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The Financial Accounting Standards Board (FASB) is a private sector, nonprofit organization responsible for developing and maintaining generally accepted accounting principles (GAAP). FASB was started in 1973 and is recognized by the U.S. Securities and Exchange Commission (SEC) and the American Institute for Certified Public Accountants (AICPA) as the leading authority on accounting standards in the United States. While the Financial Accounting Standards Board is an independent organization, it uses several other groups or foundations to advise it on current accounting topics and select board members.
The Financial Accounting Standards Advisory Council (FASAC) is responsible for advising FASB on current or new financial and accounting situations needing to be reviewed. Members of FASAC include chief executive officers, chief financial officers, senior partners of public accounting firms, executive directors from professional organizations and academic analysts from around the United States. These individuals meet and discuss the treatment or application of GAAP in the business environment and bring any technical questions or issues before the Financial Accounting Standards Board. FASAC also helps FASB maintain an active presence in the business environment in the current application of accounting principles and how GAAP is currently being applied by accountants.
In addition to the advisory services of FASAC, the Financial Accounting Standards Board is aided by the Financial Accounting Foundation (FAF). The FAF is an independent, private sector organization responsible for overseeing and administering the finances of the Financial Accounting Standards Board. The FAF is also responsible for selecting FASB board members and protecting its private independence in the business environment.
FASB currently uses five board members to monitor its internal business and accounting practices. The board members are selected to serve a five year term, with an additional five year term possible, based on the board member's performance in the initial five year term. The board members are responsible for setting the review process and agenda of FASB. The Financial Accounting Standards Board typically uses an open discussion process when developing new accounting principles or addressing technical accounting issues.
The board members also decide which accounting issues will be released to certain private sector accounting individuals or public accounting firms when starting the open discussion process. This open process allows public accounting firms or other individuals the accounting industry to make comments or suggestions to FASB regarding the application of current GAAP principles and the need for any additional accounting guidelines. If FASB determines a new interpretation, principal or accounting guidelines is indeed necessary, they will begin the formal process of issuing an exposure draft and moving it through the codification process for GAAP.