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Statement of Financial Accounting Concepts (SFAC) is the document issued by the Financial Accounting Standards Board (FASB) relating to broad overviews of financial reporting concepts. These statements do not create new accounting principles; they simply provide accounting firms and certified public accountants (CPA) with information on common business or financial topics. FASB typically issues these statements as a precursor to developing and implementing actual financial accounting standards. These accounting concept statements can allow accounting educators and theorists an opportunity to comment or suggest changes to the concept statement prior to an accounting standard being written by FASB.
Because the accounting industry is governed by FASB, a private accounting organization, the industry has the important task of using self-governance when developing and implementing accounting standards. FASB Statement of Financial Accounting Concepts are intended to serve the public interest by setting objectives and goals for companies when recording and reporting financial information. The concept statements allow FASB to see how information is presented on financial statements and the public reaction relating to the new accounting concepts. Outside opinions from leaders in the accounting industry are an important influence for creating new accounting standards.
FASB has issued seven Statement of Financial Accounting Concepts since 1978. These SFACs cover topics including objectives of financial reporting, qualitative characteristics of accounting information, elements of financial statements (superseded), objectives of financial reporting by non-business organizations, recognition and measurement in financial statements, elements of financial statements (amendment statement) and using cash flow information and present value in accounting information. Each concept is stored on FASB’s website and can be viewed or referenced by accounting firms or CPAs for reference. These concepts also provide FASB with a starting point for the development process of new accounting standards.
FASB uses an extensive “due process” when developing new accounting principles. The Statement of Financial Accounting Concepts may be issued by FASB with the intent for public debate and comment. Outside opinions are reviewed by FASB and its governing partners to determine if a new accounting principle is needed based on the comments from outside individuals. If new accounting principles are needed, FASB then issues an Exposure Draft (ED), which may be based on recent Statement of Financial Accounting Concepts. This ED is then published for public comment; comments are reviewed and FASB may make changes to the ED. Once the ED is accepted by the accounting profession, FASB writes the new accounting principle.