Is GAAP and FASB the same?
Accounting, financial management, and financial instruments valuation are complicated procedures that every company has to go through from time to time. These procedures directly impact the reliability and accuracy of business documents and financial reports.
Therefore, it is important to be familiar with the industry standards, such as FASB and US GAAP, so that you can implement the best policies within your company.
In this article, we’ll discuss the important aspects of GAAP and FASB and whether there are any differences between them. Keep reading to learn all about it.
What Is the Financial Accounting Standards Board (FASB)?
The Financial Accounting Standards Board (FASB) is an independent nonprofit organization that has established renowned accounting and financial reporting standards.
These standards are mostly used in the United States, but they also serve as a great guideline for companies around the world.
FASB was established in 1973, after the generally accepted accounting principles (GAAP).
The primary guiding goal of FASB is to carry on the mission of the Accounting Principles Board and facilitate companies in implementing fair, transparent, and standardized accounting principles.
Working of FASB
In the USA, FASB is responsible for establishing and interpreting GAAP for public and private companies as well as nonprofit organizations.
It means FASB acts as a regulatory body, whereas US GAAP is the set of standards for different types of companies, agencies, and nonprofits to follow while they are preparing financial statements and business records.
It is also important to note that FASB is recognized by various government agencies, including the Securities and Exchange Commission (SEC), as the primary body to set accounting standards for companies.
This kind of mass recognition is the reason why FASB and US GAAP are no longer only limited to the USA but are also known in other countries to ensure maximum transparency in accounting standards.
FASB also works with other organizations, such as GASB, to make sure the accounting and financial reporting standards are set for all types of organizations across the board.
Collectively, accounting organizations are working to improve financial accounting and reporting procedures to ensure the accuracy of critical business functions, such as financial instruments valuation.
FASB also provides an opportunity for organizations to educate their stakeholders on the significance of implementing industry accounting standards and ensuring financial transparency.
The FASB itself is governed by seven full-time board members who must resign from any other organizations for the period in which they are governing FASB. It removes any kind of self-interest and ensures transparency in the workings of FASB.
What Are the Generally Accepted Accounting Principles (GAAP)?
Now that you are familiar with FASB, let’s explore the details of US GAAP. It refers to a common set of accounting procedures, rules, and standards that the FASB implements in numerous types of organizations, especially public companies.
Organizations around the world follow US GAAP or modified versions of GAAP to enhance their accounting procedures and ensure maximum compliance with the law.
There are ten guiding principles of GAAP that set the tone for companies to have a standardized accounting system. These tenets are comparable to International Financial Reporting Standards (IFRS).
It is also important to note that organizations have been making a slow and steady transition from GAAP reporting to IFRS to bring about global standardization.
Working of GAAP
US GAAP stands out from the other accounting standards because it is a combination of policies set by the board and commonly accepted methods of reporting accounting data.
Implementing GAAP results in a significant improvement in financial information in terms of clarity, consistency, and comparability.
Overall, both FASB and GAAP play a vital role in governing the accounting industry as per general rules and standard guidelines.
It is a great way of regulating the definitions, assumptions, and methods accountants use in various accounting procedures, such as financial instrument valuation.
Numerous different topics are covered within US GAAP, such as revenue recognition, balance sheet, materiality, preparation of financial statements, and financial reporting.
All in all
The bottom line is that GAAP and FASB are not the same, but they are definitely interlinked to a great extent. GAAP is the accounting standard that the FASB uses to implement accounting procedures in companies.
Overall, both FASB and GAAP are essential in ensuring the accuracy of a company’s accounting standards and making sure that the organization’s financial statements are complete and c
consistent.
It makes it easier for the management and regulatory bodies to handle financial instruments’ valuation and ensure an organization is working with maximum transparency.
