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AICPA Presentation on GAAP Codification


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The U.S. accounting stamndards, commonly referred to as GAAP, will be codified as of July 1, 2009. This is a PowerPoint presentation developed by the AICPA to outline the codification process.

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AICPA Presentation on GAAP Codification

  1. 1. WHERE WILL YOU BE WHEN GAAP IS CODIFIED? This presentation has not been approved, disapproved, or otherwise acted upon by any senior technical committees of the AICPA, nor does it represent the views or an official position of the AICPA. This presentation is not intended as legal, accounting, or other professional advice and should not be relied upon as such. © 2009 The American Institute of Certified Public Accountants
  2. 2. Today’s Objectives <ul><li>Today’s session is designed to help you better understand </li></ul><ul><ul><li>what you need to do now to be prepared when the FASB Accounting Standards Codification TM (ASC) becomes authoritative on July 1, 2009 ; </li></ul></ul><ul><ul><li>the purpose, meaning, and structure of the Codification; </li></ul></ul><ul><ul><li>how to use the Codification; and </li></ul></ul><ul><ul><li>available resources. </li></ul></ul>
  3. 3. What is the Codification?
  4. 4. What is the Codification? <ul><li>The Codification is an effort to reduce the complexity of accounting standards and to facilitate international convergence. </li></ul><ul><li>The effort is a major restructuring of accounting and reporting standards. </li></ul><ul><li>Current level A – D U.S. GAAP (issued by a standard setter) is codified into a topically organized format. </li></ul><ul><li>There are approximately 90 topics in the Codification. </li></ul><ul><li>The Online Codification Research System is topically organized to improve the usability of authoritative U.S. GAAP. </li></ul>
  5. 5. What is the Codification? (cont.) <ul><li>It is NOT intended to change U.S. GAAP. </li></ul><ul><li>It supersedes existing sources of U.S. GAAP, and any sources of U.S. GAAP not included in the Codification will be nonauthoritative. </li></ul><ul><li>Upon approval by FASB, it will be the authoritative source for U.S. GAAP in addition to guidance issued by the SEC. </li></ul><ul><li>It eliminates the U.S. GAAP hierarchy (for nongovernmental entities) and instead integrates U.S. GAAP into a single authoritative codification. </li></ul>
  6. 6. Why Codify U.S. GAAP? <ul><li>Constituent concern is that U.S. GAAP is overly confusing and difficult to research. </li></ul><ul><li>Multiple types of standards, multiple standard setters, multiple indexing schemes, and different levels of authority make it difficult to ensure completeness of all relevant guidance and accuracy of its application to an accounting issue. </li></ul>
  7. 7. Goals of the Codification <ul><li>Simplify user access to all authoritative U.S. GAAP </li></ul><ul><li>Reduce the amount of time and effort required to solve an accounting research issue </li></ul><ul><li>Mitigate the risk of noncompliance with standards through improved usability of the literature </li></ul><ul><li>Provide accurate information with real-time updates as new standards are released </li></ul>
  8. 8. Goals of the Codification (cont.) <ul><li>Assist FASB with the research and international convergence efforts required during the standard-setting process </li></ul><ul><li>Become the authoritative source of literature for the completed eXtensible business reporting language (XBRL) taxonomy </li></ul><ul><li>Clarify that guidance not contained in the Codification is not authoritative </li></ul>See the Codification Notice to Constituents for a full discussion on the goals of the Codification
  9. 9. How to Access the Codification <ul><li>It is available free of charge until July 1, 2009, for those who register online at </li></ul><ul><li>Once the Codification becomes effective, there will be </li></ul><ul><ul><li>free access to a basic view of the Codification. </li></ul></ul><ul><ul><li>required subscription to enhanced access (search and retrieval functions, cross reference features, personal annotations, and dynamic linking capabilities). </li></ul></ul><ul><li>FASB plans to issue the Codification in print. </li></ul>
  10. 10. Codification Content
  11. 11. Codification Content <ul><li>Includes authoritative guidance (for example, standards sections, implementation guidance, and so on) </li></ul><ul><li>Excludes content deemed redundant or nonauthoritative (for example, much of basis for conclusions) </li></ul>
