Definition: A statement of financial accounting standards, also called SFAS, is a publication promulgated by FASB that establishes the generally accepted accounting standards in the US. In other words, this is a formal document issued by the FASB in an effort to provide guidance on a specific accounting topic.
What Does SFAS Mean?
You can think of these statements as FASB’s way of telling the accounting industry how to account for specific business events. Once an SFAS is published, it becomes GAAP and must be followed for financial accounting.
Before a concept can become a generally accepted principle, it must go through a series of steps. First, FASB typically is identifies a current reporting issue that many companies or external users are complaining about. This could be an industry-wide problem or simply an accounting treatment that has evolved with new technology.
Second, the board creates a project for the identified problem and holds one or more public meeting where the board has a chance to debate the issues.
Third, an exposure draft is created and distributed to stakeholders for feedback about the purposed solution to the problem. After the enough time has passed and stakeholders have had a chance to review the draft, another public forum is held to discuss the possible outcomes if these changes were adopted.
Fourth, public feedback is considered by the board privately while the FASB re-deliberates on the proposed changes.
If the board can come to an agreement with the industry about what the best solution to an accounting treatment, it issues a Statement of Financial Accounting Standards, adds the new rules to the GAAP codification, and distributes the news that new rules have been adopted.
As you can see, the SFAS is the last step in adopting a new GAAP change. It’s simply the publication that reports the end result in a long rule making process.