FASB Pronouncements refer to the formal, authoritative guidelines issued by the Financial Accounting Standards Board (FASB) regarding generally accepted accounting principles (GAAP) in the United States. The main types of FASB Pronouncements include:
- Statements of Financial Accounting Standards (SFAS): These were the primary documents through which the FASB established GAAP from its inception in 1973 until the codification project in 2009. They dealt with significant areas of accounting such as financial presentation, assets, liabilities, equity, revenue, and expenses.
- FASB Interpretations: These were issued to clarify or elaborate on existing FASB Statements of Financial Accounting Standards or Accounting Research Bulletins. They were considered a part of U.S. GAAP and were designed to guide companies and accountants in applying accounting standards.
- FASB Technical Bulletins: These were guidelines on applying standards, interpretations, and opinions. They represented clarifications, rather than new standards or major changes to existing standards.
- FASB Staff Positions (FSP): These were brief documents providing additional guidance on existing standards. They often addressed narrow, specific issues or questions.
In 2009, FASB launched the Accounting Standards Codification (ASC) to organize U.S. GAAP pronouncements from numerous sources into a consistent, searchable structure. This was designed to simplify the process of researching accounting issues. All existing FASB Pronouncements, along with relevant documents from other accounting bodies, were included in the codification and assigned to specific ASC Topics, Subtopics, and Sections.
Since the ASC, the FASB now issues Accounting Standards Updates (ASUs) which update the ASC and are the means by which FASB makes changes to U.S. GAAP. They effectively replaced the old system of multiple types of FASB Pronouncements.
Example of FASB Pronouncements
One of the most notable Statements of Financial Accounting Standards (SFAS) is SFAS No. 157, “Fair Value Measurements.” It was issued in September 2006 and was later codified into Accounting Standards Codification (ASC) Topic 820.
SFAS No. 157 defined fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also established a framework for measuring fair value and expanded disclosures about fair value measurements.
This standard was significant because it aimed to increase consistency and comparability in fair value measurements. For example, it introduced a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).
So, SFAS No. 157 (now ASC 820) is a crucial part of U.S. GAAP that provides guidance on how entities should determine the fair value of their assets and liabilities, which is crucial for various aspects of financial reporting, including asset impairment tests, derivative valuation, and business combination accounting.