The Financial Accounting Standards Board (FASB) is an organization responsible for developing accounting standards businesses follow to promote consistency and accuracy on financial statements. FASB followed several key objectives in developing these standards, including that the standards must provide information that is useful to investors, consistent and helpful in determining an organization's cash flow. All of the objectives of FASB are intertwined with the subject of financial reporting.
International Accounting Standards
One primary objective of FASB is to develop an international accounting system. This objective is important to businesses because if all businesses, worldwide, used the same system, it would be easier for lenders and investors to better understand the performance of an organization. When different countries use different accounting systems, it is very difficult to compare and analyze financial statements.
High-Quality, Useful Information
FASB tries to set guidelines that promote high-quality information. All of the standards created by FASB are intended to promote this objective. In order for financial information to be considered high-quality, the information must be relevant, reliable, neutral, comparable and consistent. Another objective of FASB is to develop standards that control how financial statements and financial information are recorded and reported.
Relevance and Reliability
Two qualities needed for accurate financial reporting are relevance and reliability. One objective of FASB is to create standards that promote these two qualities. Relevant information requires that businesses present their financial information in a timely manner. Reliability is a quality that assures investors that the information is complete, correct and is not misleading.
Neutrality
Another objective of FASB is to encourage companies to present financial statements that are completely neutral and unbiased. Financial statements must not be influenced by biases of the company, but instead should be completely factual.
Comparability and Consistency
One main reason FASB develops standards is to promote comparability and consistency. If financial statements are not prepared similarly between companies, investors have no way to compare performance and financial information. Consistency ensures that organizations prepare financial statements using the same accounting methods year after year.
