Introduction
The Financial Accounting Standards Board (FASB) is the primary standard-setting body responsible for developing and issuing Generally Accepted Accounting Principles (GAAP) for non-governmental organizations in the United States. It establishes accounting standards to ensure that financial statements are prepared in a consistent, reliable, and transparent manner. Before the establishment of the FASB, accounting standards were mainly developed by the American Institute of Certified Public Accountants (AICPA), subject to the regulations of the U.S. Securities and Exchange Commission (SEC). During that period, auditors played a leading role in the development of accounting principles for business enterprises.
History of FASB
The development of accounting standards in the United States has evolved through several stages. The U.S. Securities and Exchange Commission (SEC) was established after the Great Depression. At that time, there was no single organization responsible for setting accounting standards. Instead of developing standards itself, the SEC encouraged the creation of private standard-setting bodies because it believed that the private sector possessed the necessary knowledge, expertise, and resources to formulate accounting principles.
In 1939, following the recommendation of the SEC, the AICPA established the Committee on Accounting Procedure (CAP). Between 1939 and 1959, CAP issued 51 Accounting Research Bulletins (ARBs) to address various accounting issues. However, these bulletins were issued to solve individual problems and did not provide a comprehensive framework of accounting principles.
To overcome this limitation, the AICPA established the Accounting Principles Board (APB) in 1959. The main objective of the APB was to develop a more structured and comprehensive set of accounting principles. During its existence, the APB issued 31 Accounting Opinions before it was dissolved in 1973.
As accounting practices became more complex, the need for a stronger and more independent standard-setting body was recognized. A special committee known as the Study Group on the Establishment of Accounting Principles, commonly referred to as the Wheat Committee, was formed to review the existing system. The committee concluded that the APB should be dissolved and replaced with a new independent organization capable of developing high-quality accounting standards.
Formation and Organisational Structure
In 1973, the Accounting Principles Board (APB) was replaced by the Financial Accounting Standards Board (FASB).
The FASB operates under the supervision of the Financial Accounting Foundation (FAF). It is supported by the Financial Accounting Standards Advisory Council (FASAC), which provides advice, recommendations, and technical input during the development of accounting standards.
After the establishment of the FASB, the AICPA created the Accounting Standards Executive Committee (AcSEC) to provide additional professional guidance. AcSEC publishes audit and accounting guides that explain accounting practices followed in different industries. It also issues Statements of Position, which provide guidance on financial reporting matters, and Practice Bulletins, which express AcSEC’s views on specific accounting issues.
In 1984, the FASB established the Emerging Issues Task Force (EITF). The primary objective of the EITF is to identify, discuss, and resolve new financial accounting issues quickly so that financial reporting remains consistent and up to date. The EITF performs its work within the framework of the FASB Accounting Standards Codification.
FASB Accounting Standards Codification (ASC)
A major milestone in the development of U.S. accounting standards occurred in 2008, when the FASB introduced the Accounting Standards Codification (ASC).
Before the introduction of the Codification, U.S. GAAP consisted of thousands of accounting standards, statements, opinions, interpretations, and other pronouncements issued over many years. These standards were scattered across numerous documents, making them difficult to locate and apply.
The Accounting Standards Codification (ASC) reorganized all existing U.S. GAAP into approximately 90 accounting topics, making the standards easier to understand, access, and apply. The Codification also includes relevant guidance issued by the Securities and Exchange Commission (SEC), which is arranged using the same topic-based structure.
From 2009 onwards, the FASB Accounting Standards Codification became the single authoritative source of U.S. GAAP for non-governmental entities. All accounting standards and pronouncements issued before 2009 were superseded by the Codification.
Key Points
The Financial Accounting Standards Board (FASB) is the principal accounting standard-setting body for non-governmental organizations in the United States.
The Committee on Accounting Procedure (CAP) was established in 1939 and issued 51 Accounting Research Bulletins (ARBs) between 1939 and 1959.
The Accounting Principles Board (APB) was formed in 1959, issued 31 Opinions, and was dissolved in 1973.
The Wheat Committee recommended the dissolution of the APB and the creation of the FASB.
The FASB was established in 1973 under the supervision of the Financial Accounting Foundation (FAF), with advice from the Financial Accounting Standards Advisory Council (FASAC).
The Emerging Issues Task Force (EITF) was created by the FASB in 1984 to resolve emerging accounting issues promptly.
The FASB Accounting Standards Codification (ASC) was introduced in 2008 and became the single authoritative source of U.S. GAAP from 2009. It reorganized thousands of accounting pronouncements into approximately 90 accounting topics.