Understanding the FASB
Accounting Standards
Codification Project
By Diane Janvrin and Jan Duffy
Contemporary Issues in Accounting Conference
December 15, 2009
Outline

History

Codification Details

Implications for Accountants

Practice with New Codification
History and Motivation

Codification project started in 2004

FASB comment period

Effective July 1, 2009

To be used by filers for interim and
annual periods ending after September
15, 2009
History and Motivation

Prior levels of GAAP
– Level A – FASB and AICPA authoritative literature
– Level B – FASB Technical Bulletins and AICPA Industry Audit
and Accounting Guides and Statements of Position
– Level C – less authoritative such as FASB Emerging Issues
Task Force and AICPA Accounting Standards Executive
Committee Practice Bulletins
– Level D – least authoritative pronouncements – Q&A’s by
FASB staff, AICPA accounting interpretations, etc.
– For issues not addressed in Levels A to D, other sources of
GAAP include AICPA Issues Papers and Technical Practice
Aids, FASB Statements of Financial Accounting Concepts
FASB Accounting Standards
Codification



Supersedes all existing accounting standards
documents as described in FASB 168
Reorganizes thousands of US GAAP
pronouncements into roughly 90 accounting
topics and displays all topics using a
consistent format
Includes relevant SEC guidance that follows
the same topical structure in separate sections
of the Codification
FASB Accounting Standards
Codification



Does NOT change GAAP
Instead, introduces new, more user-friendly online
research structure
FASB expects new system to
– reduce amount of time and effort to research an accounting
issue
– mitigate risk of noncompliance with standards through
improved usability of the literature
– provide accurate information with real-time updates as new
standards are released
– assist FASB with research efforts required during the
standard-setting process
FASB Accounting Standards
Codification - includes

FASB
o
o
o
o
o

Statements (FAS)
Intepretations (FIN)
Technical Bulletins (FTB)
Staff Positions (FSP)
Staff Implementation Guides (Q&A)
Emerging Issues Task Force (EITF)
o Abstracts
o Appendix D Topics
FASB Accounting Standards
Codification – includes (continued)





Derivative Implementation Group (DIG) Issues
Accounting Principles Board (APB) Opinions
Accounting Research Bulletins (ARB)
Accounting Interpretations (AIN)
American Institute of Certified Public
Accountants (AICPA)
o
o
o
o
Statements of Position (SOP)
Audit and Accounting Guides (AAG) – only
incremental accounting guidance
Practice Bulletins (PB)
Technical Inquiry Service (TIS) only for Software
Revenue Recognition
Will Codification include content
that is not yet required for
entities?

Yes.
– Content from new standards that is not yet
fully effective for all entities will appear as
boxed text and labeled as "Pending
Content."
– Pending Content text box includes the
earliest transition date and link to the related
transition guidance.
What content is excluded
from Codification?



FASB concluded that Codification represents
authoritative GAAP.
Thus, Codification does not include guidance
for non-GAAP matters such as Other
Comprehensive Basis of Accounting
(OCBOA), Cash Basis, Income Tax Basis, and
Regulatory Accounting Principles (RAP).
Codification also does not include
governmental accounting standards.
How will one be able to find
the original source of
Codification paragraphs?

Codification includes Cross-reference report
that allows users to identify where current
standards reside in Codification, or source of
material included in Codification.
How does someone find
information about particular
issue in Codification?

Three primary ways to get to guidance related
to particular accounting issue.
1. Go directly to Topic (e.g., Revenue Recognition)
and then expand Topic outline to find relevant
material.
2. Codification includes robust word search function.
3. Go directly to paragraph if reference is known.
Topics – represent collection of related guidance.
Topics correlate closely to standards issued by International Accounting
Standards Board (IASB). Topics reside in four main areas:

Presentation—Topics relating only to presentation matters; they do not
address recognition, measurement, and de-recognition matters.
Examples: Income Statement, Balance Sheet, and Earnings per Share.

