Definition
The Financial Accounting Standards Board (FASB) is an independent, private-sector nonprofit organization that establishes and improves financial accounting and reporting standards in the United States. These standards, known as Generally Accepted Accounting Principles (GAAP), apply to public, private, and nonprofit companies.
Established in 1973, the FASB operates under the Financial Accounting Foundation’s (FAF) oversight and plays a central role in promoting transparency, consistency, and accuracy in financial reporting.
Functions and Responsibilities
- Sets U.S. GAAP: FASB develops authoritative standards for how companies should prepare and present financial statements.
- Recognized by SEC: The U.S. Securities and Exchange Commission (SEC) officially designates FASB as the standard-setting body for public companies.
- Provides Guidance: The department works with the Financial Accounting Standards Advisory Council (FASAC) to receive input from stakeholders and guide standard-setting.
- Maintaining the Codification: Oversees the FASB Accounting Standards Codification®, a digital framework consolidating all U.S. GAAP guidance into a single source.
Structure and Governance
FASB is led by seven full-time board members appointed by the FAF Board of Trustees. To ensure independence, these members must sever all prior employment ties. Each serves a five-year term, and they are eligible for one reappointment.
The FASB operates alongside related bodies within the FAF structure:
- FAF – Provides governance and oversight
- GASB (Governmental Accounting Standards Board) – Sets standards for state and local governments
- FASAC and GASAC – Advisory councils supporting FASB and GASB, respectively
FASB and International Standards
While FASB sets standards for the U.S., the International Accounting Standards Board (IASB) develops International Financial Reporting Standards (IFRS), which are used in many other countries.
In recent years, FASB has collaborated with IASB to align U.S. GAAP and IFRS, aiming to increase the global comparability of financial reporting. Despite progress, full convergence has not yet been achieved.
FASB Accounting Standards Codification®
Launched in 2009, the Codification is the authoritative source for nongovernmental U.S. GAAP. It organizes accounting guidance into about 90 topics, making it easier for stakeholders to access and apply the correct standards. The codification is available in two formats:
- Basic View – Free, limited access
- Professional View – Subscription-based, comprehensive access
Importance of FASB
FASB plays a critical role in the U.S. financial ecosystem by:
- Promoting investor confidence through consistent and transparent reporting
- Ensuring comparability of financial statements across companies and industries
- Reducing ambiguity in accounting practices
- Adapting standards to address emerging issues and economic developments
FASB’s standards directly impact financial statements, corporate compliance, investor decisions, and regulatory oversight.
FASB vs. GASB
| FASB | GASB |
| Sets GAAP for public and private companies and nonprofits | Sets accounting standards for U.S. state and local governments |
| Overseen by FAF | Also overseen by FAF |
| Focuses on investor-facing financial reporting | Emphasizes accountability to taxpayers and citizens |
The Financial Accounting Standards Board establishes and maintains the GAAP framework, which is the cornerstone of U.S. financial reporting. Its work ensures that businesses present clear, reliable, and comparable financial information. Through its standards, collaborations, and oversight, the FASB enhances the integrity of financial markets and supports informed decision-making by investors, regulators, and other stakeholders.
