FASB Concepts Statement

FASB Concepts Statement
Name	FASB Concepts Statement
Caption	Conceptual framework for financial accounting and reporting
Established	1973
Jurisdiction	United States
Parent agency	Financial Accounting Standards Board

FASB Concepts Statement The FASB Concepts Statement is the Financial Accounting Standards Board's articulation of a conceptual framework for financial accounting and reporting that guides Financial Accounting Standards Board, Securities and Exchange Commission, American Institute of Certified Public Accountants, United States Department of the Treasury, and Congress in the development, interpretation, and application of accounting standards. It aims to establish objectives and qualitative characteristics for financial reporting, definitions of elements, and recognition and measurement criteria used by preparers such as Ernst & Young, PricewaterhouseCoopers, Deloitte, and KPMG as well as users including Institutional investors, Pension Benefit Guaranty Corporation, Federal Reserve System, and Insurance companies.

Overview

The Concepts Statement provides a theoretical foundation linking objectives of financial reporting to practical standards-setting processes involving Accounting Research Bulletin No. 43, Statements of Financial Accounting Standards No. 115, Statement No. 141 (Business Combinations), FAS 133 (Derivatives and Hedging), and other pronouncements from Financial Accounting Standards Board and precedents from Accounting Principles Board. It defines elements like assets, liabilities, equity, revenues, and expenses used by preparers such as General Electric, ExxonMobil, and Apple Inc. and by auditors from Big Four firms when applying standards in contexts involving Securities Act of 1933, Securities Exchange Act of 1934, and filings before the Securities and Exchange Commission.

History and Development

Development traces to initiatives after the Warren Commission era push for greater disclosure and the formation of Financial Accounting Foundation which established the Financial Accounting Standards Board in 1973 alongside predecessors like the Accounting Principles Board and the Committee on Accounting Procedure. Early Concepts Statements were issued amid debates involving Arthur Levitt, Robert H. Herz, Mary Schapiro, and other regulators and influenced by academic work from Raymond Chambers, W. Edwards Deming, and researchers at Harvard Business School, Wharton School of the University of Pennsylvania, and Stanford Graduate School of Business. Revisions and supplemental discussion papers were shaped through exposure drafts, public comment from Securities and Exchange Commission, input from Financial Accounting Standards Advisory Council, and litigation contexts exemplified by cases before the United States Court of Appeals for the Second Circuit.

Core Concepts and Objectives

The Statements articulate objectives of financial reporting—useful information for investors, lenders, and creditors—as emphasized by bodies like American Institute of Certified Public Accountants and regulators such as Securities and Exchange Commission and Public Company Accounting Oversight Board. They set qualitative characteristics, including relevance and faithful representation, and discuss comparability, verifiability, timeliness, and understandability applied by companies such as Microsoft and Johnson & Johnson when preparing financial statements under influences from International Financial Reporting Standards Foundation and International Accounting Standards Board. The framework addresses recognition criteria, measurement bases (historical cost, current cost, present value), and disclosure considerations used in standards involving Statement of Financial Accounting Standards No. 157 (Fair Value Measurements), SFAS 123 (Stock-Based Compensation), and SFAS 160 (Noncontrolling Interests). It also defines reporting boundaries and primary users reflecting interests of Institutional investors, Credit rating agencies like Moody's Investors Service and Standard & Poor's, and regulatory bodies including Federal Deposit Insurance Corporation.

Structure and Numbering of Statements

Concepts Statements are numbered sequentially and organized into chapters addressing objectives, elements, recognition, and measurement; these coexist with Statements of Financial Accounting Standards, Interpretations, and Emerging Issues Task Force abstracts issued by Financial Accounting Standards Board. Numbering conventions mirror those used across pronouncements such as Statement of Financial Accounting Standards No. 115 and subsequent codifications implemented during chairmanships like Stephen A. Zeff and Thomas L. Jones. The framework's placement within the broader US GAAP hierarchy interacts with codification efforts by Financial Accounting Standards Board and archival materials maintained by Financial Accounting Foundation and educational resources at institutions like Columbia Business School.

Influence on US GAAP and Standard-Setting

The Concepts Statements inform standard-setting priorities and have been cited in deliberations on major projects such as fair value measurement guidance, revenue recognition overhaul embodied in standards paralleling FASB ASC 606 and international convergence efforts involving International Accounting Standards Board and Norwalk Agreement. They guide preparers and auditors in interpreting standards for entities including General Motors, Bank of America, and Citigroup and influence regulatory assessments by Securities and Exchange Commission staff and enforcement actions referencing principles. Academic commentary in journals like The Accounting Review, Journal of Accounting Research, and Accounting Horizons frequently evaluates their role in shaping consistency and coherence across US GAAP.

Criticisms and Limitations

Critics from constituencies such as Public Company Accounting Oversight Board, academics like Richard A. Lambert and practitioners from Big Four argue the Statements are aspirational rather than prescriptive, leading to gaps when applied to complex transactions like derivatives or leases debated in standards involving FAS 13 and FAS 119. Others note tensions with internationally oriented frameworks promoted by International Accounting Standards Board and challenges resolving trade-offs between relevance and reliability cited in commentary by Harvard Law School scholars and stakeholders including Government Accountability Office. Limitations also stem from political influences by Congress and lobbying by major corporations such as ExxonMobil and Amazon (company), which can affect timing and content of standard-setting despite the conceptual framework's intent to provide neutral guidance.

Category:Accounting standards