FASB Accounting Standards Codification

- Have you ever wondered why we need accountants? As an accountant, I assume all of you know why we exist. Let me tell you, we aren't here to count beans as suggested by those who call accountants bean counters. Speaking of, I have a funny story. This spring, when I was at the family farm in Iowa, I accompanied my brother to a bean field and watched him count the beans so he could project the yield for the entire field. Here's a picture of him counting beans with a tape measure extended to 42 inches. He counted beans like this in three different locations in the field and then average to the three counts. He then took that average times five to get the yield per acre. Now that's a true bean counter. Let me ask another question. Have you ever tried to read financial statements or maybe even compare the financial statements of one company to the financial statements of another company? If so, you either accepted the financial statements at face value or you questioned how a specific line item on the financial statement was determined. Accountants have the technical training and expertise to ensure financial statements contain useful information. By useful, I mean the information presented in the financial statements is relevant and faithfully represents the economic activities of the entity. My hope is to give you a better picture of the standard setting board that makes all of the rules accountants must follow. In the United States, that standard setting board is the Financial Accounting Standards Board or FASB. The board is composed of seven full-time members who have a variety of perspectives, including academia or public-private or not-for-profit accounting. And the board member may be a financial statement preparer and is likely a financial statement user. The role of this board is to make the rules that accountants follow to ensure the financial statements we rely on to make investment decisions, credit decisions, or even strategy decisions, contain accounting information that we have confidence in. It's so nice to be able to rely on those financial statements knowing that they have been developed with a rule book we commonly call US GAAP. The Generally Accepted Accounting Principles or GAAP apply to all businesses, but not to governmental entities, which have their own set of rules. When you think of the standards set by FASB, think of them in these two ways. We have rules that determine when a transaction should be recognized and for how much. For example, a transaction might be a sale. And we ask, "Oh, we made a sale, how and when should we get that sale on the books? And for how much?" The rules provided by GAAP will help us answer that question. We also have rules that determine how all of the financial information recorded for transactions should be presented to the public. We can answer the question, "We have all these sales for the quarter or the year. How should we show them to others?" We are going to take a look at the accounting principles that guide the work of the FASB. As these principles help create a framework for standard setting. You'll find these principles can be very simple and logical. In fact, you might find that some of them to be obvious and wonder why it is even necessary to have the principle. It's amazing how useful these principles are when setting standards over new types of transactions, like accounting for cryptocurrencies. My goodness, who would have thought 20 years ago, that we would have needed accounting standards over cryptocurrencies. When there are new types of transactions like this, it's extremely helpful for FASB to have a set of basics to fall back on when setting standards.