FASB (Financial Accounting Standards Board): definition and audit meaning

Definition

The Financial Accounting Standards Board (FASB) establishes generally accepted accounting principles for nongovernmental entities in the US. It issues Accounting Standards Updates, which amend the Accounting Standards Codification (ASC). The Financial Accounting Foundation oversees and funds it. The SEC recognizes FASB's standards as authoritative for public companies. Private company alternatives are developed with input from the Private Company Council.

Why it matters in an audit or review

Auditors test whether the financial statements follow the framework the entity applies, which for most nonissuers is FASB GAAP. Standards such as ASC 606 revenue, ASC 842 leases, and ASC 326 credit losses drive disclosures, audit risk, and engagement planning. Auditors commonly keep an effective-date table for new standards in the planning file.

Example

Illustrative: the auditor of a private lessee tests ASC 842 balances, including completeness of the lease population, discount rate selection, and the right-of-use asset and lease liability.

Common mistakes

Using superseded guidance after an ASU's effective date.

FAQ

Does FASB set rules for state and local governments?

No. The GASB does.

Sources

FASB, Accounting Standards Codification (authoritative US GAAP for nongovernmental entities)
Financial Accounting Foundation, oversight and funding of the FASB and GASB
SEC, Policy Statement, Reaffirming the Status of the FASB as a Designated Private-Sector Standard Setter (Release No. 33-8221, 2003)

Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error

The Governmental Accounting Standards Board sets accounting and financial reporting standards for US state and local governments, which auditors of governmental entities apply as GAAP alongside the GAAS or GAGAS audit requirements.

SEC (Securities and Exchange Commission)

The SEC is the federal regulator that requires public companies to file audited financial statements, sets auditor independence rules for issuers, and oversees the PCAOB.

CECL

CECL, the current expected credit loss model in ASC 326-20, requires entities to record an allowance for lifetime expected credit losses on financial assets measured at amortized cost, using past events, current conditions and forecasts.

AICPA (American Institute of CPAs)

The AICPA is the national professional association of CPAs. It sets auditing standards for nonissuers through the ASB, issues the Code of Professional Conduct, runs the Peer Review Program, and develops the CPA Exam.

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FASB (Financial Accounting Standards Board)