How Does the FASB Make Decisions? Agenda Setting, Individual Board Members, and Fair Value Accounting

Abstract

We provide rich descriptive statistics on how the Financial Accounting Standard Board (FASB) sets Generally Accepted Accounting Standards (GAAP) over the past 40 years. Based on 211 financial accounting standards issued between 1973 and 2014, we report the reasons that the FASB adds a project to its agenda, the parties that bring the issue to the FASB’s attention, and the themes across different standards. We find that reducing diverse practice and inconsistent guidance is the most frequently cited reason for the FASB to take on a project. More than half of the standards are aimed to enhance comparability. Parties that bring an issue to the FASB’s attention also likely possess relevant first-hand information, highlighting the importance of information and expertise in the standard-setting process. Accounting for financial instruments is the most frequent theme across accounting standards, which potentially explains the growth in fair value measurement in U.S GAAP. We analyze the dissenting opinions written by individual board members and find some evidence that board members’ reasons for disagreements are associated with their professional backgrounds. However, our analyses indicate board members’ attitude toward fair value accounting is context-specific and cannot be fully explained by their professional backgrounds.