December 1, 2022 | 4-minute read (750 words)
Ever wonder where the commonly accepted set of accounting rules came from? Or who determined the definitive set of financial statements, the reconciliation practice millions of businesses complete every month-end and the simplest way to standardize financial transparency?
There’s one independent, nonprofit organization behind the set of accounting standards millions of businesses and organizations across the nation follow today — the Financial Accounting Standards Board (FASB).
The Financial Accounting Standards Board is the nationally recognized accounting standards setter for public companies in the United States
The Financial Accounting Standards Board has one chief priority: to increase financial transparency among publicly traded companies. Because these mega-companies have an outsized impact on U.S. residents, industries and investors, the FASB believes transparency is essential to maintaining economic balance.
And a tight set of financial reporting standards, plus easy access to financial reporting knowledge, are the FASB’s main tools for encouraging that transparency.
How FASB impacts businesses and organizations
The seven-member board that makes up the FASB is in charge of maintaining, interpreting and upholding the generally accepted accounting principles.
Most public companies are legally required by the Securities and Exchange Commission to follow GAAP, and nonprofits, governments and private companies are strongly encouraged to follow these guidelines, too. That means this small board of knowledgeable accounting leaders have a national impact on the standards that guide nearly every business in the country.
While the FASB has the authority to create and interpret accounting rules, only the SEC is allowed to enforce these rules. That’s why accounting standards violations are investigated and disciplined by the SEC — not the FASB.
A brief history of the Financial Accounting Standards Board
The Financial Accounting Standards Board was first organized in 1973. At the time, it was meant to serve as a more formal arrangement of the Accounting Principles Board.
Today, it serves as the national accounting oversight, as well as the U.S.’ representation when coordinating with the International Accounting Standards Board.
The FASB is one board within a larger collection of accounting boards that include the Financial Accounting Foundation, the Financial Accounting Standards Advisory Council, the Governmental Accounting Standards Advisory Council and the Governmental Accounting Standards Board. Together, these groups help businesses and organizations improve their transparency and maintain accurate financial reports, while protecting the stakeholders these businesses and organizations engage with.
In an effort to help the public better understand GAAP, in 2009, the FASB launched an online research tool that allows both members of the public and accounting professionals to access authoritative information and interpretations of every GAAP principle. At this time, there are several thousand principles, and the FASB’s online tool organizes this vast information into 90 searchable topics.
Growth-minded startups should understand the role FASB and GAAP play in accounting
Because nearly every publicly traded company is required to follow GAAP rules to the letter, any startup that hopes to grow and go public in the future should utilize GAAP from the start. Not only is following GAAP and SEC requirements, these standard accounting principles help you maintain organized, easy-to-read financial statements.
Today’s investors are well-versed in reviewing and analyzing GAAP-style financial statements. If your startup is hoping to gain investor funding in the future, you’ll need to provide your financial statements and reports in this familiar style, so investors understand the financial health of your business.
GAAP may not be the simplest way to track your revenue and expenses, but it is the most widely used accounting method. That’s what makes knowledge of the FASB’s rulings and GAAP standards essential for startups focused on growth.
Struggling to understand FASB rules and GAAP compliance? Outsourcing your accounting can help
For founders and entrepreneurs, managing your day-to-day accounting, forecasting, tax planning and analysis is complicated and time-consuming. But without accurate accounting methods in place, your startup or small business will struggle to grow.
Investors want to partner with companies that are financially transparent, well-organized and positioned for growth. And following FASB standards and maintaining GAAP compliance shows investors that your company is ready for expansion.
If your team struggles to follow and maintain GAAP compliance, or if you’re looking to reduce your company’s administrative costs, outsourcing your accounting needs can be a good next step. Partnering with an expert outsourced accounting team gives you and your investors the peace of mind that comes from knowing your business is following FASB rules and guidelines every step of the way, without overburdening your internal team.