Since 1973, the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports. They are officially recognized as authoritative by the Securities and Exchange Comminssion. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors, and others rely on credible, transparent, and comparable financial information. The FASB develops broad accounting concepts as well as standards for financial reporting. It also provides guidance on implementation of standards. Concepts are useful in guiding the Board in establishing standards and in providing a frame of reference, or conceptual framework, for resolving accounting issues.
The FASB receives many requests for action on various financial accounting and reporting topics from all segments of its diverse constituency, including the SEC. The core of the Board’s due process is open decision-making meetings and exposure of proposed standards for public comment. All technical decisions are made in meetings that are open to public observation, although observers do not participate in the discussions. The Board may reach conclusions on one or more of the issues presented. Each FASB Statement or Interpretation is issued in draft form (Exposure Draft) for public comment. The Exposure Draft sets forth the proposed standards of financial accounting and reporting, the proposed effective date and method of transition, background information, and an explanation of the basis for the Board’s conclusions. At the end of the exposure period, all comment letters and position papers are analyzed by the staff. Then the Board redeliberates the issues. When the Board is satisfied that all reasonable alternatives have been considered adequately, the staff is directed to prepare a draft of a final document for consideration by the Board. A vote is taken on the final document, by written ballot. A simple majority of four votes is required for adoption of a pronouncement.
The final product of most technical projects is a Statement of Financial Accounting Standards (SFAS). Like the Exposure Draft, the Statement sets forth the actual standards, the effective date and method of transition, background information, a brief summary of research done on the project, and the basis for the Board’s conclusions, including the reasons for rejecting significant alternative solutions. It also identifies members of the Board voting for and against its issuance and includes reasons for any dissents.
In addition to Statements of Financial Accounting Standards, the FASB also issues Statements of Concepts. Statements of Concepts do not establish new standards or require any change in the application of existing accounting principles; instead, they are intended to provide the Board and constituents with a foundation for setting standards and concepts useful as tools for solving problems. The framework defined in the Statements of Concepts helps the Board identify the right questions to ask in structuring technical projects and contributes to a consistent approach over time.
The Emerging Issues Task Force (EITF) was formed in 1984 in response to the recommendations for the FASB’s task force on timely finanacial reporting guidance and an FASB Invitation to Comment on those recommendations. Composition of the EITF is designed to include persons in a position to be aware of emerging issues before they become widespread and before divergent practices regarding them become entrenched. Consensus positions of the EITF are considered part of GAAP. If consensus is not possible, it may be an indication that action by the FASB is necessary.
This information was drawn from About the FASB.