FASB

Definition

The Financial Accounting Standards Board (FASB) is a private-sector organization responsible for establishing and improving financial accounting and reporting standards in the United States. Its guidelines shape how companies prepare their financial statements, impacting various areas such as the treatment of pushdown accounting, the assessment of goodwill impairment, and the reporting of intercompany transactions. FASB standards also play a crucial role in determining the primary beneficiary in consolidation scenarios and defining classifications for held-for-sale assets, as well as segment disclosures within financial statements.

5 Must Know Facts For Your Next Test

1. FASB was established in 1973 and has been responsible for developing new accounting standards that improve the clarity and consistency of financial reporting.
2. The concept of pushdown accounting is addressed by FASB, which allows acquired companies to present their financial statements as if they were using the fair value of assets recorded at acquisition.
3. Goodwill impairment testing is directly influenced by FASB regulations, requiring companies to assess whether goodwill has been impaired based on specific criteria outlined in their standards.
4. Intercompany transactions must be reported according to FASB guidelines to ensure that consolidated financial statements accurately reflect the company's overall financial position.
5. FASB’s rules also define how entities classify assets as held-for-sale and provide criteria for segment disclosures, ensuring transparency and consistency in financial reporting.

Review Questions

• How does FASB influence the application of pushdown accounting in financial reporting?
  • FASB plays a pivotal role in establishing the guidelines for pushdown accounting, which allows an acquired company to reflect its assets and liabilities at their fair value post-acquisition. This approach aligns with FASB’s objectives to provide clearer insights into a company’s financial position following a merger or acquisition. By adopting pushdown accounting, the acquirer can streamline its financial statements while also enhancing transparency for investors and stakeholders about the acquired entity's true value.
• Discuss how FASB's standards affect goodwill impairment testing procedures for companies.
  • FASB's standards set forth detailed requirements for goodwill impairment testing, which involves assessing whether the carrying value of goodwill exceeds its fair value. Companies must perform this test annually or whenever there are indicators of potential impairment. This rigorous process ensures that any decline in value is recognized promptly, reflecting more accurately the company’s financial health on its balance sheet. Compliance with these standards helps maintain trust with investors regarding asset valuations.
• Evaluate the impact of FASB regulations on segment disclosures and their significance for investors.
  • FASB regulations significantly shape how companies disclose segment information in their financial statements, ensuring that stakeholders receive relevant details about different business units. These disclosures enhance transparency and allow investors to assess performance across various segments more effectively. By requiring detailed reporting on segment profits, revenues, and expenses, FASB helps investors make informed decisions based on a comprehensive understanding of a company's operational dynamics and risks associated with different segments.

Related terms

GAAP:

Generally Accepted Accounting Principles, which are the framework of accounting standards and guidelines used in financial reporting in the U.S.

ASC: Accounting Standards Codification, the authoritative source for U.S. GAAP that organizes the many standards established by FASB.

IFRS:

International Financial Reporting Standards, which are accounting standards developed by the International Accounting Standards Board (IASB) used globally outside the U.S.