FASB and Its Effect on GAAP
The application of accounting methods to record and present financial transaction data has evolved significantly in both the public and private sectors over the last fifty years. Since 1973, the United States’ generally accepted accounting principles (GAAP), a set of accounting standards grown from general practice and the standardization of accounting methods, have been set and regulated by the Financial Accounting Standards Board (FASB). Business owners and other accounting data users are affected by decisions made by FASB, particularly because of the entity’s heavy influence on public and private companies adhering to GAAP and the mutability and application of GAAP as accounting standards are analyzed and changed.
History of the Financial Accounting Standards Board
Prior to FASB, the American Institute of Certified Public Accountants monitored accounting standards, subject to regulation by the U.S. Securities and Exchange Commission (SEC), through two seasons of entities: the first being the Committee on Accounting Procedure from 1939 – 1958, and the second being the Accounting Principles Board from 1959 until the creation of FASB in 1973. At that time, FASB not only replaced the prior regulatory agencies but also incorporated under a different set of supervisory entities. FASB is under the direct supervision of the Financial Accounting Foundation, with advising and input on accounting standards from the Financial Accounting Standards Advisory Council. This shift in responsibility to accounting standards was directed by the SEC, who still retains legal authority to establish financial accounting and reporting standards for publicly-held companies under the Securities Exchange Act of 1934 yet historically has relied on the private sector to perform this function so long as they continue to uphold responsibility to the public interest.
FASB’s Impact on Generally Accepted Accounting Principles
Since its creation in 1973, FASB has continually worked towards uniformity and standardization of GAAP and the communication of GAAP standards to public and private companies adhering to the system. In July 2009, FASB launched the Accounting Standards Codification, a singular resource of authoritative and non-governmental GAAP compiled and organized into a user-friendly format. Previous to the Codification, GAAP application for any particular business inquiry or accounting problem was determined after researching through various resources and formats, often leading to confusion and the breakdown of uniformity within U.S. accounting standards.
Any changes and establishments of accounting principles made by FASB are announced publicly in one of five pronouncement formats: Statements of Financial Accounting Standards, Statements of Financial Accounting Concepts, FASB Interpretations, FASB Technical Bulletins, and EITF Abstracts. Specific GAAP-related questions may be answered by overlapping publications made by FASB, though the nature and weight of each type of pronouncement helps users to determine the best measure of GAAP application to their inquiry.
FASB’s most recent and perhaps most impactful long-term efforts surround their cooperation with the International Accounting Standard Board in developing a common Conceptual Framework of generally accepted accounting principles, in hopes of eventually converging accounting standards on an international level.