Financial Accounting Standard Board (FASB): Everything You Need to Know

Anyone getting started in accounting has likely heard the term FASB. But what exactly does that mean and how does it affect the accounting at your company? The Financial Accounting Standards Board (FASB) is the independent body responsible for setting accounting standards and guidelines for publicly traded companies and non-profit organizations. Its primary role is to develop and improve generally accepted accounting principles (GAAP) in the United States.

GAAP serves as the framework for how financial statements are prepared and presented, providing consistency, comparability, and transparency in the industry. By creating these standardized accounting rules, FASB makes it easier for investors, stakeholders, and the public to understand and evaluate the financial health of a company and better manage their investments.

FASB has a huge impact on financial reporting processes and the overall credibility of financial information in the United States. Consistent financial reporting fosters investor confidence, which is crucial for a capital market to function properly. When companies follow GAAP, investors can easily analyze and compare different entities when deciding where to invest their funds — or where to sell stock or even entire businesses. Consistent financial reports also help company leaders monitor performance month over month and conduct competitive analyses with other publicly traded organizations. 

Though only responsible for creating GAAP within the United States, FASB's work also has a significant impact on global accounting practices. Many countries have written or revised their accounting standards to more closely match the International Financial Reporting Standards (IFRS), which were influenced by FASB's GAAP. This means that companies around the world are looking to FASB for accounting guidance. Together, the IFRS and GAAP frameworks play an important role in supporting efficient global markets.

GAAP and FASB are related but different. GAAP refers to a set of accounting principles, standards, and procedures used to prepare and present financial statements. They provide a framework that governs how financial information should be recorded, reported, and disclosed.

FASB is the organization responsible for setting accounting guidelines laid out in GAAP. FASB plays a crucial role in continually updating and improving GAAP to respond to changes in business practices, financial markets, and regulatory requirements, so financial reporting remains reliable and relevant.

The U.S. Securities and Exchange Commission (SEC) and FASB are two distinct entities with different roles in the financial and accounting industries. The SEC is a federal regulatory agency responsible for overseeing and regulating the securities industry, including securities exchanges, brokerage firms, and investment advisors. The Commission is intended to protect investors, maintain fair and efficient markets, and facilitate capital formation. It enforces a wide range of laws — and monitors compliance with those laws. In essence, the SEC provides oversight to ensure public companies and other market participants operate fairly.

The FASB, on the other hand, is a private-sector entity that establishes accounting standards for public companies and non-profit organizations. Its primary goal is to develop and improve generally accepted accounting principles in the United States to ensure consistency and transparency in financial reporting.

Both entities play crucial roles in the financial ecosystem, with the SEC overseeing the broader securities market and the FASB focusing more specifically on accounting standards.

Accounting software can be an invaluable tool in helping organizations stay up to date with the Financial Accounting Standards Board’s latest accounting guidelines. With Lucernex by Accruent, companies can streamline financial reporting processes, reduce the risk of errors, and ensure compliance with new accounting guidelines as they are introduced. Take the guesswork out of your financial reporting and request a demo today.