The FASB is a seven-member body which is the operating part of a larger body,
including both the Financial Accounting Foundation and the Financial Accounting
Standards Advisory Council. The process by which accounting standards are prom-
ulgated by the FASB is very similar to the rulemaking procedures employed by gov-
ernmental agencies. This is because the FASB’s Rules of Procedure require it to fol-
low a process that is based on the Administrative Procedures Act (which governs the
SEC’s conduct) and is open to public observation and accommodation.
For major projects, the board typically appoints an advisory task force of outside
experts and studies existing literature on the subject. In addition, the FASB conducts
or commissions any additional research that is needed on the subject. A “Discussion
Memorandum” may then be published. The purpose of the Discussion Memorandum
is to define the problem and the scope of the accounting and reporting issues in-
volved, to discuss any relevant literature and research findings, and to present some
possible solutions to the issue under consideration and describe the implications of
each proposed solution. The Discussion Memorandum then serves as the basis for
both written comments and oral presentations at public hearings.
Once written comments have been received and public hearings have been held,
the FASB circulates an “Exposure Draft,” which sets forth the new proposed stan-
dards of financial accounting and reporting with a proposed effective date and ex-
planation of the board’s conclusions. After the exposure draft has been circulated, an
additional comment period, generally at least 60 days, is provided.
Throughout this standard-setting process, the meetings of the FASB are open to
the public and a public record is kept. For smaller projects, the procedures employed
by the FASB are less extensive; for example, there may be no task force or public
hearings.
Although the SEC, for the most part, relies on the accounting standards promul-
gated by the FASB, the SEC also significantly influences the standard-setting process
by overseeing the private sector’s efforts to establish accounting standards; for ex-
ample, the SEC staff consults regularly with the FASB staff concerning any opinions
or concerns which it may have and meets regularly to review the FASB’s agenda and
discuss items of mutual interest. Every project on the FASB’s agenda is assigned to
an SEC staff member. That staff member follows developments in the FASB project,
reviews comments received by the FASB concerning the project, attends FASB meet-
ings and public hearings throughout the project, and confers regularly with the FASB
staff. Additionally, a senior staff member of the SEC’s Office of the Chief Accoun-
tant ordinarily serves as an observer on each task force commissioned by the FASB.
As a result of these procedures, the SEC is involved to some extent in most steps of
the standard-setting process.
At times, guidance on an accounting issue may be needed more quickly than the
FASB can respond. In circumstances such as these, the SEC will usually take action
to encourage uniformity or comparability in reporting among companies until the
FASB has time to address the issue. Such actions by the SEC are usually intended to
be temporary measures taken until the private sector can fully address the issue and
resolve it appropriately.
Since 1984, additional guidance on new accounting issues has been provided by
the Emerging Issues Task Force (EITF) of the FASB. The EITF addresses, within the
framework of existing generally accepted accounting principles, accounting issues
not covered by current standards. EITF consists of 13 voting members from major
and regional accounting firms and large corporations. It meets six times a year to
14.3 RELATIONSHIP WITH U.S. ACCOUNTING BODIES 14 • 5