Legal Definitions - FASB

FASB stands for the Financial Accounting Standards Board.

The FASB is an independent, non-governmental organization in the United States responsible for establishing and improving the generally accepted accounting principles (GAAP) that companies and organizations must follow when preparing their financial statements. Its primary goal is to ensure that financial reporting is transparent, consistent, and comparable, allowing investors, creditors, and other stakeholders to make informed decisions about an entity's financial health and performance.

• Example 1: A Public Company's Quarterly Report

  Imagine "Global Tech Solutions," a publicly traded software company, is preparing its quarterly earnings report for its shareholders. The company's accounting department must adhere to specific rules set by the FASB regarding how to recognize revenue from its subscription services, how to value its intellectual property assets, and how to present its research and development expenses. This ensures that Global Tech Solutions' financial statements are prepared consistently with other U.S. companies, making them understandable and comparable for investors.

• Example 2: An Investor Comparing Businesses

  An individual investor, Maria, is considering investing in either "Eco-Friendly Manufacturing Inc." or "Sustainable Products Corp." She wants to compare their financial health and performance before making a decision. Because both companies operate in the U.S. and follow accounting standards set by the FASB (GAAP), Maria can confidently compare their income statements, balance sheets, and cash flow statements. She knows that both companies are using the same fundamental rules for reporting their profits, assets, and debts, which allows for a meaningful side-by-side analysis of their financial strength.

• Example 3: An Auditor's Review of a Non-Profit

  A team of external auditors is examining the financial records of "Community Outreach Foundation," a large non-profit organization, at the end of its fiscal year. The auditors use the accounting standards established by the FASB as their benchmark to determine if the Foundation's financial statements accurately represent its financial position and activities. For instance, they will verify that the non-profit has properly accounted for donor contributions, grants received, and program expenses according to FASB's specific guidelines for non-profit entities, ensuring the statements are reliable and trustworthy for donors and regulators.