FASB, or Financial Accounting Standards Board, was established in 1973. The primary focus of FASB is to establish and then improve upon what is referred to as GAAP or Generally Accepted Accounting Principles. This is the official organization that is responsible for creating and sustaining the standards for all accounting procedures regarding public companies in the United States.
Sounds like a great idea, right? This is an organization that levels the playing field with fair accounting practices, accuracy and transparency and that reads as a positive. However, a number of cynics are not so enthusiastic or have grown weary of the expansion of FASB’s role in the marketplace.
Like anything that is developed for the greater good, some efforts might not be so well received. There are those who might cry foul or point at inherent problems within. While the intent of FASB is clearly direct and for the betterment of business, it doesn’t come without its own set of issues and naysayers. Now that we’ve briefly touched on the history of FASB, what are our thoughts?
Common Criticisms of the FASB
Critics are quick to point out the complexity involved when it comes to supporting FASB standards. Many suggest that these regulations can often be difficult to understand or apply. This can lead to inherent issues within a company’s accounting department and can also result in increased frustrations and financial burdens. This proves to be especially true when it comes to smaller businesses.
There is also an associated cost with compliance and that is an additional concern. Often, and again with smaller businesses in mind, implementing these standards can be expensive. These expenses generally include training personnel and system upgrades as well as outside consultation when, or if, needed.
Critics also suggest that there is a lack of flexibility when it comes to the administration of these standards. These FASB regulations, again being well intended, often create additional headaches for specific types of businesses. What could this mean for an organization whose sole purpose is to create a high-minded standard?
It means that these standards can actually become impractical or even burdensome without the suggestion of some flexibility. In other words, not all companies are created equal and without a broader context in play, these standards might come across as being overly restrictive for some.
Another issue centers around the fact that FASB is designed to operate and enforce these standards specific to businesses in the United States. As a result, there are often issues as it regards consistency with other international regulatory committees such as the International Financial Reporting Standards (IFRS). Without more consistent measures and standards this tends to complicate international business operations.
The Win/Lose World of the FASB
The critics have their points but so do those who are in support of the Financial Accounting Standards Board. To start with, FASB ensures transparency and fairness across the board. The regulations also help to enhance the credibility of financial reports and this is crucial when it comes to sustaining the integrity of the marketplace while also supporting economic stability.
While there are those who suggest that the FASB is inflexible, the organization does have a track record when it comes to allowing for adaptability. Obviously, times are changing and changing fast. In the past few years and in the years ahead business and technology environments have created and will continue to create avenues for new financial practices. It falls on FASB to keep policies and standards up to date as a result.
FASB also strives to protect investors. How do they do this? FASB requires companies to disclose all relevant financial information. This must be done according to their standards, which means that these records must be accurate and fully transparent. As a result, potential investors can make more well-informed decisions based on past and real time financial observations.
How Does This Affect the CRE Market?
When it comes to commercial real estate, FASB has created a number of very prominent standards and, again, they have been met with mixed reactions. The Accounts Standards Codification, or ASC, is a prime example of how FASB has affected the world of commercial real estate.
Many in the industry are overly familiar with ASC 842, ASC 606 and ASC 820, to name a few. The implementation of these FASB standards means that accounting personnel in the commercial real estate industry have had to adjust and accommodate for the new reporting criteria. FASB also calls for enhanced transparency about lease terms and revenue contracts as well as potential impacts on investors and tax reporting.
To be sure, it’s a lot to take on for an accounting department. These new standards play a huge role in how commercial real estate companies present their financial positions moving forward. Those who are tasked with acclimating to these regulations must be trained on software that is designed to organize and create financial reports with this new criteria in mind. Is your company software up to the task?
The Perfect FASB and ASC Software Solution Â
Whether you’re a proponent or opponent, the simple fact is that the FASB is here to stay. Like the IRS, our opinions of FASB are unproductive to have a good/bad conclusion and instead center around how we can best get along with it. FASB’s accounting standards now play a critical role in the shaping of how commercial real estate businesses list their financial performances and overall position. These standards also play a big part in investment evaluations and protections as well as tax reporting.
Arm yourself with the software muscle needed so that FASB compliance becomes a simple part of your everyday lease-accounting business. Try our on-demand demo to see how Quarem can help you navigate the complex world of FASB standards.
