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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Examples of Statements of Financial Accounting Standards

Some of the most important FASB standards include the following:

ASC 205 - Presentation of Financial Statements. This standard provided guidelines for the structure and classification of financial statements.
ASC 250 - Accounting Changes and Error Corrections. This standard established rules for restating financial statements due to changes in accounting policies or errors.
ASC 330 - Inventory. This standard specified the cost measurement methods (FIFO, LIFO, weighted average) for inventory, and defined the inventory valuation rules (lower of cost or market).
ASC 606 - Revenue from Contracts with Customers. This standard established a five-step model for recognizing revenue.
ASC 715 - Pension and Other Postretirement Benefits. This standard defined pension plan accounting and disclosures
ASC 718 - Stock Compensation. This standard covered the accounting treatment of stock-based compensation.
ASC 740 - Income Taxes. This standard covered tax reporting, including deferred taxes and uncertain tax positions.
ASC 805 - Business Combinations. This standard clarified the accounting for mergers, acquisitions, and goodwill.
ASC 820 - Fair Value Measurement. This standard provided a framework for measuring fair value in financial reporting.
ASC 825 - Financial Instruments. This standard covered the recognition, measurement, and disclosure of financial instruments.
ASC 842 - Leases. This standard required most leases to be recognized on the balance sheet as right-of-use assets and lease liabilities.

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.