FAR Standard Setters: FASB, SEC, GASB, and Private-Company Roles

FAR expects you to know which body sets which accounting rules and how that authority affects financial reporting. The key is not a long history of standard setting. The exam issue is whether you can identify the proper source of guidance for a for-profit company, SEC registrant, private company, state or local government, or specialized reporting question.

The most common mistake is treating all accounting organizations as interchangeable. FASB, SEC, GASB, PCC, and EITF have different roles. Knowing those boundaries helps you choose the right framework before applying recognition, measurement, presentation, or disclosure rules.

Standard-Setter Map

For most FAR questions involving U.S. nongovernmental entities, begin with FASB guidance. Move to SEC considerations only when the entity is public or the facts involve securities filings. Move to GASB when the entity is a state or local government.

Authority Flow

    flowchart TB
	    A["U.S. Congress"] --> B["SEC statutory authority for public companies"]
	    B --> C["Recognizes FASB standards for U.S. GAAP"]
	    C --> D["FASB Accounting Standards Codification"]
	    E["FAF oversight"] --> C
	    E --> F["GASB standards for state and local governments"]
	    G["PCC private-company input"] --> C
	    H["EITF emerging-issue consensus"] --> C
	    B --> I["SEC filing, presentation, and disclosure requirements"]

The diagram shows why the SEC and FASB both matter for public companies. The SEC has legal authority over public-company reporting, while the FASB provides the recognized accounting standards incorporated into U.S. GAAP.

FASB and the Codification

The Financial Accounting Standards Board is the principal standard setter for nongovernmental U.S. GAAP. Its standards are organized in the Accounting Standards Codification. When the FASB changes GAAP, it issues an Accounting Standards Update, and the authoritative content is incorporated into the Codification.

FAR questions may ask whether the Conceptual Framework is authoritative for resolving a specific transaction. It is important, but it does not supersede a directly applicable standard.

SEC Authority

The Securities and Exchange Commission has statutory authority over accounting and reporting for U.S. public companies. In practice, the SEC recognizes FASB as the standard setter for U.S. GAAP, but the SEC can add filing, presentation, disclosure, and enforcement requirements for registrants.

The exam trap is applying SEC rules to every entity. SEC guidance is especially relevant when the fact pattern identifies a public company, registrant, public offering, or SEC filing.

GASB and Governmental Accounting

GASB sets accounting standards for U.S. state and local governments. It is separate from FASB, even though both operate under FAF oversight.

FAR governmental accounting questions rely on governmental reporting concepts such as fund accounting, measurement focus, basis of accounting, and government-wide statements. Do not force corporate FASB rules onto governmental fact patterns.

PCC and Private-Company Alternatives

The Private Company Council works with the FASB on private-company accounting alternatives. These alternatives are designed to reduce cost and complexity while preserving decision-useful information for private-company users.

Private-company alternatives can affect topics such as goodwill, identifiable intangible assets in certain combinations, and other areas where private-company users may not need the same level of complexity as public-company users. The key for FAR is not to memorize every alternative. It is to recognize that private-company facts can change the available accounting choices when the standard permits an alternative.

EITF and Emerging Issues

The Emerging Issues Task Force addresses narrow, timely accounting questions when diversity in practice could develop. EITF conclusions can become part of authoritative guidance after FASB approval and Codification incorporation.

For exam purposes, EITF is a mechanism that supports consistent GAAP application. It is not an enforcement agency and does not set governmental standards.

IASB and International Context

The International Accounting Standards Board issues IFRS. FAR is primarily a U.S. CPA exam section, so IASB content should not displace U.S. GAAP unless the question explicitly asks for an international comparison or foreign reporting context.

This boundary prevents IFRS details from contaminating ordinary U.S. FAR answers.

Choosing the Right Authority

Use this sequence when a question asks which body or guidance applies:

1. Identify the entity type: public company, private company, NFP, governmental entity, or foreign issuer.
2. Identify the reporting purpose: GAAP financial statements, SEC filing, government reporting, or IFRS comparison.
3. Select the standard setter: FASB, SEC overlay, GASB, or IASB context.
4. Apply the relevant accounting model.
5. Check whether disclosure or filing rules add requirements beyond recognition and measurement.

Common Exam Traps

Key Takeaways

• FASB is the primary standard setter for nongovernmental U.S. GAAP.
• SEC has legal authority over public-company reporting and can add filing and disclosure requirements.
• GASB sets standards for U.S. state and local governments.
• PCC helps develop private-company alternatives through the FASB process.
• EITF addresses narrow emerging issues that may become Codification guidance.
• IASB matters for IFRS comparisons, not ordinary U.S. FAR answers unless the facts say so.

Quiz: Standard Setters and Their Roles