2. Who are the two governing bodies that establish GAAP?
The Generally Accepted Accounting Principles (GAAP) are a set of rules used to govern all financial accounting practices in the United States. GAAP is primarily established by two governing bodies. These bodies are the Financial Accounting Standards Board (FASB) and the Security and Exchange Commission (SEC) (Kemp & Waybright, 2018). According to the FASB website they are a private sector, Not for Profit organization that establishes accounting and reporting standards for businesses and not-for profit organizations. Those standards are GAAP. The FASB is a seven member board the convenes to discuss topics facing businesses in the modern world. As the world changes so does business and as businesses change the standards by which they follow must also change. The FASB is tasked with ensuring the standards that they set are up to date and applicable to a variety of different businesses. An example of a business the changed with the modern world is Google. Google was one of the first major tech companies and the challenges they faced were different from the traditional company, the FASB created standards to address this. To keep track of their standards for GAAP the FASB created the Accounting Standards Codification (ASC). The Securities and Exchange Commission empowers the FASB to set the GAAP standards for the private sector. The FASB is the only entity recognized by the government to set the GAAP standards. The SEC’s role in GAAP standards is more authoritative and can overrule standards created by the FASB (Alexander, 1981). This ensures balance in the standard setting process and allows the SEC to do their job as a government agency without being completely overbearing on private businesses.
Another entity that is of note in contributing to GAAP is the Governmental Accounting Standards Board (GASB). According to the GASB’s website they are an independent private sector organization that establishes financial and accounting reporting standards for U.S. State and local governments that follow GAAP. The FASB develops the GAAP standards for the private sector while the GASB develops standards for the government’s accounting practices. Both of these boards fall under the Financial Accounting Foundation which is a non-profit organization.
References:
About the FASB. (n.d.). Fasb.org. Retrieved January 18, 2023, from https://www.fasb.org/facts
About the GASB. (n.d.). Gasb.org. Retrieved January 18, 2023, from https://gasb.org/aboutgasb
Alexander, M. O. (1981). Discussion of the SEC “reversal” of FASB statement no 19: An investigation of information effects. Journal of Accounting Research, 19, 212. https://doi.org/10.2307/2490996
Kemp, R., & Waybright, J. (2018). Financial Accounting (5th ed.). Pearson.
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