Financial Accounting Standards Statements: Comprehensive Guide and Illustrations

Charlene Rhinehart, CPA and CFE, chairs a committee within the Illinois CPA Society and holds a degree in accounting and finance from DePaul University.

What Are Statements of Financial Accounting Standards (SFAS)?

Statements of Financial Accounting Standards (SFAS), released by the Financial Accounting Standards Board (FASB), served as authoritative guidance on specific accounting matters until 2009. These statements established the framework for accounting practices in the United States. SFAS were introduced to keep the accounting profession updated on the appropriate treatment of particular transactions or events, following the foundational Statement of Financial Accounting Concepts (SFAC).

Key Highlights

• SFAS were developed to resolve accounting challenges and promote financial transparency.
• Once issued, SFAS became integral components of generally accepted accounting principles (GAAP).
• No new SFAS have been released since 2009, totaling 168 standards.
• The FASB Accounting Standards Codification (ASC) replaced SFAS as the primary accounting literature.

Deep Dive into SFAS

SFAS were crafted to tackle particular accounting issues, aiming to improve the precision and clarity of financial disclosures. Before an SFAS was finalized, extensive public consultation was conducted to evaluate the impact of the proposed changes.

Upon publication, an SFAS became part of the FASB’s authoritative accounting standards, collectively known as GAAP. GAAP governs how companies in the U.S. prepare and present financial statements, including income statements, balance sheets, and cash flow statements. These reports are essential for regulators and investors alike. Public companies are overseen by the Securities and Exchange Commission (SEC), which ensures the integrity of U.S. financial markets.

Since September 15, 2009, SFAS have been superseded by the FASB Accounting Standards Codification, which is updated through Accounting Standards Updates (ASUs). There are 168 SFAS in total, with the final standard indicating the full transition to the ASC.

Important Notes

The FASB currently relies on the Accounting Standards Codification (ASC) as the exclusive source of GAAP. This transition was made to consolidate accounting literature into a single, organized database. The ASC is structured into 90 distinct accounting topics. Importantly, the introduction of the ASC did not alter GAAP itself but reorganized it to facilitate easier access and research.

SFAS in Action: An Example

An SFAS becomes part of GAAP once it passes through a rigorous approval process. Initially, it starts as a concept identified by the FASB either through internal research or industry feedback. The Board then develops a proposed framework to address the issue and holds public meetings to gather input.

The proposed standard is circulated among stakeholders for comments. Based on the feedback, revisions may be made, followed by further public discussions. If consensus is reached on the appropriate accounting treatment, the FASB issues the SFAS, officially incorporating it into GAAP.

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