Understanding the Financial Accounting Foundation: Purpose & Impact

What Is the Financial Accounting Foundation (FAF)?

The Financial Accounting Foundation (FAF) is an independent organization that establishes, improves, and educates its constituents about financial accounting and operating standards. Its independence ensures unbiased, integrity-driven standard-setting processes.

In addition, FAF is responsible for the oversight, administration, and finances of two accounting boards and their advisory councils: the Governmental Accounting Standards Board (GASB), and the Financial Accounting Standards Board (FASB).

GASB is a private non-governmental organization that creates accounting reporting standards, or generally accepted accounting principles (GAAP), for U.S. state and local governments.

How the Financial Accounting Foundation (FAF) Operates

FASB is responsible for standards for publicly traded companies, private companies, and not-for-profit organizations. Taxpayers, holders of municipal bonds, legislators, and oversight bodies rely on this financial information to shape public policy and make investments. The Financial Accounting Foundation (FAF) also selects the members of the boards and councils that set accounting standards and protects their independence.

Key Members and Structure of the FAF

The FAF includes the FAF management team, the FAF board of trustees, FASB, and GASB. The FAF is a non-stock Delaware corporation established in 1972 that operates only for educational, charitable, scientific, and literary purposes. The FAF, FASB, or GASB do not receive funds from Federal, state or local governments.

The FAF is governed by a board of trustees: an independent body of leaders with diverse personal and professional backgrounds and experience, including business, investment, capital markets, accounting, accounting, business education, and government. The size of the board is seven members. Trustees serve a single, five-year term, and are eligible for reappointment of one additional five-year term.

Because capital markets and governments include many participants with competing demands and proprietary interests, independence is key to the activities of the FAF's standard-setting boards, FASB, and GASB. This independence allows them to provide objectivity and integrity to the U.S. financial reporting system. Because the FAF is an independent entity with no stakes in specific outcomes, the FAF's boards can make objective decisions on accounting standards without being swayed by industrial lobbying groups or political pressure.

The work of the FAF, FASB, and GASB is funded by accounting support fees, subscription and publication revenue, and investment income. The largest share of financial support for the standard-setting boards comes from accounting support fees. Those fees are paid by publicly traded companies (for FASB) and municipal bond brokers and dealers (for GASB).

The Bottom Line

The Financial Accounting Foundation (FAF) has an important role in establishing and improving accounting standards through FASB and GASB. Its independence is vital to safeguarding the objectivity and integrity of financial reporting. FAF's board of trustees is diverse and independent. Its activities are funded through accounting support fees, subscriptions and publications, and investment income.