The world of public trading exists as an enormous matrix of companies, investors and investment opportunities. To ensure fairness for all parties, the U.S. government monitors securities trading. Several organizations provide information and advice to the government regarding securities trading, including the Financial Accounting Standards Board, or FASB. The FASB develops standardized accounting methods for the preparation of financial statements and provides this information to the government for consideration.
Financial Accounting Standards Board
A private, nonprofit organization, the Financial Accounting Standards Board creates, develops and publishes generally accepted accounting practices, or GAAP, for nongovernmental agencies. As per its mission statement, the FASB works to improve standardized accounting methods as a means of improving the decision-making process for all nongovernmental agencies, including public companies issuing stock options. The board publishes the "FASB Accounting Standards Codification," a book of all GAAP developed by the organization. FASB constitutes part of a larger network of organizations receiving oversight, funding and administration from the Financial Accounting Foundation.
FASB and the SEC
The federal Securities and Exchange Commission oversees the trading and investment industry. Among its many tasks, the SEC addresses problems with the financial reporting methods of public companies. To this end, the SEC works with the FASB to develop and implement GAAP for the securities trading industry. Various complaints arise regularly in protest to the FASB and its methods, most commonly from investors and publicly traded companies. In a 2002 address to Congress, chief SEC accountant Robert K. Herdman reported complaints that FASB worked too slowly and created overly complex accounting methods.
How FASB Affects Stock
If adopted and implemented by the SEC, the GAAP of the FASB directly impact the nature of stock options. Accounting practices regarding stocks extend far beyond bookkeeping. The number of stocks issued by a company, the value of those stocks, and way the issuing of stocks affects the actual value of a company, and these all relate to accounting practices. As a private organization, FASB holds no power over stocks or the market. However, if the government enacts the GAAP of the FASB, the organization's policies directly affect stock options and market values.
FASB Stock Options
The FASB issues no shares, meaning that technically no such thing as "FASB stock options" exists. However, if the SEC adopts measures suggested by the FASB, all publicly traded stock options are beholden to the standards of the board. So in a purely accounting sense, publicly traded options qualify as FASB options because they conform to FASB standards.
- Financial Accounting Standards Board: Facts About FASB
- SEC: Testimony Concerning The Roles of the SEC and the FASB in Establishing GAAP; Robert K. Herdman; May 14, 2002
- University of Wisconsin: Stock Option Accounting: Déjà Vu All Over Again; Terry Warfield; 2004
- "Accountants' Handbook: Financial Accounting and General Topics, Volume 1"; Lynford Graham; 2007
- Financial Accounting Foundation
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