Who Controls US GAAP?

US Generally Accepted Accounting Principles (GAAP) are primarily controlled by two independent organizations: the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB). These boards are responsible for issuing the common set of accounting rules, requirements, and practices that constitute GAAP.

Primary Standard-Setters of US GAAP

The control over US GAAP is bifurcated to address the distinct reporting needs of different sectors within the United States.

Financial Accounting Standards Board (FASB)

The Financial Accounting Standards Board (FASB) is the primary independent, private-sector organization responsible for establishing accounting and financial reporting standards for public and private companies, and not-for-profit organizations. Its mission is to improve financial reporting to provide useful information to investors and other users of financial reports.

• Jurisdiction: Applies to non-governmental entities.
• Independence: The FASB operates independently, though its standards are recognized by the U.S. Securities and Exchange Commission (SEC) as authoritative for public companies.
• Process: The FASB follows an extensive and open due process, inviting public comment and conducting research before issuing new standards.

Governmental Accounting Standards Board (GASB)

The Governmental Accounting Standards Board (GASB) is the independent organization that establishes accounting and financial reporting standards for state and local governments in the United States. Its goal is to provide useful information to citizens, legislative and oversight bodies, and investors and creditors.

• Jurisdiction: Applies exclusively to state and local governmental entities.
• Independence: Similar to the FASB, the GASB operates independently to ensure objectivity in its standard-setting process.
• Process: The GASB also employs a thorough and public due process to develop and issue its standards.

Regulatory Oversight and Influence

While FASB and GASB are the primary standard-setters, other bodies exert significant influence and oversight over the application and enforcement of US GAAP.

U.S. Securities and Exchange Commission (SEC)

The U.S. Securities and Exchange Commission (SEC) holds the ultimate legal authority to establish accounting principles for public companies in the United States. Although the SEC has largely delegated the responsibility for setting accounting standards to the FASB, it retains oversight and the power to:

• Mandate compliance: Public companies must adhere to FASB-issued GAAP when filing financial statements with the SEC.
• Influence standard-setting: The SEC actively monitors the FASB's activities and can influence its agenda.
• Issue specific rules: In rare cases, the SEC may issue its own accounting guidance or rules, especially when it perceives a gap or inadequacy in existing GAAP.

American Institute of Certified Public Accountants (AICPA)

Historically, the American Institute of Certified Public Accountants (AICPA) played a significant role in developing accounting principles. While its direct standard-setting role for GAAP has diminished with the rise of FASB and GASB, the AICPA remains influential through:

• Auditing standards: The AICPA sets ethical standards and auditing standards for financial statement audits of private companies.
• Professional guidance: It provides interpretative guidance and resources to its members, who are practitioners of GAAP.
• Advocacy: The AICPA advocates for the accounting profession and provides input to the FASB and GASB.

Understanding GAAP's Governance

The structure of GAAP's governance ensures that accounting standards are tailored to the unique environments of different types of organizations, promoting transparency and consistency in financial reporting.

This multi-faceted approach ensures that US GAAP remains robust, relevant, and adaptable to the evolving financial landscape, serving the information needs of various stakeholders effectively.