

The Securities and Exchange Commission oversees securities transactions, activities of financial professionals, and mutual fund trading to prevent fraud.

Accrual Accounting:

An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged.