The Financial Accounting Standards Board (FASB) governs the preparation of corporate financial reports. This paper will reflect on the FASB conception, its accountability, and members of the board. Furthermore, in many ways, the FASB standards known as generally accepted accounting principles (GAAP), places limitations on business practices and financial reporting requirements; but it is required since accounting standards are crucial in a market where financial information should be transparent, credible, and easy to understand but some would disagree. These standards help protect both the stakeholder and business communities. When and Why was the FASB created you may ask? In 1973, the FASB was created “ to establish and improve standards of financial accounting and reporting that foster financial reporting by nongovernmental entities that provides decision-useful information to investors and other users of financial reports” (FASB.org, 2012). Those standards are officially recognized as authoritative by the Securities and Exchange Commission (SEC) (Financial Reporting Release No. 1, Section 101, and reaffirmed in its April 2003 Policy Statement) and the American Institute of Certified Public Accountants (Rule 203, Rules of Professional Conduct, as amended May 1973 and May 1979), (FASB.org, 2012). Establishing these standards are extremely important because it effectively provides for an efficient economy when dealing with the allocation of resources to provide a more credible, concise and understandable financial statement, (FASB.org, 2012). The FASB is unique because it is an independent from all business entities and professional organizations. Their empowerment by the SEC to establish and improve the financial accounting and reporting for nongovernmental entities also allows the FASB to “maintains the FASB Accounting Standards CodificationTM (Accounting Standards Codification) which represents the source of authoritative standards of accounting and reporting, other than those issued by the SEC, recognized by the FASB to be applied by nongovernmental entities”, (FASB.org, 2012). The Board turns to many other organizations and groups for advice and information on various matters, including its agenda. Among the groups with which liaison is maintained are the Financial Accounting Standards Advisory Council, the Accounting Standards Executive Committee and Auditing Standards Board of the AICPA, and the appropriate committees of such organizations as the Association for Investment Management and Research, Financial Executives Institute, Institute of Management Accountants, and Robert Morris Associates. The FASB is made up of seven, members that are appointed by the Foundation’s Board of Trustees and may serve up to two five-year terms, (FASB.org, 2012). “To ensure the independence of Board members and staff, the Foundation has implemented policies about personal investments and other personal activities that are designed to prevent potential conflicts of interest”, (FASB.org, 2012). The members of the board are subject to oversight by the Financial Accounting Foundation’s Board of Trustees and consist of the following members:
• Leslie Seidman- She was appointed the chairperson of the FASB in 2003 and reappointed to a second term in 2006. Ms. Seidman career includes being an auditor at Arthur & Young and vice president at JP Morgan Chase. She earned an M.S. degree in accounting from New York University and a B.A. degree in English from Colgate University. She is a member of the AICPA and the Institute of Management Accountants.
• Daryl E. Buck- He was the former Senior Vice President & Chief Financial Officer of Reasor’s Holding Company, audit manager with the Houston and Oklahoma City offices of Arthur Andersen & Co and a founding member of the FASB/AICPA Private Company Financial Reporting Committee. He earned a B .S. in accounting from Southeastern Oklahoma State University in Durant, Oklahoma.
• Russell G. Golden- He was a partner at Deloitte & Touche LLP in the National Office Accounting Services department. Mr. Golden earned his Bachelor’s degree from Washington State University. He is a licensed CPA in the states of Washington and Connecticut
• Thomas J. Linsmeirer – Dr. Linsmeier was formerly Russell E. Palmer Endowed Professor and Chairperson of the Department of Accounting and Information Systems at Michigan State University. He has a B.B.A. from the University of Wisconsin–Milwaukee and his Ph.D. and M.B.A. from the University of Wisconsin–Madison and is a member of the AICPA.
• R. Harold Schroeder- Mr. Schroeder was a partner at Carlson Capital, L.P., a senior equity analyst with Schroder & Company, Inc. and was the Chief Financial Officer for NewYork-based Nafinsa Securities. He earned his Master of Business Administration from Tulane University and a Bachelor of Science degree in accounting from the University of New Orleans.
