Understanding and Working
with the new FASB Codification
Gaurav Kumar
(University of Arkansas at Little Rock)
Jagjit Singh Saini
(Western Michigan University)
August 2, 2010
Objectives of Codification
• Simplify user access to US GAAP by
rearranging GAAP literature (not change
GAAP).
• Ensure that codified content accurately
represents authoritative US GAAP as of July 1,
2009.
• Create up to date codification research system.
Structure
Old: Classified by hierarchical levels (A
through D) and organized by standards,
interpretations, and related guidance.
New: Classified by topics and only two levels
(authoritative and nonauthoritative).
 Contains both FASB standards and SEC
content. SEC content applies only to SEC
registrants.
Topical (Menu) Structure of New
Codification
9 Areas
100’s: General Principles
200’s: Presentation
300’s: Assets
400’s: Liabilities
500’s: Equity
600’s: Revenue
700’s: Expenses
800’s: Broad Transactions
900’s: Industry
Overview of GAAP
General Presentation matters
90
Topics
XXX
Subtopics
XXX-YY
Deals with transactions unique to
specific industries or types of activities
16 Sections/
Subsections
XXX-YY-ZZ
Paragraphs
Structure Contd… - An Example
Debt: ASC 470
TOPIC
SUBTOPICS
Overall
(470-10)
Debt with conversion
and other options
(470-20)
SECTIONS/
SUBSECTIONS
Scope
470-10-15
Subsequent
Measurements
470-10-35
PARAGRAPHS
General Entities
470-10-15-1
Participating
Mortgage Loans
(470-30)
Disclosure
470-10-50
General Transactions
470-10-15-2
NOTE: This is for illustration purpose only and does not include all topics, subtopics,
sections and subsections.
Structure Contd…
 Topics: Topics
represent a collection
of related guidance.
For example, Debt is a
topic under the area
Liabilities representing
ASC 470. Each area is
divided into different
topics:
 General Principles: 1
topic
 Presentation: 15 topics
 Assets: 9 topics
 Liabilities: 9 topics
 Equity: 1 topic
 Revenue: 1 topic
 Expenses: 8 topics
 Broad Transactions: 14
topics
 Industries: 32 topics
Structure Contd…
 Subtopics: Are subsets of topics generally
distinguished by type and scope.
For Example, ‘Debts with Conversion and
Other Options’ and ‘Participating Mortgage
Loans’ are two subtopics under the topic
‘Debt’ distinguished by type of debt.
 Each topic has an ‘Overall’ subtopic
representing overall guidance.
Structure Contd…
 Sections: Represent nature of content in a
subtopic such as Recognition,
Measurement, Disclosure, etc. Each
subtopic is divided into 16 sections as
shown on next slide.
 If there is no content for a section then the
section will not display.
Structure Contd…(16 Sections)
• XXX-YY-00 Status
• XXX-YY-05 Overview and
Background
• XXX-YY-10 Objectives
• XXX-YY-15 Scope and Scope
Exceptions
• XXX-YY-20 Glossary
• XXX-YY-25 Recognition
• XXX-YY-30 Initial Measurement
• XXX-YY-35 Subsequent
Measurement
• XXX-YY-40 Derecognition
• XXX-YY-45 Other Presentation
Matters
• XXX-YY-50 Disclosure
• XXX-YY-55 Implementation
Guidance and Illustrations
• XXX-YY-60 Relationships
• XXX-YY-65 Transition and Open
Effective Date Information
• XXX-YY-70 Grandfathered
Guidance
• XXX-YY-75 XBRL Definitions
Structure Contd…
Subsections: Are further segregation of a
section and occur in a limited number of cases
only (except General Subsection).
 A subsection is not numbered.
 Paragraph/ Paragraph Groups: Actual topical
content is located at paragraph level.
Paragraph group represents a series of related
paragraphs under same paragraph heading.
New Classification System
 FASB uses a hybrid classification system for
the Codification.
 Structure of classification looks like:
XXX-YY-ZZ-PP
where, XXX represents Topic, YY represents
Subtopic, ZZ represents Section, PP represents
Paragraph
 In case of a ‘SEC Content’, an “S” precedes
the section number.
Update Process
 Old: Issue different kinds of pronouncements to update
GAAP (statement, interpretations, staff positions, abstracts,
etc.)
 New: FASB update using only one type of pronouncement
– an “Accounting Standard Update” (ASU).
 Each ASU is numbered sequentially within each calendar
year (e.g. 2009-01, 2009-02,…) and specifies how
authoritative codification standards are to be updated and
contains an appendix/section with new or revised
Codification language.
 When FASB issues an ASU, the central database is updated
for all users of Codification Online Research System so that
the update can be seen immediately and simultaneously.
Benefits of Codification
 Reduce the amount of time and effort required
to research and solve an accounting issue.
 Improve the usability of literature and reduce
the risk of noncompliance.
 Provide accurate information as real-time
updates as Accounting Standard Updates are
released.
 Assist FASB with research and convergence
efforts.
 Eliminates redundancy.
Academics and Codification
Accounting Standards Codification makes the work
of academicians easier in teaching accounting
research to the students. Use of accounting case
studies is a common method to train the students in
accounting research. How does Codification help
accomplish this task?
 Codification reduces the time and effort required
by students in solving the case studies.
 Reduces the complexity in locating the
appropriate GAAP literature for problem solving.
 Simplifies search strategies for problem solving.
Strategy for Accounting Research
Students in using the Codification
for solving Accounting Cases
 Identify the key issue(s) of the case to be
explored.
 Identify the codification area to which key
issue(s) belong(s) to.
 Identify the relevant topic under the area.
 Identify the relevant subtopics, sections, and/or
subsections.
Explore the relevant paragraph(s) addressing the
issue(s).
An Example
 ISSUE: Identification of Operating segments of a
public entity for Segment Reporting under SFAS 131.
SOLUTION: Issue is related to presentation of
segment information on financial statements.
Area: Presentation
Topic 280: Segment Reporting (ASC 280)
Subtopic 10: Overall (ASC 280-10)
Section 55: Implementation guidance and
illustrations (ASC 280-10-55)
Paragraph 26: Diagram for identifying reportable
operating segments (ASC 280-10-55-26)
Accessing the Codification
Website: http://asc.fasb.org
User login:
 Basic View (Free)
 Professional View (Fee-based)
• Individual access for $850 annually.
• Professional View is available to Accounting Faculty
and Students for free via the Academic Accounting
Access Program for a small annual administrative fee
of $150 to be paid by the institution. Institutions can
enroll using the following link to the enrollment
form: https://aaahq.org/AAAforms/FASB/enroll.cfm
References
1. McEwen, R. A., T. J. Hoey, and J. A.
Brozovsky. 2006. The FASB’s codification
project: A critical step toward simplification.
Accounting Horizons 20 (Dec.): 391-398.
2. Pounder, B. 2009. Keeping up with the FASB
Codification. Strategic Finance (Oct.): 17
3. http://asc.fasb.org