Although they operate in a similar way, there are some accounting and reporting differences between the FASB and GASB when setting standards. The purpose of the FASB is to help investors and creditors make informed decisions related to a company's overall financial health. Accountability is the chief mission of the GASB, which sets the accounting and reporting standards for governmental and public institutions.
The Financial Accounting Standards Board strives to improve corporate accounting practices by establishing standards and guidelines that nongovernmental organizations and companies are required to follow when developing their accounting reports. The FASB is made up of seven independent board members. These accounting professionals are responsible for setting standards of financial accounting and reporting practices. Formal statements issued by the FASB are the primary sources of Generally Accepted Accounting Principles -- the accounting rules that accountants and other financial experts use for financial reporting and preparing financial statements.
Similar in mission to the FASB, the Governmental Accounting Standards Board is responsible for setting financial accounting and reporting standards for local and state governmental agencies. Because governments operate differently from for-profit businesses, accounting and financial standards reporting also differ. State and local governments fund the GASB. The GASB itself is not a government agency; therefore, it has no enforcement authority, as the standards it sets are not federal laws. Compliance and standards are basically enforced through the audit process. Standards set by the GASB aid government officials in showing accountability as it applies to the use of public resources.
Despite few laws regulating how nonprofit organizations must manage their financial responsibilities, nonprofits must comply with IRS reporting requirements and accounting standards that their funding agencies require. The annual report the IRS requires most tax-exempt organizations to submit includes financial reporting in the form of an income statement, expense report, balance sheet and other key financial reports. Familiarity with Generally Accepted Accounting Principles offers basic structure and guidelines for financial reporting.
Statement of Cash Flows
The statement of cash flows is a basic financial statement used to report the cash a company or organization generates from operating activities, investments and financing activities. The amount of income taxes and interest a company pays is also included in a cash flow statement. Lenders and investors examine a company’s cash flow statement to compare cash from operating activities to net income. Investors may raise questions if cash from operating activities continues to be less than a company’s net income. On the other hand, companies that generate more cash than they are using are able to reduce debt and increase dividends.
- Financial Accounting Standards Board: Facts About FASB
- Governmental Accounting Standards Board: Facts About GASB
- Muridae.com; Critical Issues in Financial Accounting Regulation for Nonprofit Organizations; June 1999
- AccountingCoach; Cash Flow Statement; Harold Averkamp
- CharlesSchwab: What Is the Statement of Cash Flows?
- National Association of College and University Business Officers; GASB and FASB; Larry Goldstein, et al.