Financial Accounting Standards Board

Financial Accounting Standards Board
Name	Financial Accounting Standards Board
Formation	1973
Predecessor	Accounting Principles Board
Type	Independent private-sector standards body
Headquarters	Norwalk, Connecticut
Leader title	Chair
Leader name	Richard Jones

Financial Accounting Standards Board The Financial Accounting Standards Board is a private-sector body that establishes financial accounting and reporting standards for United States securities issuers. It was created to improve consistency and transparency for preparers and users such as auditors, creditors, investors, and regulators including the Securities and Exchange Commission. The Board’s pronouncements and the ensuing codification shape accounting practice used in filings with the SEC and influence international standard-setting dialogues with bodies such as the International Accounting Standards Board and national standard-setters.

History

The Board was established in 1973 as successor to the Accounting Principles Board following a period of critique exemplified by the Wheat Committee review and reform efforts tied to the American Institute of Certified Public Accountants. Early agenda items addressed divergences highlighted by financial statement users after events like the Penn Central Transportation Company collapse and regulatory scrutiny spurred by the Securities Act of 1933 and the Securities Exchange Act of 1934. During the 1980s and 1990s the Board issued standards responding to corporate bankruptcys, evolving lease transactions, and financial instrument complexities intensified by innovations tied to the bond market and the Derivatives expansions. Post-2000, the Board engaged with international convergence initiatives following dialogues at the Norwalk Agreement and reacted to crises such as the 2007–2008 financial crisis with guidance on fair value, impairment, and consolidation.

Organization and Governance

The Board is overseen by a seven-member full-time Board appointed by the Financial Accounting Foundation, which also appoints members to an advisory Financial Accounting Standards Advisory Council and manages the standards administration. Governance involves trustees with backgrounds from firms like Deloitte, PricewaterhouseCoopers, Ernst & Young, KPMG, and institutions including the Federal Reserve System, U.S. Department of the Treasury, and academic centers such as Harvard Business School and Wharton School. Leadership turnover has included chairs who previously served in roles at the MetLife and General Electric finance functions, and appointments sometimes draw scrutiny from stakeholders such as Federated Investors and public interest groups. Funding derives from fees, private sector contributions, and endowment management by the Foundation, subject to oversight by entities including the Securities and Exchange Commission in its role as regulator of public reporting.

Standard-Setting Process

The Board’s due process is structured around research, public deliberation, and exposure drafts, involving task forces, technical staff, and advisory groups such as the Emerging Issues Task Force. Agenda decisions consider requests from preparers, users, and regulators including the SEC and dialogues with standard-setters like the International Accounting Standards Board. Pronouncements follow exposure through the Financial Accounting Standards Advisory Council and public comment, with final updates incorporated into the single authoritative codification. Procedural milestones mirror practices used by bodies like the Public Company Accounting Oversight Board, and enforcement interplay involves the Securities and Exchange Commission and professional associations such as the American Institute of Certified Public Accountants.

Major Pronouncements and Codification

Over decades the Board issued Statements, Interpretations, Staff Positions, and Emerging Issues guidance, eventually consolidating authoritative literature into an accessible codification. Landmark standards include guidance on revenue recognition inspired by the Enron collapse debates, consolidation standards affecting entities like Special-purpose entities at firms such as Lehman Brothers, and fair value measurement principles that became focal during the 2007–2008 financial crisis. The codification integrates pronouncements addressing financial instruments, lease accounting shifted by actors in the commercial real estate sector, and pension accounting influenced by large sponsors including General Motors and Boeing. The codification is used by filers to prepare Forms such as the Form 10-K submitted to the SEC.

Criticisms and Controversies

Critiques have centered on independence, perceived capture by large accounting firms like Deloitte and PricewaterhouseCoopers, and responsiveness to corporate lobbying from conglomerates including General Electric. Debates arose over fair value approaches during financial turmoil involving Lehman Brothers and policy disputes with the Federal Reserve System on systemically important institutions. The Board’s convergence efforts with the International Accounting Standards Board prompted contention among constituents preferring national approaches, and enforcement interactions with the Securities and Exchange Commission have sometimes become politically salient in hearings before the United States Congress. Transparency disputes prompted reforms recommended by committees linked to the American Institute of Certified Public Accountants and oversight reviews engaging the Government Accountability Office.

Influence and International Coordination

The Board exerts substantial influence on practice in the United States and has engaged in bilateral initiatives with the International Accounting Standards Board to reduce differences between U.S. standards and International Financial Reporting Standards. Cooperative efforts include convergence projects on revenue recognition and lease accounting, with input from supranational actors such as the European Commission and national regulators including the Financial Conduct Authority and the Australian Securities and Investments Commission. Its standards affect global capital markets through multinational issuers like IBM, Apple Inc., ExxonMobil, and Goldman Sachs, and shape academic curricula at institutions such as Stanford Graduate School of Business and London School of Economics.

Category:Accounting standards bodies