On my first visit to Washington, D.C., I almost missed the Jefferson Memorial because there were so many other memorials to look at. The same can be said of Financial Accounting Standards Board projects, because several projects are currently in progress. However, one project, referred to as the FASB Codification, is a "must see" because it is sure to create significant changes for anyone who researches accounting or financial reporting issues.The FASB Codification project is designed to present all of the relevant U.S. accounting and financial reporting literature in a single, authoritative, integrated offering in an online, real-time database. That is, the goal is to provide all generally accepted accounting principles in one location for financial professionals to access and use.
FASB has stated that this project will not create new GAAP, and that any conflicts identified in existing guidance will be resolved before the Codification is finalized.
BACKGROUND
There are currently over 20 sources of GAAP, including Accounting Principles Board opinions, accounting research bulletins, FASB statements, FASB staff positions, FASB interpretations, American Institute of CPAs interpretations, AICPA statements of position, Emerging Issues Task Force abstracts, AICPA practice bulletins, AICPA audit and accounting guides, and Securities and Exchange Commission S-X rules.
Multiple sources of GAAP have made researching accounting and financial reporting issues extremely time-consuming and overly complex. In fact, one FASB survey that asked respondents how confident they would be of their findings if they had an unlimited amount of time to research an accounting or reporting issue found that 35 percent would not feel comfortable with their findings because of the multiple sources of guidance. This response highlighted the need for a single, authoritative source of GAAP.
WHAT WILL CHANGE
Several significant items will change when the Codification is completed.
First, all of the existing GAAP guidance will be superseded. For example, you will no longer refer to SFAS No. 141 when discussing business combinations, but you will instead refer to a Codification topic, subtopic and section number. Likewise, all of the accounting and reporting guidance that is presented in other publications, such as AICPA audit and accounting guides, will be removed from those sources and maintained in the Codification.
Second, there will no longer be a GAAP hierarchy. The four levels of GAAP that are currently in existence will no longer exist, because all guidance will either be "authoritative" or "non-authoritative." This will remove the users' burden of considering which authoritative source is the higher authority.
Third, the SEC guidance, such as staff accounting bulletins, will also be included in the Codification, but will be segregated so that users can clearly identify what guidance relates only to public entities. The SEC will continue to oversee and control their literature, but will work with FASB to include their guidance on this platform.
Fourth, because all of the guidance will be arranged by topic, there will no longer be a need for the FASB Current Text, so it will be discontinued.
THE NEW FORMAT
The Codification will be consistently structured by topic. Each topic will contain multiple subtopics, and each subtopic will contain multiple sections, so the format will be AA.BB.CC where "AA" is the topic, "BB" is the subtopic, and "CC" is the section. The topics will be structured into three main areas: overall presentation, transactional or financial statement account, and industry. The topics are somewhat similar to those in the Current Text. For example, proposed topics include accounting changes, risks and uncertainties, revenue recognition, and business combinations and reorganizations.
Subtopics will be a subset of a topic, and are expected to be structured into consistently defined sections for common attributes. For example, Subtopic .00 will be the overall status of the topic. Sections will also be consistent among subtopics to allow for more efficient research. For example, Section .55 will present the disclosures related to the topic. Any SEC guidance will be presented as a separate section within each subtopic and will mirror the defined sections, except that it will be preceded by an "S," as in "Section .S55."
MAPPING DOCUMENT
FASB had to start by mapping the existing literature to the new topics, subtopics and sections. This document is expected to be at the paragraph level, or in some cases at the sentence level, of the existing literature to clearly show where existing guidance has been included. FASB has said that this document will be equivalent to an Excel worksheet, and will be released at the same time as the verification version of the Codification.
NEW GUIDANCE
No information has been released about the format of new literature after the Codification is finalized; that is, whether SFASs, FSPs, EITFs, etc. will continue to be issued, or whether the guidance will be issued only as new Codification sections.
A NEW TWIST
As mentioned, this project was not intended to create new GAAP, but rather to consolidate all GAAP into one source. It appears that at least two topics -- subsequent events and going-concern matters -- are going to be addressed in the Codification.
These topics were initially added to the FASB agenda because the authoritative guidance currently exists in the auditing literature, but the topics were considered reporting matters. Thus, FASB believed that they would be more appropriately addressed in the accounting and reporting literature.
PROJECTED TIMING
At press time, FASB's schedule for the project was to release the Codification for verification in December 2007 or early this month. The verification period will last for approximately one year, which means the Codification would be effective in early to mid-2009. However, delays from the initially announced timeline have occurred, and further delays are possible.
The verification version of the Codification will only be available at the FASB Web site (www.fasb.org).
Get ready for a new era in performing GAAP research.
