Financial Accounting Standards Board (FASB): Definition and How It Works

Will Kenton is an expert on the economy and investing laws and regulations. He previously held senior editorial roles at Investopedia and Kapitall Wire and holds a MA in Economics from The New School for Social Research and Doctor of Philosophy in English literature from NYU.

Khadija Khartit is a strategy, investment, and funding expert, and an educator of fintech and strategic finance in top universities. She has been an investor, entrepreneur, and advisor for more than 25 years. She is a FINRA Series 7, 63, and 66 license holder.

1. Accounting Explained With Brief History and Modern Job Requirements
2. Accounting Equation
3. Asset
4. Liability
5. Equity
6. Revenue
7. Expense
8. Current and Noncurrent Assets

Accounting Theories and Concepts

1. Accounting Theory
2. Accounting Principles
3. Accounting Standard
4. Accounting Convention
5. Accounting Policies
6. Principles-Based vs. Rules-Based Accounting

Accounting Methods: Accrual vs. Cash

1. Accounting Method
2. Accrual Accounting
3. Cash Accounting
4. Accrual Accounting vs. Cash Basis Accounting

Accounting Oversight and Regulations

1. Understanding the Cash Flow Statement
2. Breaking Down The Balance Sheet
3. Understanding the Income Statement

1. Accountant
2. Financial Accounting
3. Financial Accounting and Decision-Making
4. Corporate Finance
5. Financial vs. Managerial Accounting
6. Cost Accounting

Public Accounting: Financial Audit and Taxation

1. Certified Public Accountant (CPA)
2. Chartered Accountant (CA)
3. Accountant vs. Financial Planner
4. Auditor
5. Audit
6. Tax Accounting
7. Forensic Accounting

Accounting Systems and Record Keeping

1. Chart of Accounts (COA)
2. Journal
3. Double Entry
4. Debit
5. Credit
6. Closing Entry
7. Invoice
8. Introduction to Accounting Information Systems

Accounting for Inventory

1. Inventory Accounting
2. Last In, First Out (LIFO)
3. First In, First Out (FIFO)
4. Average Cost Method

What Is the Financial Accounting Standards Board (FASB)?

The Financial Accounting Standards Board (FASB) is an independent nonprofit organization responsible for establishing accounting and financial reporting standards for companies and nonprofit organizations in the United States, following generally accepted accounting principles (GAAP). The FASB was formed in 1973 to succeed the Accounting Principles Board and carry on its mission. It is based in Norwalk, Conn.

Key Takeaways:

• The Financial Accounting Standards Board (FASB) sets accounting rules for public and private companies and nonprofits in the United States.
• A related organization, the Governmental Accounting Standards Board (GASB), sets rules for state and local governments.
• In recent years, the FASB has been working with the International Accounting Standards Board (IASB) to establish compatible standards worldwide.

How the Financial Accounting Standards Board (FASB) Works

The Financial Accounting Standards Board has the authority to establish and interpret generally accepted accounting principles (GAAP) in the United States for public and private companies and nonprofit organizations. GAAP is a set of standards that companies, nonprofits, and governments should follow when preparing and presenting their financial statements, including any related party transactions.

The Securities and Exchange Commission (SEC) recognizes the FASB as the accounting standard setter for public companies. It is also recognized by state accounting boards, the American Institute of Certified Public Accountants (AICPA), and other organizations in the field.

The Financial Accounting Standards Board is part of a larger, independent nonprofit group that also includes the Financial Accounting Foundation (FAF), the Financial Accounting Standards Advisory Council (FASAC), the Governmental Accounting Standards Board (GASB), and the Governmental Accounting Standards Advisory Council (GASAC).

The GASB, which is similar in function to the FASB, was established in 1984 to set accounting and financial reporting standards for state and local governments across the United States. The FAF oversees both the FASB and the GASB. The two advisory councils provide guidance in their respective areas.

Collectively, the organization's mission is to improve nonprofit financial accounting and reporting standards so that the information is useful to investors and other users of financial reports. The organizations also educate stakeholders on how to understand and implement the standards most effectively.

The FASB is governed by seven full-time board members, who are required to sever their ties to the companies or organizations they work for before joining the board. Board members are appointed by the FAF's board of trustees for five-year terms and may serve for up to 10 years.

In 2009, the FAF launched the FASB Accounting Standards Codification, an online research tool designed as a single source for authoritative, nongovernmental, generally accepted accounting principles in the United States. According to the FAF, the tool "reorganizes the thousands of U.S. GAAP pronouncements into roughly 90 accounting topics and displays all topics using a consistent structure." The website also provides relevant Securities and Exchange Commission (SEC) guidance on those topics. A "basic view" version is free, while the more comprehensive "professional view" is available by paid subscription.

FASB vs. IASB

The London-based International Accounting Standards Board (IASB), founded in 2001 to replace an older standards organization, is responsible for the International Financial Reporting Standards (IFRS), which are now used in many countries throughout the world. In recent years, the FASB has been working with the IASB on an initiative to improve financial reporting and the comparability of financial reports globally.