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The statement of financial accounting standards are accounting principles issued by the Financial Accounting Standards Board (FASB), the leading American institution for national accounting standards. These statements comprise a large portion of generally accepted accounting principles (GAAP), the leading accounting principles in the United States. Corporate entities are primary users of the statement of financial accounting standards since they must accurately report financial information to both internal and external stakeholders. These statements cover a wide swath of financial information reporting for business organizations.
FASB has issued a total of 168 statements, although many of the older ones are superseded by newer statements. New statement of financial accounting standards cover issues that occur in the business environment, such as accounting for hedges, derivatives, financial securities, and other technical financial transactions. FASB will often issue concept statements prior to issuing new statement of financial accounting statements, which allows companies the option to comment and provide feedback prior to issuing new statements.
Content in the statement of financial accounting standards is wide ranging, from accounting for research and development costs, classification of short-term obligations, capitalization of interest, phase-in plans for regulated enterprises, accounting for postemployment benefits, and accounting for derivatives and inventory costs, among other things. While GAAP does not cover all possible concepts found in the business environment, it does help accountants provide enough direction for recording financial transactions resulting from business.
GAAP is a principles-based accounting principles system, meaning that companies have some latitude when applying the statement of financial accounting standards to their financial information. Several principles exist in GAAP, including regularity, consistency, prudence, continuity, full disclosure and materiality and good faith. The use of GAAP ensures that all individuals relying on a company’s financial information will have a true picture of the company’s financial health. This is especially important for publicly held companies that release information on a periodic basis for shareholders and government agencies.
Changes to the statement of financial accounting standards can greatly alter a company’s business and accounting processes. While FASB is an independent organization, it must respond to government agencies to ensure transparency and accountability in financial information. While public accounting firms, leading accounting educators and businesses may have input on new statements, FASB must be responsible to the general public and government standards. With the increasing globalization, this means FASB must consider a convergence with the International Financial Reporting Standards (IFRS), which are the leading international accounting principles used by foreign countries. FASB is currently in the process of converging GAAP with IFRS to create a single global accounting standard.