As the overseer of the Financial Accounting Standards Board, the Financial Accounting Foundation plans to begin taking a closer look at the accounting standards issued by the board.

FAF has developed a new process for performing post-implementation reviews of new accounting and reporting standards issued by the FASB as well as those issued by the Governmental Accounting Standards Board, which sets accounting standards for governmental bodies. FAF said the new process is designed to be independent of the standard-setting process itself.

“This does not mean that FAF has to approve a standard before it becomes effective,” said FAF spokesman Christine Klimek. “The FASB and GASB continue to set the standards.”

Instead, the FAF review staff will study significant accounting standards to assess whether they meet the intended financial reporting objective. The review staff, which will include FASB and GASB staff, will report to the FAF trustees and president. FAF is beginning with a trial review, expected to be completed in midyear 2011, to test out its new review process.

The FAF has always been responsible for reviewing the effectiveness of the standard-setting process, said Klimek. That includes assuring that standards adopted by the FASB and GASB “can be applied in ‘real world’ situations and that they do, in fact, result in financial reporting that provides useful information to investors and other users,” she said. The new process FAF has developed is intended to enhance FAF’s ability to make such evaluations after standards have been put in place, Klimek said.

In a statement, FAF Chairman John Brennan said the review process “strikes the appropriate balance” between overseeing the effectiveness of FASB and GASB and “protecting the independence and integrity” of the two boards’ standard-setting processes.

FASB has taken heat, particularly from the banking sector and particularly in the wake of economic crisis, for advocating accounting rules that do not reflect how companies manage or think about their businesses. Most notably, the financial sector is up in arms over FASB’s current proposal to call for more use of fair value in measuring financial assets and liabilities. FASB also has taken heat from the corporate counsel community over its call for more disclosure regarding contingencies, or pending legal matters where a company might face a future liability.

Klimek, who also speaks for FASB, said the review process is a positive development for standard setting, the two boards and constituents.

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