What Is the Financial Accounting Foundation (FAF)?

The Financial Accounting Foundation (FAF) is an independent, private-sector organization established in 1972 to oversee the bodies that set accounting standards in the United States. Its mission is to ensure these standards result in high-quality financial information for investors, lenders, and other users of financial reports. The FAF provides oversight, administration, and financial support to its standard-setting boards, and this structure is designed to promote confidence in the financial reporting system that underpins U.S. capital markets.

Core Oversight Responsibilities

The FAF’s role is one of stewardship and oversight, not direct standard-setting. Its Board of Trustees is responsible for selecting and appointing members to the two standard-setting boards, ensuring these individuals have diverse backgrounds and expertise. The FAF also ensures the boards have the necessary resources to operate effectively and follow their established due process procedures.

A key part of this oversight is protecting the independence of the standard-setting process. The FAF does not interfere with the technical decisions of the boards, as that authority rests exclusively with the standard-setters. Instead, the FAF’s Trustees monitor the boards’ activities, review their strategic plans, and approve their budgets. This allows the FASB and GASB to focus on their technical mission of improving financial reporting.

The Standard-Setting Boards Under FAF Oversight

The FAF oversees two distinct standard-setting bodies. Each board has authority over a different segment of the U.S. economy, allowing for more specialized accounting principles.

Financial Accounting Standards Board (FASB)

Established in 1973, the Financial Accounting Standards Board (FASB) sets accounting standards for all public and private companies and not-for-profit organizations. These standards are known as Generally Accepted Accounting Principles (GAAP). The U.S. Securities and Exchange Commission (SEC) recognizes the FASB as the designated standard-setter for public companies, making compliance with its pronouncements mandatory. The FASB’s seven full-time board members must sever ties with their previous employers to ensure their independence, and it issues standards through a transparent process that includes public comment.

Governmental Accounting Standards Board (GASB)

The Governmental Accounting Standards Board (GASB) was established in 1984 to set GAAP for U.S. state and local governments. Its standards are used by states, cities, counties, and other governmental entities to prepare financial reports. This information helps taxpayers, municipal bond investors, and legislators assess the financial health of governmental units. The board consists of seven members, and like the FASB, it follows an open due process before issuing new standards.

FAF Governance and Funding

The FAF is governed by a Board of Trustees with 14 to 18 members from diverse professional backgrounds, including business, investment, and government. Trustees are responsible for the foundation’s governance and oversight of the FASB and GASB. They serve a single five-year term, a policy designed to ensure fresh perspectives and maintain independence.

A defining feature of the FAF’s structure is its independent funding, as it does not receive money from the federal government. The FAF, FASB, and GASB are financed through accounting support fees. For the FASB, fees established by the Sarbanes-Oxley Act of 2002 are assessed on publicly traded companies; in 2024, these fees totaled $42.9 million from over 8,700 companies.

The GASB is funded through a similar model established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. These fees are assessed on municipal bond brokers and dealers. This dedicated funding stream, overseen by the SEC, is designed to be stable and reliable, insulating the standard-setting process from financial pressures.

Role in Ensuring Standard-Setting Independence

The FAF’s structure is designed to ensure the integrity of U.S. financial reporting. By acting as an intermediary, the FAF shields the FASB and GASB from political and commercial pressures that could otherwise influence the standard-setting process. This independence allows for the development of neutral accounting standards that serve the public interest. When investors trust that financial reporting is based on objective standards, they have greater confidence in the information, which supports the U.S. financial system.