Are You Ready for GAAP Codification?
The biggest change in 50 years is coming. Are you keeping up? Join the poll; see how you rate.
June 22, 2009
After years in the making, the Financial Accounting Standards Board (FASB) on Wednesday, July 1, will launch the new GAAP (Generally Accepted Accounting Principles) codification.
Don’t be alarmed if you’re only dimly aware of the GAAP codification project. Apparently other CPAs are too. A recent reader poll in the AICPA CPA Letter Daily showed only about one in three accountants had looked into it. A few weeks ago, a Grant Thornton survey found less than half of all CFOs and senior comptrollers had even heard of the codification project.
Is your organization keeping up?
Still, it’s probably the biggest change in the structure and organization of GAAP “in over 50 years,” according to Mara Bruce, audit manager at Schneider Downs, the regional CPA firm based in Pittsburgh, Pa.
While it isn’t intended to change U.S. GAAP, this reorganization will change how accountants refer to guidance in financial statements and any underlying memos and research, Bruce said. “It’s time to start to learn to navigate through the codification, so you aren’t left in the dark.”
On July 1, FASB launches its Accounting Standards CodificationTM (referred to and referenced as FASB ASC) as authoritative. As the single source of authoritative U.S. accounting and reporting standards for nongovernmental entities, the new FASB ASC replaces a system of GAAP rules built up piece by piece over decades dating back to the Accounting Principles Board, which was disbanded in 1973 after issuing the profession’s first 30 pronouncements in 24 years.
“For people like me, who have grown very accustomed to the existing setup, it’s going to be a particularly big change,” says Ben Neuhausen, national director of accounting for BDO Seidman. “Our whole way of thinking about accounting references is going to change.”
The codification changes the GAAP hierarchy by removing the current four-level U.S. GAAP hierarchy and replacing it with simply two levels: authoritative and non-authoritative. When the codification becomes the single source of authoritative U.S. accounting and reporting standards, it will supersede all existing pronouncements of the FASB, the EITF (Emerging Issues Task Force) and the AICPA.
That means, according to Amy Eubanks, director of accounting and auditing publications at the AICPA, no more FASB Statement Nos., FINs, accounting SOPs (Statements of Position), etc. Those standards you’ve come to memorize such as FIN 46 or FASB Statement No. 133 will have a new FASB ASC reference for you to now refer.
The codification incorporates the entire GAAP hierarchy (for nongovernmental entities), including:
The FASB’s codification includes a Web-based search tool, FASB Accounting Standards CodificationTM Research System, offering the ability to select multiple sections from different topics and subtopics and join them into a single document. A cross-reference feature allows users to see where current standards are located in the codification’s topical structure.
"U.S. GAAP will be completely reconfigured in a way that will vastly improve the ease of researching U.S. GAAP issues, superseding existing authoritative literature, including FASB's original pronouncements," FASB Chairman Robert Herz has said. "Preparers and auditors of financial statements need to familiarize themselves with the changes so that they are ready for the switch.”
“This affects CPAs across the board: financial statement preparers, auditors, academics and analysts alike,” said Eubanks.
Wondering what to do first? Start here, with some Eubanks recommends:
Eubanks mentions two more important points:
To be sure, GAAP itself isn’t intended to change, but its structure and presentation is changing significantly. Will you be ready? Join the survey here.
COMMENT: Send an e-mail to Rick Telberg.
Copyright © 2009 CPA Trendlines/BSG LLC. All Rights Reserved. Used by Permission. First published by the AICPA.
About Rick Telberg
Go to the News Center Now