• Marc A. Siegel- He was the director of research at the Center for Financial Research & Analysis (CFRA) and led the Accounting Research and Analysis team at the Risk Metrics Group in Rockville, Maryland. He graduate from the Wharton School of Business with a B.S. in economics in 1991, a member of the New York State Society of CPAs (NYSSCPA), and on the faculty of the Washington, DC Bar Association/George Washington University Law School.
• Lawerence W. Smith- He was a partner at KPMG for 25 years and served as engagement partner and SEC reviewing partner for a number of international Fortune 1000 clients. Mr. Smith earned his Master of Science degree in accounting from Northeastern University and is a CPA.
One of the biggest roles of the FASB is to monitor and control the business reporting and accounting practices of the private sector. This is accomplished by forming the Emerging Issues Task Force (EITF) and the conceptual framework process. According to (Spiceland, Sepe, Nelson , 2011) the EITF was formed “to provide more timely responses to emerging financial reporting issues”. The membership is comprised of 15 individuals who are empowered to make decisions on accounting methods to be incorporated with GAAP. If they can reach a consensus as a group then no action is required from the FASB. This is an important role in the standard-setting process by identifying potential problem areas and the acting as a filter for the FASB which speeds up the process of getting the information out to all concern through the use of EITF Issues (Spiceland, Sepe, Nelson , 2011). The conceptual framework “deals with theoretical and conceptual issues and provides an underlying structure for current and future accounting and reporting standards, (Spiceland, Sepe, Nelson , 2011). The concept behind the framework is to make standard settings more efficient by providing a common set of terms and premises for analyzing accounting issues. Each time a debate on an accounting issue arises, it isn’t necessary to reinvent the wheel, (FASB.org, 2012). “The framework provides structure to the process of creating financial reporting standards and ensures that standards are based on fundamental principles. Without a framework, accounting standards might be based on the most expedient solution to a particular issue, rather than a solution that is consistent with a unified theory of accounting. The Conceptual Framework is an essential element in the development of principles-based accounting standards,” (FASB.org, 2012). Part of the revision of the Conceptual Framework includes working with the International Accounting Standards Board (IASB), to provide a foundation for accounting standards since many US companies are doing business overseas. According to (Kranacher, 2011), in an interview with Ms. Leidman, FASB Chairperson, she stated that “our starting point in addressing any accounting standard, including the standards on the convergence agenda, is to ensure that we’re setting our standards in an independent manner and developing improved standards that benefit U.S. investors”. According to (FASB.org, 2012), the FASB has incorporated five goals which are used to protect the business and public stakeholder communities from fraud and making wise investment decisions. These goals are to:
1. Improve the usefulness of financial reporting by focusing on the primary characteristics of relevance and reliability, and on the qualities of comparability and consistency.
2. Keep standards current to reflect changes in methods of doing business and in the economy.
3. Consider promptly any significant areas of deficiency in financial reporting that might be improved through standard setting.
4. Promote international convergence of accounting standards concurrent with improving the quality of financial reporting.
