Financial Accounting Foundation: What Is It and Why Does It Matter?

Financial Accounting Foundation: What Is It and Why Does It Matter?

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Last Updated on March 18, 2024 by Qusai Ahmad

The Financial Accounting Foundation (FAF) is the organization overseeing and supporting the two main standard-setting bodies in the United States: the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB). The FAF ensures that the FASB and GASB produce high-quality and reliable financial accounting and reporting standards for public and private companies, not-for-profit organizations, and state and local governments. This post explores what the FAF does, its structure, and why it matters for the accounting profession and users of financial information.

What Does the Financial Accounting Foundation (FAF) Do?

Established in 1972 as a private-sector, not-for-profit organization based in Norwalk, Connecticut, the FAF has three main functions:

  • Oversight: Ensuring FASB and GASB follow best practices in setting accounting standards. The FAF monitors the quality and effectiveness of standards and conducts post-implementation reviews.
  • Administration: Administering operations and finances of FASB and GASB, providing necessary resources, staff, facilities, and technology.
  • Appointment: Appointing members of FASB, GASB, and their advisory councils, selecting individuals from diverse backgrounds and perspectives.

How Is the FAF Structured?

The FAF comprises the FAF Board of Trustees, two standard-setting boards (FASB and GASB), and the FAF management team.

  • FAF Board of Trustees: Governing body with 14–18 members appointed by the FAF Appointments committee from various sectors and constituencies. Responsible for oversight, administration, and appointment functions.
  • FASB and GASB: Two standard-setting boards supported and overseen by the FAF. FASB sets standards for public and private companies and not-for-profit organizations, while GASB sets standards for state and local governments.
  • FAF Management Team: Comprising the president and chief executive officer, executive director, and senior vice presidents, responsible for providing strategic counsel and services and managing day-to-day operations and administration.

Why Does the FAF Matter?

The FAF is vital for ensuring the quality, credibility, and usefulness of financial accounting and reporting standards in the United States. It matters for the accounting profession and users of financial information, such as investors, creditors, regulators, and the public, because:

  • It promotes and protects the independence and integrity of the FASB and GASB, allowing them to set objective, relevant, and reliable standards free from political or commercial pressures.
  • It supports and facilitates stakeholder and interested party participation and feedback in the standard-setting process, ensuring standards reflect the needs and expectations of users.
  • It evaluates and improves the effectiveness and efficiency of the standard-setting process, ensuring standards are responsive to the changing economic and business environment and consistent with global accounting standards.

Conclusion

The Financial Accounting Foundation oversees and supports the Financial Accounting Standards Board and the Governmental Accounting Standards Board, the two main standard-setting bodies in the United States. Responsible for ensuring high-quality and reliable financial accounting and reporting standards, the FAF is crucial for public and private companies, not-for-profit organizations, and state and local governments. The FAF matters for the accounting profession and users of financial information as it promotes and protects the independence and integrity of the standard-setting boards, facilitates stakeholder participation, and evaluates and improves the efficiency of the standard-setting process.

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