![]() ![]() That framework was designed to produce standards that result in neutral information that is useful in decision making.Īn independent group, the Financial Accounting Foundation, oversees the activities of the FASB. Neutrality has been reinforced by adoption and adherence to a broad set of principles called the conceptual framework. Put another way, accounting standards should not be intentionally biased for the purpose of promoting either private special interests or government policy goals. Neutrality means that accounting standards should be designed to provide the best possible information for economic decision making without regard to how that information may affect economic, political, or social behavior. Because the board's Rules of Procedure require a supermajority of five votes to approve the issuance of any new standard, no more than four board members can meet privately to discuss technical issues. It means that all its technical business is conducted in meetings that are announced in advance and are open to the public. Sunshine characterizes the open process that the board follows. Board members are insulated from external pressures by fixed five-year terms with a two-term maximum, by the requirements to end all past employment relationships, and by disclosure of and certain limitations on investments and outside activities that might create a conflict of interest. The charter gives the FASB exclusive authority to set its own agenda and establish accounting standards. ![]() Although independence can never be totally assured, the FASB charter did attempt to protect the board from as much external pressure as possible. The three pillars on which the FASB was built are independence, openness (or sunshine), and neutrality. The usual composition of the board is three members with extensive public accounting experience, two from a corporate background, one academic, and one financial analyst. The board consists of seven full-time members. ![]() The FASB is funded by revenues from the sales of its publications and by voluntary contributions, primarily from public accounting firms and corporations. That new group was the Financial Accounting Standards Board (FASB). This led to the creation in 1973 of a new standard-setting body designed to be independent of all other business and professional organizations. Largely as a result of criticisms concerning the perceived lack of independence of the APB and the part-time involvement of its members, a major reconsideration of the standard-setting structure in the United States occurred in the early 1970s. Pronouncements issued by those two bodies are considered to be generally accepted accounting principles (GAAP) unless they have been specifically amended or replaced by a subsequent pronouncement. Both organizations were committees of the American Institute of Certified Public Accountants (AICPA) and included approximately twenty representatives of the accounting profession who served on a part-time basis. The first two standard-setting organizations in the United States were the Committee on Accounting Procedure (CAP), which was established in 1938, and the Accounting Principles Board (APB), which replaced the CAP in 1959. Although the federal government's Securities and Exchange Commission (SEC) has the legal authority to establish accounting standards for public companies, the SEC has historically looked to the private sector to set accounting standards. The United States has a longstanding tradition of accounting standards being set by the private sector as opposed to the government. ![]()
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