What Is FASB? Definition, Role, and the 7-Step Process

Last updated October 23, 2026.

FASB stands for Financial Accounting Standards Board. It is the independent, private-sector organization that sets U.S. GAAP for businesses and not-for-profit organizations. Created in 1973 to replace the Accounting Principles Board, FASB has seven full-time members, is overseen and funded through the Financial Accounting Foundation (FAF), and is recognized by the SEC as the designated standard setter for public companies.

To understand what FASB does, separate the organization from its documents. The Board develops standards, the Accounting Standards Codification organizes the authoritative guidance, and Accounting Standards Updates communicate amendments. GAAP, short for Generally Accepted Accounting Principles, is the set of rules those documents contain. This lesson explains the institution, the organizations around it, how its members are chosen, who pays for it, and the public process used to develop standards.

FASB at a glance

Fact	Detail
Full name	Financial Accounting Standards Board
What it is	Independent, private-sector, not-for-profit standard setter. Not a government agency.
Established	1973, replacing the AICPA’s Accounting Principles Board (APB)
Sets standards for	Nongovernmental entities: public companies, private companies, and not-for-profit organizations that follow U.S. GAAP
Board	Seven full-time members appointed by the FAF trustees, generally for five-year terms, up to ten years in total
Oversight and funding	Financial Accounting Foundation (FAF), which also oversees the Governmental Accounting Standards Board (GASB)
Recognition	Designated by the SEC as the accounting standard setter for public companies
Main output	Accounting Standards Updates (ASUs) that amend the Accounting Standards Codification (ASC)
Headquarters	Norwalk, Connecticut

What is FASB responsible for?

The Board establishes and improves accounting and reporting standards. Its focus includes the needs of people who use financial information as well as the practical issues faced by preparers and auditors. The purpose is to improve financial reporting, rather than prepare each company’s financial statements.

Two quick definitions. Nongovernmental means businesses and not-for-profit organizations. State and local governments follow standards from the Governmental Accounting Standards Board (GASB), FASB’s sister board under the FAF, and the federal government follows the Federal Accounting Standards Advisory Board (FASAB). Preparers are the people inside a company who put the financial statements together.

FASB has seven full-time members. The FAF trustees appoint them, generally for five-year terms, and no member serves more than ten years. To protect independence, members must sever ties with the firms or companies they worked for before joining. Issuing an exposure draft or a final Accounting Standards Update takes a majority vote of the full Board, so at least four of the seven members. The official FASB overview explains the organization and its role.

The SEC recognizes the Board as the designated private-sector accounting standard setter and retains authority within its jurisdiction. FASB is not a federal agency, and the two organizations are not interchangeable. See the FASB vs SEC comparison for that relationship.

Who pays for FASB?

FASB is not funded by the AICPA, by audit firms, or by taxpayers. Most of its money comes from accounting support fees that public companies pay under Section 109 of the Sarbanes-Oxley Act of 2002. The FAF collects those fees and also earns revenue from subscriptions and publications. Before 2002, FASB relied on voluntary contributions from the profession, which raised independence questions.

Exam tip: if a question asks how FASB stays independent, two facts fit together. Its members sever ties with former employers, and its funding comes from mandatory fees rather than donations from the firms and companies that use its standards.

How do FAF, FASAC, and AICPA fit in?

Organization	Role to remember	Student memory aid
Financial Accounting Foundation (FAF)	Provides oversight and appoints members of the standard-setting Board and advisory councils.	Oversight and appointments.
Financial Accounting Standards Board (FASB)	Develops financial accounting and reporting standards.	Sets standards.
Financial Accounting Standards Advisory Council (FASAC)	Advises the Board on matters such as technical issues and priorities.	Advice and consultation.
American Institute of Certified Public Accountants (AICPA)	A professional organization associated with the CPA profession, with a historical role in accounting standard setting.	Professional organization; not the current principal setter of nongovernmental U.S. GAAP.
Emerging Issues Task Force (EITF)	Helps FASB resolve narrow, emerging implementation issues quickly. Its consensuses become GAAP only after FASB ratifies them and issues an ASU.	Narrow issues; FASB must ratify.
Private Company Council (PCC)	Advises FASB on private company matters and can propose GAAP alternatives for private companies. FASB must endorse any PCC proposal.	Private company voice; FASB endorses.
Governmental Accounting Standards Board (GASB)	Sister board under the FAF that sets standards for state and local governments.	Governments, not businesses.

