Financial Accounting Standards Board

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The Financial Accounting Standards Board (FASB) is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles in the United States (US GAAP). The FASB's mission for the private sector is similar to that of the Governmental Accounting Standards Board (GASB) for local and state governments in the United States. The FASB was created in 1973, replacing the Accounting Principles Board of the American Institute of Certified Public Accountants (AICPA)who replaced the Accounting Principles Board and the Committee on Accounting Procedure in 1959, also of the AICPA. According to its web site, the FASB's mission is "to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information."

The FASB is subject to oversight by the Financial Accounting Foundation (FAF), which selects the members of the FASB and GASB. The Sarbanes-Oxley Act of 2002 imposes fees on public companies and 100% of FASB's budget is funded by these fees; in addition, FASB sells its products under copyright claims that it asserts and uses the proceeds from sales to fund the operation of GASB.

The Board of Trustees of the FAF is selected in part by a group of organizations including the American Accounting Association; the American Institute of Certified Public Accountants; the CFA Institute; Financial Executives International; the Government Finance Officers Association; the Institute of Management Accountants; the National Association of State Auditors, Comptrollers and Treasurers; and the Securities Industry Association. [1]

The U.S. Securities and Exchange Commission (SEC) has statutory authority to establish financial accounting and reporting standards for publicly held companies under the Securities Exchange Act of 1934. Throughout its history, however, the SEC's policy has been to rely on the private sector for this function to the extent that the private sector demonstrates ability to fulfill the responsibility in the public interest. The SEC designated the FASB as the organization responsible for setting accounting standards for public companies in the U.S.

Before the present structure was created, financial accounting and reporting standards were established first by the Committee on Accounting Procedure of the AICPA (1936–1959) and then by the AICPA Accounting Principles Board (1959–73). Pronouncements of those predecessor bodies remain in force unless amended or superseded by the FASB.

The FASB is in the middle of a convergence project with the International Accounting Standards Board to make it easier for companies to report financial statements, so that separate financial statements are not needed for US and international markets. As part of the convergence project, the FASB has started transitioning from the principle of historical cost to fair value, a principle supported by the IASB.

The board's current (2004) chairman is Robert H. Herz.