Financial Accounting Standards Board

The Financial Accounting Standards Board (FASB) is the independent, private organization responsible for developing and maintaining GAAP — the accounting standards used by US companies. The SEC has designated the FASB as the official standard-setter for financial reporting by public companies. The FASB issues standards in the form of Accounting Standards Updates (ASUs) and organizes them in the Accounting Standards Codification (ASC). The FASB operates with the oversight of a larger body called the Financial Accounting Foundation, which ensures independence and due process.

The role of the FASB

The FASB exists to serve one purpose: develop accounting standards that make financial reporting reliable and useful. It is not a regulator; it doesn’t enforce standards or punish companies. That job belongs to the SEC, which refers to FASB standards in its enforcement and explicitly recognizes FASB standards as the source of GAAP.

The FASB works with other entities:

• The Financial Accounting Foundation provides governance and selects the FASB’s leadership.
• The SEC enforces GAAP compliance for public companies.
• The AICPA (American Institute of Certified Public Accountants) represents the profession.
• The IASB coordinates international convergence.

But the FASB is the engine. It identifies accounting issues, researches solutions, exposes proposed standards for public comment, deliberates, and issues final standards.

How standards are organized: the ASC

The Accounting Standards Codification (ASC) is the comprehensive, searchable index of all FASB standards and related guidance. It is organized by topic (revenue recognition, leases, consolidation, etc.) and then by subtopic.

Standards are referred to by their ASC number. For example:

• ASC 606 — Revenue from Contracts with Customers
• ASC 842 — Leases
• ASC 740 — Income Taxes

Before the codification was created (in 2009), standards were scattered across multiple documents. The ASC unified them, making it easier to research and apply standards. The ASC is the official source for GAAP.

The standard-setting process

The FASB works through a deliberative, public process:

1. Issue Identification — a topic is flagged as needing a standard or update.
2. Research and Outreach — the FASB studies the issue, surveys companies and auditors, and considers alternatives.
3. Proposed Accounting Standards Update (ASU) — a draft is released for public comment, usually with a 60-day comment period.
4. Deliberation — the FASB considers feedback, discusses options, and decides on a final approach.
5. Final ASU — the final standard is published, usually with an effective date 12–24 months in the future.

This process is designed to ensure broad input and transparency. Companies, auditors, investors, and academics can comment on proposals. The FASB considers their feedback before finalizing.

Recent major standards

The FASB’s most consequential recent standards include:

• ASC 606 (effective 2018) — rewrote revenue recognition to focus on control of promised goods or services rather than the old “risk and reward” test. This affected every company with complex contracts.
• ASC 842 (effective 2019 for public companies) — required most leases to be recognized on the balance sheet as right-of-use assets and liabilities, eliminating the distinction between operating and finance leases for accounting purposes.
• ASU 2016-02 and updates — addressed credit losses for financial instruments, changing how allowance-for-doubtful-accounts is measured.

Each of these standards took years to develop and required extensive outreach. The transition to a new standard often requires companies to restate prior years and update systems.

Convergence with IASB

For decades, the FASB and IASB worked on a “convergence” project to align GAAP and IFRS. Some major standards (revenue, leases) have been fully aligned. Others remain distinct, particularly where the SEC or US business community has strong preferences (e.g., the LIFO inventory method is permitted under GAAP but not IFRS).

Full convergence is unlikely, but the FASB and IASB continue to coordinate where possible.

Emerging issues and the future

Current topics on the FASB’s agenda include accounting for crypto assets, climate-related disclosures, and the SEC’s push for consistent environmental, social, and governance (ESG) reporting standards. The FASB also coordinates with the newly formed US standard-setter for sustainability accounting (SASB standards are being converged with IFRS sustainability standards).

The FASB will always have work. As business models evolve, accounting standards must evolve with them.

See also