Financial Statement Accounts—Codification organizes Topics into
financial statement order including Assets, Liabilities, Equity, Revenue,
and Expenses. Topics include Receivables, Revenue Recognition, and
Inventory.

Broad Transactions—These Topics relate to multiple financial statement
accounts and are generally transaction-oriented. Topics include
Business Combinations, Derivatives, and Nonmonetary Transactions.

Industries—These Topics relate to accounting that is unique to industry
or type of activity. Topics include Airlines, Software, and Real Estate.
Subtopics
Subtopics represent subsets of Topic and are generally
distinguished by type or by scope.
– Example: Operating Leases and Capital Leases are
two Subtopics of Leases Topic, distinguished by type
of lease.

Each Topic contains Overall Subtopic that generally
represents pervasive guidance for the Topic (i.e. Overall
Subtopic includes guidance that applies to all other
subtopics).
 Each additional Subtopic represents incremental or
unique guidance not contained in Overall Subtopic.

Sections



Sections represent the nature of content in Subtopic
such as Recognition, Measurement, Disclosure, etc.
Sectional organization for all Subtopics is the same.
Similar to Topics, Sections correlate closely with
sections of individual International Accounting
Standards.
Sections are further broken down into Subsections,
Paragraphs, and Subparagraphs, depending on
specific content of each Section.
How are Topics, Subtopics,
Sections, and Paragraphs
classified?


FASB developed a hybrid classification system
specifically for Codification.
Structure of classification system:
– XXX Topic
• -YY Subtopic
– -ZZ Section
» -PP Paragraph
How will new standards be
incorporated into
Codification?
New standards will be composed of two items:
 Standard (similar to existing standards with Basis for
Conclusions) and
 Appendix of Codification Update instructions.
 Title of combined set of standard and instructions will
be "Codification Update YYXX" where YY is last two
digits of year and XX is sequential number for each
Update.
– Example for 2009 would be 09-01, 09-02, etc.
– All authoritative GAAP will be issued in this format.
Will new standards have
Basis for Conclusions?
Yes.
 Format will be same as the format used currently.
 Upon adoption of Codification as authoritative, users
will be able to access new standards and related Basis
for Conclusions.

What happens to US GAAP
when Codification goes live?
U.S. GAAP Hierarchy
Authoritative Non-Authoritative
Contained in Not contained in
Codification
Codification
Level A
X
Level B
X
Level C
X
Level D – Issued by a standard setter
X
Level D – Practice
X
Level E – Concept Statements,
Textbooks, etc.
X
Note – As described in Notice to Constituents, certain items currently included below level D have been included in
Codification.
What will be search
capabilities for locating
archived standards?
Two approaches to locating archived standard.
1.
After adoption of Codification, archived standards will
be accessible from left navigation panel of
http://asc.fasb.org Web site.
–
2.
Users will be able to browse standards by standard setter,
type, and number similar to organization of most existing
accounting research tools.
Users will be able to use text search
How will Codification fit into FASB’s
work with International Accounting
Standards Board (IASB) to create
single set of converged, highquality accounting standards?
Codification will assist FASB with research and
convergence efforts required during standard-setting
process.
FASB is working with IASB to determine the
Codification role in converged accounting world.

Where can we find more information
on Codification?



FASB offers an online tutorial, available by
logging on to www.fasb.org.
FASB website also includes archived webcast
offering step-by-step instructions.
American Institute of Certified Public
Accountants (AICPA) also offers archived
webcast on Codification - see www.aicpa.org.
Implications for Accountants


Codification does NOT change GAAP
Includes new, more user-friendly online
research structure
Integration with XBRL


In 2008, FASB worked with XBRL.US to
release the new XBRL extension taxonomy for
the codification
Companies can now directly link from the
taxonomy extension to the specific
Codification reference posted on FASB’s
Codification Web site.
– Helps companies select the right element from the
taxonomy
Practice with New Codifcation