The Financial Accounting Standards Board (FASB)
The board members have 3 to 5 year terms and also can be appointed for another 3 to five years after their first term. There is also almost 70 staff members that assist the board members. ). FAF has charged FASB with the responsibility of looking for financial inconsistencies on behalf of the Securities and Exchange Commission (SEC) that has the authority to formulate and report financial guidelines for businesses across the United States. SEC’s dependency on the private sector led to the establishment of the seven-member board that regulates the financial matters of many businesses (Mead et al., 1990). FASB bears the responsibility of appointing the seven members who serve the board for a term of five years. FAF demands the neutrality and self-reliance of the seven members of FASB by ensuring that they end their ties with any other companies. Apart from the seven-fulltime members, the board has 68 additional staff members.
In a capital market, it is important to have useful financial information to allow investors to make decisions. Financial information must be consistent and transparent. Being transparent allows investors, creditors and the market to properly evaluate a business entity. Having it transparent and easy to understand is to increase the confidence of markets fairness and the companies to use to evaluate the effectiveness of management and to make the right decision when a problem may arrive. This is …show more content…
They were created to protect the companies, investors, and stakeholders from questionable accounting practices. It also helps to hold the companies responsible for their financial reporting activities. It maintains consistency in reporting financial information and to reduce the risk of fraud and error. If GAAP didn’t exist, companies couldn’t provide accurate or consistent information to the investors, creditors or stakeholders. FASB has helped to protect the stakeholder’s interest by creating the standards for the financial reporting. In the article on the importance of GAAP, Sabah Karimi writes, “most companies in the United States adhere to Generally Accepted Accounting Principles to maintain consitancy in reporting of financial information and reduce the risk of fraud and error. The principles have been derived from traditional accounting systems and can be adapted to an organization’s management style and industry. If GAAP didn’t not exist, companies would not be able to provide accurate and consistent financial information to investors, creditors ad stakeholders of a company” (Karimi,