Standards-Setting Bodies and the Accounting Framework · 3 min read
Overview of Accounting Standard Setters
Multiple organizations establish accounting standards for different sectors. Understanding which standards apply in various situations is essential for government accountants.
Financial Accounting Standards Board (FASB)
FASB establishes generally accepted accounting principles for private sector business enterprises and not-for-profit organizations. FASB standards do not directly apply to governments, but government accountants should understand them for several reasons.
Governments may follow FASB standards for certain enterprise activities that operate like businesses. Governments interact with private sector entities whose financial statements follow FASB standards. Some GASB and FASAB standards reference or incorporate FASB concepts.
FASB is an independent private sector organization funded primarily through accounting support fees assessed on public companies. It operates under oversight of the Financial Accounting Foundation.
Governmental Accounting Standards Board (GASB)
GASB establishes accounting and financial reporting standards for state and local governments in the United States. GASB standards apply to states, counties, cities, towns, villages, school districts, special districts, public colleges and universities, public hospitals, and other governmental entities.
GASB operates under the same organizational structure as FASB, with oversight from the Financial Accounting Foundation. It is funded mainly through accounting support fees collected on municipal securities trades under the Dodd-Frank Act, plus publication sales.
GASB has seven members: a full-time chair and six part-time members, each appointed by the Financial Accounting Foundation for a five-year term that may be renewed once. Members come from preparer, auditor, user and academic backgrounds.
Federal Accounting Standards Advisory Board (FASAB)
FASAB establishes accounting standards for federal government entities. FASAB standards apply to executive branch agencies, legislative branch agencies, and other federal entities.
FASAB operates differently from GASB and FASB. It is a federal advisory committee sponsored jointly by the Government Accountability Office, the Department of the Treasury, and the Office of Management and Budget. Proposed standards go to the sponsors for review; if no objection is raised within the review period, the standard is issued and becomes federal GAAP. The AICPA recognizes FASAB as the body that sets GAAP for federal entities.
Under the sponsors' current memorandum of understanding, FASAB has seven members: one GAO member, one Treasury member and five non-federal members, one of whom chairs the board. Before that restructuring the board had nine members (three federal members representing GAO, Treasury and OMB, plus six non-federal members), and older exam items may describe that structure.
International Public Sector Accounting Standards Board (IPSASB)
IPSASB develops international accounting standards for public sector entities worldwide. IPSASB standards serve multiple purposes. They provide guidance for countries developing their own standards. They promote consistency in government financial reporting across nations. They support international comparisons and analysis.
IPSASB operates under the International Federation of Accountants. Its standards are voluntary. Countries may adopt them directly, adapt them to local circumstances, or develop independent standards.
United States standards generally do not directly incorporate IPSASB standards, but standard setters consider international guidance when developing domestic requirements.
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