What is FASB in accounting?

FASB stands for the Financial Accounting Standards Board, which is an independent organization that sets accounting standards for public and private companies and nonprofit organizations in the US.

The FASB is responsible for establishing and improving Generally Accepted Accounting Principles (GAAP).

The responsibilities of the FASB include:

• Setting accounting standards: develops accounting standards, known as Statements of Financial Accounting Standards (SFAS) or Accounting Standards Updates (ASUs), which guide how transactions and events should be reported in financial statements. In addition, the FASB is responsible for establishing and improving Generally Accepted Accounting Principles (GAAP)
• Improving financial reporting: enhances the transparency, consistency, and usefulness of financial reporting by addressing emerging issues and clarifying existing standards
• Facilitating convergence: works closely with other accounting standard-setting bodies to promote the convergence of accounting standards globally, facilitating cross-border comparability of financial statements
• Educating stakeholders: provides guidance and training to help the users of financial statements apply accounting standards effectively

Frequently asked questions

How does the FASB determine which accounting standards to develop or update?

The FASB follows a due process that involves collecting input from various stakeholders, including preparers, auditors, and users of financial statements. 

The FASB’s agenda is influenced by emerging issues, changes in business practices, and the need for improved financial reporting guidance. The FASB also considers feedback from its advisory councils and carries out research to identify areas that require new or updated standards.

Are FASB standards mandatory for all companies?

FASB standards are mandatory for public companies in the US that are required to file financial statements with the Securities and Exchange Commission. 

Private companies and nonprofit organizations also generally follow FASB standards, although they may have some flexibility in applying them.