The similar abbreviations can make this topic feel harder than it is. Start with the job, then attach the name: oversight, standard setting, or advice. An adviser contributes views without becoming the body that issues the accounting standards. An oversight foundation supports the process without replacing the Board’s technical decisions.

Watch: How FASB’s structure developed

In this 1-minute, 11-second excerpt, Professor Farhat explains the criticisms of the Accounting Principles Board and the transition to FASB, including its seven full-time members and support from the Financial Accounting Foundation.

How does FASB set a standard? The 7-step process

Due process means the Board follows an open process that gives interested parties opportunities to contribute. Its official overview describes the following sequence. The amount and type of research and outreach can vary with the project; not every project requires an identical set of meetings.

Step	What happens	Why it matters
1. Identify an issue	Reporting concerns come from stakeholders or other sources.	The process starts with a problem to investigate.
2. Consider the agenda	The Board considers staff analysis and decides whether to add a project.	It determines whether the issue merits standard-setting work.
3. Deliberate publicly	The Board discusses issues analyzed by the staff.	The reasoning can be observed and evaluated.
4. Issue an exposure draft	A proposal is released for comments; some projects also use an earlier discussion paper.	Stakeholders can respond before final guidance is issued.
5. Hold a roundtable if needed	Additional public discussion may be used.	The Board can explore concerns and alternatives.
6. Evaluate feedback and redeliberate	Staff analyze comments and the Board reconsiders the proposal.	Feedback can affect the final outcome.
7. Issue an update	An ASU describes amendments to the Codification.	The final change and implementation information are communicated.

This is a student-friendly summary of the FASB’s published standard-setting process. Your textbook may group some activities into fewer stages. Focus on the sequence of research, proposal, public input, reconsideration, and final amendments rather than treating a simplified diagram as a rigid checklist.

Two details worth remembering. First, an exposure draft is open for public comment, usually for at least 60 days on a major project and for a shorter period on a narrow one. Second, every Board decision in this sequence happens at a public meeting, which is what makes the process a due process.

Exam trap: an exposure draft is a proposal, not GAAP. Even the final ASU is not authoritative on its own. Only the amended Codification is.

What does FASB issue? Two types of pronouncements

Accounting Standards Updates communicate amendments to the Codification. They explain what changed, why it changed, and when the amendments apply. The update itself is not authoritative; the Codification is the source of authoritative guidance recognized by the Board for nongovernmental U.S. GAAP. Public companies also follow SEC rules and interpretive releases, which sit alongside the Codification for SEC registrants.

Statements of Financial Accounting Concepts provide the objectives and concepts FASB uses when it develops standards. Together they form the FASB conceptual framework. They do not establish GAAP and do not override an applicable Codification requirement. This is a key distinction when an exam question asks whether a document is authoritative. One date to know: the Codification became the single source of authoritative nongovernmental U.S. GAAP on July 1, 2009, and ASUs have been the vehicle for changing it ever since.

Use the Accounting Standards Update guide to compare the documents. Use the Codification lesson to learn how authoritative guidance is organized.

A simple standard-setting example

Assume users report that a particular disclosure is difficult to compare across companies. The Board and its staff investigate the concern. If a project is added, they consider possible changes and discuss the issues publicly. A proposal then gives interested parties a chance to explain benefits, costs, and practical difficulties.