5. Improve common understanding of the nature and purposes of information in financial reports.
However, many investors confidence has decline due to recent accounting scandals. According to (Bailey & Sawers, 2012), Supporters of principles-based accounting standards argue that the current financial reporting model has too many complex rules and encourages managers to manipulate financial results by structuring transactions around the rules. The critics on the other hand has indicated that that principles-based standards will leave too much room for professional judgment, causing a significant diversity in application, reducing comparability, consistency, and regulatory enforcement, (Bailey & Sawers, 2012). “Whether rules-based or principles-based, prior research suggests that managers and accounting professionals use the latitude in accounting standards, either judgment in applying principles or structuring transactions around rigid rules, to manage earnings and support aggressive financial reporting”, (Bailey & Sawers, 2012). Many believe have suggested that “managers and accounting professionals use the latitude in accounting standards, either judgment in applying principles or structuring transactions around rigid rules, to manage earnings and support aggressive financial reporting” (Bailey & Sawers, 2012). By doing this, investors do not get a clear picture by reading a financial report and can be fooled by earnings. So in essence, financial reporting differences have influenced perceptions of “reliability, quality, confidence, and transparency” (Bailey & Sawers, 2012). Another limitation on businesses in the mandated GAAP regulations is the complexity and cost of the reports. “Many preparers, public and private, struggle to stay current with the latest interpretations of how the standards should be applied and the volume of newly-issued standards” (Kamnikar, Kamnikar, & Burrowes, 2012). Another huge consensus is that there is a disconnect between the mass of information “contained in general purpose financial statements prepared in accordance with generally accepted accounting principles and the narrower information needs of certain users of private company financial statements” (Kamnikar, Kamnikar, & Burrowes, 2012). The one-size-fit-all accounting method is not suitable for private organizations (Kamnikar, Kamnikar, & Burrowes, 2012). Case in point, the GAAP “ financial statements are designed to assist a broad base of users in their decision making, while the distribution of private company financial statements is often limited and, in many cases, private company financial statement users have an ability to request information that public company investors do not (Kamnikar, Kamnikar, & Burrowes, 2012). In order for companies to meet its new financial reporting standards, they must also identify weaknesses in the internal control systems. “The Sarbanes-Oxley Act of 2002 has heralded a new era of transparency and accountability for corporate financial reporting. With it come new costs, concerns, and confusion for corporate America” (Bisoux, 2005). Section 404 of the act calls for upper management to certify all financial reports and also take responsibility for any errors found on the reports (Bisoux, 2005). Section 404 is composed of three issues: first , “it requires that management create reliable internal financial controls; second, it requires that management attest to the reliability of those controls and the accuracy of financial statements that result from those controls; third, it requires an independent auditor to further attest to the statements made by management”, (Bisoux, 2005). Although companies understand the need for compliance and for the protection of both stakeholders and investors, it is estimated that the national cost to be in compliance when it comes to Section 404 is approximately $35 billion, (Bisoux, 2005). Most of the money will go to pay for the new IT systems and extra employee time required to put new internal control systems into effect (Bisoux, 2005). The mission of the FASB is to establish and improve standards of financial accounting and reporting that foster financial reporting by nongovernmental entities that provides decision-useful information to investors and other users of financial reports , (FASB.org, 2012). Since its inception in 1973 and the creation of GAAP, many believe it was put in place to protect both businesses and stakeholders alike. The creation of the Sarbanes-Oxley Act of 2002 has heralded a new era of transparency and accountability for corporate financial reporting. However, it is estimated that the national cost to be in compliance when it comes to Section 404 is costing companies in the billions. Costly as it might be, perhaps this is the type of deterrent that companies need to keep them in line. It would not hurt, to take into consideration small and private businesses financial reporting requirements realizing that all shoes do not fit all entities.

Reference
Bailey, W., & Sawers, K.. (2012). In GAAP We Trust: Examining How Trust Influences Nonprofessional Investor Decisions Under Rules-Based and Principles-Based Standards. Behavioral Research in Accounting, 24(1), 25-46. Retrieved April 8, 2012, from Accounting & Tax Periodicals. (Document ID: 2611906851).
Bisoux, T. (2005, July/August). The Sarbanes-Oxley Effect. Retrieved from http://www.aacsb.edu/publications/archives/julyaug05/p24-29.pdf
FASB.org. (2012). Facts about FASB. Retrieved. April 1, 2012, from: http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176154526495
Kamnikar, J., Kamnikar, E., & Burrowes, A.. (2012). One Size Does Not Fit All. Journal of Accountancy, 213(1), 46-49,10,12. Retrieved April 1, 2012, from Accounting & Tax Periodicals. (Document ID: 2564751581).
Kranacher, M.. (2011). FASB Looks to the Future: Standards Setting in the Post-Convergence World. The CPA Journal, 81(12), 17-24. Retrieved April 8, 2012, from Accounting & Tax Periodicals. (Document ID: 2591270161).
Spiceland, J. D., Sepe, J. F. & Nelson, M.W. (2011). Intermediate Accounting (6th ed.). New York, N.Y.: McGraw-Hill Irwin. ISBN: 9780077500375