Chapter 1 -
A New Era in GAAP
Learning Objectives
• Understand the objectives of the FASB Accounting Standards Codification™.
• Identify other projects of the FASB that will affect the Codification.
• Evaluate the impact of other FASB and IASB projects on the Codification.
Introduction
No project at the FASB exists in a vacuum. Each project has an impact on the others. The
codification of U.S. GAAP by the FASB is only one of several projects that will impact
accounting standards and the Codification. Some of these projects are already having an effect
on U.S. accounting standards.
In this chapter we look at some aspects of the FASB Accounting Standards Codification™ and
other projects of the FASB that will impact the Codification including
• The SEC report on the adoption of a principle-based accounting system,
• The GAAP hierarchy,
• The Conceptual Framework, and
• The FASB and the IASB convergence project.
Since our main focus in this course is on the Codification, there are a number of things to keep in
mind as you review the material:
• The Codification is a major restructuring of accounting and reporting standards. The
content may be in new locations within the Codification, but it represents existing
standards.
• The Codification has been released by the FASB for a one-year verification period and
the FASB is looking for feedback from constituents about the structure of the
Codification and any issues with the content before it becomes authoritative. It is not an
exposure draft; therefore, FASB is not looking for a debate of issues as they would for an
exposure draft.
• The Codification is not authoritative, yet. It will become authoritative only after the
FASB approves it. The FASB expects to approve and make the Codification authoritative
in April 2009.
• During the verification period, content of the Codification will change based on new
standards and user feedback.
• In the future, after approval by the FASB of the Codification, new standards in and of
themselves will not be authoritative.
The Codification
The Financial Accounting Standards Board has issued, for verification, the FASB Accounting
Standards Codification™. For four years over 200 people from various concerned entities
worked on this project of major importance to the accounting profession and to users of financial
information. During 2008, constituents of the Financial Accounting Standards Board will have
the opportunity to read and study the Codification to obtain an understanding of its content,
structure, and future consequences. The FASB is requesting feedback from constituents of the
FASB to verify that the Codification accurately reflects current standards.
This verification period is designed to acquaint constituents with the new structure and to obtain
feedback regarding any issues with the Codification content before it becomes authoritative.
All constituents should remember that the intention of the Codification project team was to retain
existing GAAP, not change it. Another thing to keep in mind is that the Codification is not
currently authoritative and will not be authoritative until it is approved by the FASB.
The Codification is the result of the Codification and Retrieval Project. There are other projects
of the FASB that will have an impact on the Codification; the GAAP Hierarchy, the Conceptual
Framework Project, and the convergence initiative with the IASB. We will look at each of these
projects and where they fit with the Codification. First, let us take a look at what the Codification
does and does not do; what is included; and what is not included.
What Does the Codification Do?
Simplify
When the FASB began the project its primary goal was to simplify user access to all
authoritative U.S. generally accepted accounting principles (GAAP) by providing all the
authoritative literature related to a particular Topic in one place. “Authoritative” includes all
level A-D GAAP that has been issued by a standard setter. After the Codification becomes
authoritative, there will be only one level of authoritative GAAP.
Note. For ease of reference by public companies, relevant authoritative content issued by the
SEC as well as selected SEC staff interpretations and administrative guidance is included in the
Codification.
Restructuring
The Codification changes the structure of existing accounting and reporting standards. The
content of the various standards now reside, by Topic, in one area. For instance, if you have a
new client in an industry that you are not familiar with, you will be able to research the
Codification by subject, such as Assets, or by industry, such as Construction.
Existing Standards
The Codification represents existing standards. Therefore, authors were instructed to change as
few words as possible when authoring their topics.
What Doesn’t the Codification Do?
You should keep in mind certain things that the Codification does not do. For instance, it does
not change existing GAAP. It merely reconfigures existing GAAP into a simpler, easier to use
format.
As a caveat, remember that the Codification does not codify all GAAP because the GAAP
hierarchy includes items such as common practice; textbooks, articles and other similar content;
that area of the current GAAP Hierarchy contained under “Other Accounting Literature.”
Another thing to remember is that the Codification is not an Exposure Draft. The intent of
verification is to verify that the Codification appropriately captures the underlying requirements
of GAAP, not to debate them as you would with an Exposure Draft. The verification period is an
opportunity for those who will use the Codification to identify any errors in the Codification that
resulted from any unintentional changes. Authors and reviewers were sensitive to the goal of
retaining existing GAAP. However, existing GAAP contains disparate standards. So, it is
entirely possible that unintentional changes may have occurred and the FASB is seeking
feedback on those areas.
At the present time the Codification is not authoritative and will not be authoritative until the
FASB approves it. During the verification period content of the Codification will change based
on new standards and user feedback. While the FASB is asking constituents to use the
Codification when performing research, constituents must remember that the Codification is not
authoritative until approved.
What Does the Codification Contain?
The Codification includes literature issued by various standard setters for all nongovernmental
entities:
• Financial Accounting Standards Board (FASB)
– Statements (FAS)
– Interpretations (FIN)
– Technical Bulletins (FTB)
– Staff Positions (FSP)
– Staff Implementation Guides (Q&A)
– Statement No. 138 Examples
• Emerging Issues Task Force (EITF)
– Abstracts
– Topic D
• Derivative Implementation Group (DIG) Issues
• Accounting Principles Board (APB) Opinions
• Accounting Research Bulletins (ARB)
• Accounting Interpretations (AIN)
• American Institute of Certified Public Accountants (AICPA)
– Statements of Position (SOP)
– Audit and Accounting Guides (AAG) – only incremental accounting guidance
– Practice Bulletins (PB), including the Notices to Practitioners elevated to Practice
Bulletin status by Practice Bulletin 1
– Technical Inquiry Service (TIS) – only for Software Revenue Recognition
Codification and the SEC
Authoritative content issued by the SEC is not part of the Codification. However in order to
make the Codification more useful for public companies, relevant portions of authoritative
content issued by the SEC and selected SEC staff interpretation and administrative guidance has
been included for reference in the Codification. This includes
• Regulation S-X.
• Financial Reporting Releases (FRR)/Accounting Series Releases (ASR).
• Interpretive Releases (IR).
• SEC Staff guidance in
– Staff Accounting Bulletins (SAB).
– EITF Topic D and SEC Staff Observer comments.
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