A company might explain the cost of collecting the proposed information. An investor might explain why the information improves analysis. The Board considers the feedback and may revise its proposal before issuing amendments. This is a hypothetical process example, not a description of a specific current project.

The lesson is that issuing standards involves reasoning and consultation. Public input helps reveal consequences that may not be obvious at the start. It does not mean each stakeholder can choose which final accounting requirements to follow.

Why FASB matters on the CPA exam

The FAR blueprint effective January 2026 does not list standard setting as a separate topic. It tests financial reporting under the FASB Accounting Standards Codification. In practice that means FAR questions rarely ask you to recite the seven steps. They ask you to know which document is authoritative, which board sets standards for which type of entity, and how FASB relates to the SEC and the IASB. Those three ideas are the ones to drill.

Intermediate accounting courses cover the structure in more depth, usually in the first chapter, so expect FAF, FASAC, and the APB on a course exam more often than on FAR.

Practice questions about the Board

1. Which organization provides advice on standard-setting priorities: FAF or FASAC? FASAC. Its name includes “Advisory Council.” FAF’s role centers on oversight and appointments.

2. Is an exposure draft automatically final GAAP? No. It is proposed guidance issued for input. Comments and further deliberation can change the final outcome.

3. Does a Concepts Statement establish GAAP? No. It provides concepts used in developing standards. It does not replace an authoritative requirement.

Key takeaways

• FASB is the private-sector body that sets U.S. GAAP for businesses and not-for-profit organizations. It is not a government agency.
• The FAF oversees, funds, and appoints FASB. FASAC advises it. The SEC recognizes it.
• Seven full-time members, five-year terms, a ten-year maximum, and a majority vote to issue a standard.
• The process runs from identifying an issue to issuing an ASU, with an exposure draft and public comment in the middle.
• An ASU is not authoritative on its own. The Codification is. Concepts Statements are not GAAP.
• GASB handles state and local governments. The IASB issues IFRS, not FASB.

Frequently asked questions about FASB

Is FASB part of the U.S. government? No. FASB is a private-sector, not-for-profit standard setter overseen by the Financial Accounting Foundation. The SEC recognizes FASB’s standards for public companies, but that recognition does not make FASB a federal agency.

Does FASB prepare company financial statements? No. Companies prepare their own financial statements. FASB writes the accounting standards those statements must follow, and auditors check whether the statements follow them.

Does FASB issue IFRS Accounting Standards? No. The International Accounting Standards Board (IASB) develops IFRS Accounting Standards, which are used in many countries outside the United States. FASB develops U.S. GAAP. Read FASB vs IASB to compare the two standard setters.

When was FASB created? FASB was established in 1973. It replaced the Accounting Principles Board (APB), a committee of the AICPA, which had itself replaced the Committee on Accounting Procedure in 1959.

How many members does FASB have? Seven. All serve full time, are appointed by the FAF trustees, and generally serve five-year terms with a ten-year maximum.

Who funds FASB? Mainly accounting support fees paid by public companies under Section 109 of the Sarbanes-Oxley Act of 2002, collected through the FAF, plus revenue from publications and subscriptions.

What is the difference between FASB and GASB? FASB sets standards for businesses and not-for-profit organizations. GASB sets standards for state and local governments. Both are overseen by the FAF.

Are FASB standards mandatory? For public companies, yes, because the SEC requires U.S. GAAP in their filings. Private companies and not-for-profits are not regulated by the SEC, but any entity that presents its financial statements as prepared under U.S. GAAP must follow FASB’s Codification, and lenders and auditors generally expect that.

Keep going with Farhat Lectures

This lesson comes from the first chapter of intermediate accounting. If you want the full walkthrough with worked examples and practice questions, the Intermediate Accounting course is the place to continue. Not sure yet? Try the free sample course first. CPA candidates can practice this topic in the FAR test bank.

About the author

Mansour Farhat, CPA, CIA, DBA, is the instructor behind Farhat Lectures and the voice in the video above. Read more on the About Me page.