Definition: The Financial Accounting Standards Board or the FASB is an organization created to establish and improve financial accounting standards in the private sector. The authority to establish accounting rules and standards is actually controlled by the SEC, but it has largely allowed the FASB alone to create its own standards.
What Does FASB Mean?
The history of the FASB started soon after the stock crash in 1929. Financial accounting practices and standards were largely unregulated in the early 20th century which led to large financial accounting fraud cases. Congress passed the Securities Exchange Acts of 1933 and 1934 to prevent companies from misleading investors with fraudulent financial statements.
These acts established the Security Exchange Commission or the SEC and give it the power to create accounting standards in the United States. The SEC realized that it was in the accounting industry’s best interest to keep accounting standard setting private. The SEC declined, with a few minor exceptions, to create accounting standards and instead allowed private organization to regulate the accounting industry’s principles and standards.
There have been a few different organizations since 1933 that have established US accounting standards including the American Principles Board. In 1973 however, the SEC designated the FASB the only organization to establish private sector accounting principles and standards in the United States. FASB’s mission is to “establish and improve standards of financial accounting and reporting that foster financial reporting by nongovernmental entities that provides decision-useful information to investors and other users of financial reports.”
Today the FASB is consists of seven board members and is affiliated with the Financial Accounting Foundation – FAF and the Financial Accounting Standards Advisory Council – FASAC.