FASB Accounting Standards Codification

 

The Financial Accounting Standards Board (FASB) approved the FASB Accounting Standards Codification^TM as the single source of authoritative nongovernmental U.S. Generally Accepted Accounting Principles (GAAP) as of July 1, 2009.  The Codification is effective for interim and annual periods ending after September 15, 2009, which means that auditors and management should begin to use the Codification for periods that begin on or about July 1, 2009. All existing accounting standard documents are superseded.  All other accounting literature not included in the Codification will be considered nonauthoritative.

 

 

As part of the process of transitioning to the Codification, the FASB issued a Standard, The Hierarchy of Generally Accepted Accounting Principles also effective on July 1, 2009. The standard replaces the four levels of the GAAP hierarchy with just two levels—authoritative and nonauthoritative. Authoritative sources will be in the Codification; nonauthoritative sources won't.  

 

 

The Standard defines nonauthoritative sources as practices widely recognized and prevalent generally or in an industry, FASB Concepts Statements, AICPA Issues Papers and Technical Information Service Inquiries and Replies (TIS), pronouncements of the International Accounting Standards Board, textbooks, handbooks, and articles.

 

The Codification eliminates having to search among FASB Standards, Interpretations, Emerging Issues Task Force (EITF), and FASB Staff Positions (FSP) or AICPA Opinions, Interpretations, Statements of Position (SOP), etc., for authoritative accounting and reporting guidance on a particular topic by placing all authoritative literature related to a particular topic in one place.  It retains existing authoritative GAAP with one exception and will be the single source of U.S. authoritative GAAP for nongovernmental entities (except for Security Exchange Commission (SEC) rules and interpretative releases, relevant portions of which are included in the Codification).  

The one change the Standard and Codification will make is to incorporate into the Codification the AICPA's TIS 5100, Revenue Recognition, paragraphs 38–76, which relate to software revenue recognition.  

Organization of the Codification

The Codification is organized into Topics, Subtopics, Sections, and Subsections. Standards that are unique to nonprofit organizations, for example, are included in Topic 958. That Topic is then divided into Subtopics then the Subtopics are divided into Sections. Sections are divided into Subsections. It’ll take users some time to become familiar with the organization of the Codification, but with time the Codification will become easy to use due to its consistent layout.

Codification Update Process

New standards issued in the future by the FASB will not be considered authoritative in themselves but will serve only to update the Codification and provide background information and bases for conclusions on the changes made in the Codification. If you are having trouble understanding the new Codification or if your nonprofit organizations has traditionally cited specific Statements of Financial Accounting Standards (SFAS) in your financial statements and are unsure if you should do so in the future, give us a call.