“Financial Accounting Standards Board (FASB)”

definition

The Financial Accounting Standards Board is an independent, non-profit organisation consisting of a government body of 7 members, whose main purpose is to issue and communicate the generally accepted accounting principles (GAAP) in the United States.

The standards established by the FASB prescribe the financial accounting guidelines for public and private companies in the US, which are recognised as authoritative by the Securities and Exchange Commission (SEC).

The FASB strives to improve financial accounting and reporting practices and increase market efficiency by providing more transparent, credible and understandable information to investors and other users of financial reports. It also works to help stakeholders to understand and implement its standards.

 

FASB hedge accounting standards

As part of its aim to improve corporate accounting practices, in 2002, the FASB started collaborating with the International Accounting Standards Board (IASB) on a convergence project to consolidate hedge accounting standards.

The project, however, was shelved in 2010 due to disagreements on key aspects, which led to two different projects. In 2014 the IASB released a set of International Financial Reporting Standards for financial instruments, and in 2016 the FASB released its own standards for the recognition and measurement of financial instruments under the US GAAP.

The latest FASB standards update increases the scope of hedge accounting to a higher number of strategies commonly used in risk management. Moreover, it simplifies the documentation necessary – to provide more margin for companies to meet all the hedge accounting requirements – and allows the use of qualitative assessment on a periodic basis instead of a quarterly quantitative analysis.

Regarding the application deadline, the updated FASB Accounting Standards become effective from 2019 for public companies and from 2020 for private ones, but early adoption has been permitted since the day of their release.

 


Hedge accounting explained