Financial Accounting Standards Board (FASB)

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Financial Accounting Standards Board (FASB)

The Financial Accounting Standards Board (FASB) is the independent nonprofit organization that establishes accounting and financial reporting standards for public and private companies and nonprofit organizations in the United States. Its standards—known collectively as generally accepted accounting principles (GAAP)—guide how entities prepare and present financial statements so that users (investors, lenders, regulators, and others) can make informed decisions.

Key takeaways

  • The FASB sets U.S. GAAP for businesses and nonprofits; the Securities and Exchange Commission (SEC) recognizes it as the accounting standard-setter for public companies.
  • The Governmental Accounting Standards Board (GASB) issues standards for state and local governments; both boards are overseen by the Financial Accounting Foundation (FAF).
  • FASB maintains the Accounting Standards Codification as the single authoritative source of nongovernmental U.S. GAAP.
  • The FASB collaborates with the International Accounting Standards Board (IASB) to improve global comparability of financial reporting.

Role and responsibilities

  • Develop and issue accounting standards that define financial reporting requirements under U.S. GAAP.
  • Interpret and clarify existing standards to address practical implementation questions.
  • Educate stakeholders and provide resources to help organizations apply standards consistently.
  • Coordinate with regulators, standard-setters, preparers, auditors, and users of financial statements.

Organizational structure

  • The FASB operates under the oversight of the Financial Accounting Foundation (FAF), which appoints board members and provides funding and administrative support.
  • The FASB is governed by seven full-time board members. Members are required to sever ties with employers before joining, are appointed for five-year terms, and may serve up to 10 years.
  • Advisory bodies—such as the Financial Accounting Standards Advisory Council (FASAC)—provide input on technical issues and the board’s agenda.

How standards are developed

The FASB follows a due-process model designed to be transparent and inclusive:
1. Research and agenda-setting: The board and staff identify and prioritize financial reporting issues.
2. Deliberation and proposals: Research and discussion papers or preliminary views may be published.
3. Exposure draft and public comment: Proposed standards are released for public comment and outreach.
4. Final standard issuance: After reviewing feedback and conducting further deliberations, the board issues an Accounting Standards Update (ASU), which amends the Codification.
5. Implementation guidance and education: The FASB issues implementation guidance, holds outreach sessions, and updates resources to aid stakeholders.

Accounting Standards Codification

  • Launched to consolidate U.S. GAAP, the FASB Accounting Standards Codification organizes authoritative nongovernmental GAAP into a single, searchable system of topics and subtopics.
  • The Codification is the official source of U.S. GAAP; updates are published as ASUs that modify the Codification.
  • A basic (free) view and a more comprehensive professional subscription are available for research.

Relationship with other standard-setters

  • GASB: Established to set accounting standards for state and local governments; overseen by the same FAF but operates independently from FASB.
  • IASB: The International Accounting Standards Board issues International Financial Reporting Standards (IFRS). FASB and IASB have collaborated on convergence projects to improve comparability between U.S. GAAP and IFRS where possible.

Why FASB matters

Consistent, transparent accounting standards help ensure financial statements are reliable and comparable across entities and time periods. This supports efficient capital markets, informed investment decisions, and effective regulatory oversight.

Further considerations

  • Entities preparing financial statements should monitor FASB exposure drafts and ASUs, assess timing and expected effects of new standards, and plan for implementation.
  • Auditors and preparers must apply the Codification and follow transitional guidance issued in ASUs.

Conclusion
The FASB plays a central role in shaping U.S. financial reporting through a structured, transparent standard-setting process and by maintaining the Accounting Standards Codification as the authoritative source of nongovernmental GAAP. Its work, coordinated with other standard-setters and overseen by the FAF, underpins the credibility and comparability of financial information in the United States.