What is the role of the FAF?

• Author: Larson, Rholan E.
• Position: Financial Accounting Foundation

What is the role of the FAF?

Trustees of the Financial Accounting Foundation oversee the standard-setting process, fund the FASB and GASB, and appoint members of the FASB. But they are now reexamining their role. They seek the views of a variety of constituents, including those of industry. The role the trustees of the Financial Accounting Foundation (FAF) play in the standard-setting process is sometimes misunderstood. Just as there are challenges to the Financial Accounting Standards Board (FASB), there are also challenges to the FAF as overseers of the process.

Let me summarize briefly what the trustees do: * In general, our responsibility is to be certain that the process of setting accounting standards is thorough, effective, and fair to all constituents. * We appoint the members of the FASB, the Financial Accounting Standards Advisory Council (FASAC), the Governmental Accounting Standards Board (GASB), and the Governmental Accounting Standards Advisory Council (GASAC). * We arrange for the funding of the Foundation, the FASB, the FASAC, the GASB, and the GASAC. * We prepare and administer the budget of the Foundation, and approve the annual budgets of the FASB, the FASAC, the GASB, and the GASAC. * We review periodically the bylaws of the Foundation and the basic structure for establishing and improving standards of financial accounting and reporting. The responsibilities the trustees have relative to the process involve complex issues, and our role is not always easily defined or understood.

The bylaws of the Foundation specifically prohibit the trustees from having any role in the actual setting of technical standards. This includes a prohibition against using their budgetary powers to influence the agenda or other activities of the standard-setting boards.

While the SEC possesses the statutory right to set standards, it has delegated that responsibility to the FASB. Nevertheless, the SEC remains very involved in the oversight role. On the other hand, the oversight authority of the FAF is much more vaguely defined.

It's easy to say that a line of demarcation exists between FAF trustees and the standard-setting boards. However, that line can be drawn tightly or loosely, while still preserving the independence of the boards. It is my observation that the line has been drawn very tightly over the years--with the trustees bending over backwards to avoid even the appearance of anything that would suggest their involvement in the setting of technical standards.

But where the line should be drawn is not always clear. For example, the trustees have responsibility for jurisdiction between the two boards--the FASB and the GASB. (Jurisdiction deals...