What is a Statement of Financial Accounting Standards?

A statement of financial accounting standards (SFAS) gives detailed guidance on how to deal with a specific accounting issue. These statements are released by the Financial Accounting Standards Board (FASB), which is the primary accounting rule-setting body in the United States for generally accepted accounting principles.

The statements are intended to address those areas of accounting that are subject to variable interpretations, and which can therefore be improved by narrowing down the number of choices available for recognizing and reporting a financial transaction. The statements address both broad transactions (such as pension accounting) and industry-specific areas. The result is financial statements that are more consistent across organizations within an industry, making their financials more comparable.

The release of some standards have been contentious, since they have resulted in significant changes in the reported levels of profitability of some entities. In particular, the accounting for stock options and business combinations have resulted in significant reporting changes in recent years.

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The Accounting Standards Codification

The standards were originally issued in a free-standing format, so that a researcher needed to read each applicable standard and be aware of any subsequent changes to it. To streamline the research process, all of these standards have since been aggregated into the GAAP codification, which is known as the Accounting Standards Codification, or ASC; this is now the sole source of GAAP. The ASC is available as an online database, and can also be purchased as a printed set of reference manuals. The ASC is a much better-organized research tool than digging through the SFAS brochures individually.

SFAS Compliance Issues

Any non-governmental entity that wishes to have its financial statements audited must first ensure that they are in compliance with the applicable statements of financial accounting standards. Also, the Securities and Exchange Commission requires that all publicly-held entities must be in compliance with these standards.