Question

(FASB Role in Rule-making) A press release announcing the appointment of the trustees of the new Financial Accounting Foundation stated that the Financial Accounting Standards Board (to be appointed by the trustees)”…will become the established authority for setting accounting principles under which corporations report to the shareholders and others” (AICPA news release July 20,1972).

Instructions

1. Identify the sponsoring organization of the FASB and the process by which the FASB arrives at a decision and issues an accounting standard.
2. Indicate the major types of pronouncements issued by the FASB and the purpose of each of these pronouncements.

Short answer

1. The sponsoring organization of the FASB is the Financial Accounting Foundation (FAF). A due process is followed in creating a Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards.
2. The major types of pronouncements issued by the FASB include accounting standard updates, technical bulletins, financial accounting concepts, various statements, and bulletins that establish Generally Accepted Accounting Principles (GAAP).

Step-by-step solution

Step by Step SolutionStep 1: Meaning of Financial Accounting Standards Board (FASB)

Financial Accounting Standards Board (FASB) is the one that establishes accounting rules for government and non-government firms as well as non-profits entities in the United States.

Sponsoring the organization of FASB and the process used by them for decision-making and issuing an accounting standard

The Financial Accounting Foundation is regarded as the sponsoring organization of the Financial Accounting Standards Board (FASB). The Financial Accounting Foundation (FAF) chooses the members of the Financial Accounting Standards Board (FASB) as well as it is Advisory Council, finances their activities, and supervises the activities of the Financial Accounting Standards Board (FASB).

Due process is applied for arriving at a decision.

• A project is recognized and allocated on the Board’s agenda.
• A task force of experts from different sectors is assembled for explaining issues and alternatives associated with the topic.
• Research and analysis are being performed with the help of the FASB technical staff.
• A preliminary views document is outlined and issued.
• A general hearing is usually conducted.
• The board inspects and assesses the response of the public.
• The board discusses the problems and arranges an exposure draft for release.
• After the completion of at least 30 days exposure period of public response, the Board judges the responses collected.
• A committee then examines the exposure draft associated with the public responses, reconsiders its position, and amends the draft required, if any.
• The full Board provides the re-examined draft final conclusion and votes on the issuance of a standards statement. It needs 5 to 7 members to pass.

Major types of pronouncements issued by FASB and the purposes of each.

The two major types of pronouncements issued by the FASB includes Accounting Standard Updates and Financial Accounting Concepts.

Accounting Standards Updates: The accounting pronouncements are issued by FASB with the help of the Accounting Standard Updates. The purpose of Accounting Standard Updates is to alter the Accounting Standards Codification, which shows the origin of authoritative accounting standards other than standards issued by the SEC.

Financial Accounting Concepts: It establishes fundamental objectives and concepts used by FASB in advancing future standards of financial reporting and accounting.