  12. 12. Codification Content (cont.) <ul><li>Content Approach and Features </li></ul><ul><ul><li>The Codification uses a current text approach; it does not identify documents that solely amend other standards. </li></ul></ul><ul><ul><li>The Codification is authored assuming a December 31, 2008, effective date; guidance that is effective after that date is transitional. </li></ul></ul><ul><ul><li>Codification Research System provides references to the standards used in the Codification through the cross-reference tool. </li></ul></ul><ul><li>The Codification includes all level A – D U.S. GAAP issued by a standard setter. </li></ul>
  13. 13. Codification Content (cont.) <ul><li>The following literature is included in the Codification: </li></ul><ul><ul><li>FASB Statements, Interpretations, Technical Bulletins, Staff Positions, Staff Implementation Guides, and Statement No. 138 Examples </li></ul></ul><ul><ul><li>EITF Abstracts and Topic D </li></ul></ul><ul><ul><li>Derivative Implementation Group Issues </li></ul></ul><ul><ul><li>Accounting Principles Board Opinions </li></ul></ul><ul><ul><li>Accounting Research Bulletins </li></ul></ul><ul><ul><li>FASB Accounting Interpretations </li></ul></ul><ul><ul><li>AICPA Statements of Position, Practice Bulletins, incremental accounting guidance from Audit and Accounting Guides, and Technical Inquiry Service questions and answers (for Software Revenue Recognition only) </li></ul></ul><ul><ul><li>Select SEC guidance </li></ul></ul>
  14. 14. SEC Content in the Codification <ul><li>SEC content is the domain of the SEC. </li></ul><ul><li>SEC content is included in Codification topics but in separate SEC sections. </li></ul><ul><ul><li>SEC guidance is required only for SEC registrants. </li></ul></ul><ul><ul><li>An “S” precedes any SEC guidance in the Codification. </li></ul></ul><ul><li>SEC material sections include the full text of the relevant guidance. </li></ul><ul><li>SEC sections do not contain the entire population of SEC rules, regulations, interpretive releases, and staff guidance. </li></ul>
  15. 15. Excluded Content <ul><li>The Codification does not include the following: </li></ul><ul><ul><li>Guidance for non-GAAP matters such as OCBOA (including cash basis, income tax basis, or regulatory accounting principles). </li></ul></ul><ul><ul><li>Governmental accounting standards. </li></ul></ul><ul><ul><li>Standards that were outdated or superseded on December 31, 2008 (for example, FAS 141 is not included because FAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008). </li></ul></ul>
  16. 16. Excluded Content (cont.) <ul><ul><li>Nonessential material such as redundant summaries of existing standards, historical content, discussions of previous practice, summaries of constituent feedback, and similar content. </li></ul></ul><ul><ul><li>Certain grandfathered material (identified in the Codification Notice to Constituents); in a future release of the Codification, grandfathered material will be added in a special section under the relevant topic. </li></ul></ul>
  17. 17. Codification Structure
  18. 18. How is the Codification Structured? <ul><li>Areas </li></ul><ul><ul><li>Topics </li></ul></ul><ul><ul><ul><li> Subtopics </li></ul></ul></ul><ul><ul><ul><ul><li>Sections </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li> Subsections </li></ul></ul></ul></ul></ul>
  19. 19. How is the Codification Structured? (cont.) <ul><li>Example of referencing </li></ul><ul><ul><li>FASB Accounting Standards Codification (ASC) Topic-Subtopic-Section </li></ul></ul><ul><ul><li>FASB ASC 305-10-05 (cash-overall-overview and background) </li></ul></ul>
  20. 20. How is the Codification Structured? (cont.) <ul><li>Areas—groupings of topics </li></ul><ul><ul><li>Presentation </li></ul></ul><ul><ul><li>Assets </li></ul></ul><ul><ul><li>Liabilities </li></ul></ul><ul><ul><li>Equity </li></ul></ul><ul><ul><li>Revenue </li></ul></ul><ul><ul><li>Expenses </li></ul></ul><ul><ul><li>Broad Transactions </li></ul></ul><ul><ul><li>Industry </li></ul></ul>
  21. 21. How is the Codification Structured? (cont.) <ul><li>Topics </li></ul><ul><ul><li>Broadest categorization of related content (for example, FASB ASC 405, Liabilities ) </li></ul></ul><ul><ul><li>Correlate with IFRS / IAS standards </li></ul></ul><ul><li>Subtopics </li></ul><ul><ul><li>Represent subsets of a topic (for example, FASB ASC 405-20, which discusses the Extinguishment of Liabilities) </li></ul></ul><ul><ul><li>Generally distinguished by type or scope </li></ul></ul>
  22. 22. How is the Codification Structured? (cont.) <ul><li>Sections </li></ul><ul><ul><li>Represent the nature of the content in a subtopic. </li></ul></ul><ul><ul><li>Examples are recognition, disclosure, and measurement. </li></ul></ul><ul><ul><li>Correlate with IFRS / IAS sections. </li></ul></ul>
  23. 23. How is the Codification Structured? (cont.) <ul><li>Standard Sections </li></ul><ul><ul><ul><li>00-Status </li></ul></ul></ul><ul><ul><ul><li>05-Overview and background </li></ul></ul></ul><ul><ul><ul><li>10-Objectives </li></ul></ul></ul><ul><ul><ul><li>15-Scope and scope exceptions </li></ul></ul></ul><ul><ul><ul><li>20-Glossary </li></ul></ul></ul><ul><ul><ul><li>25-Recognition </li></ul></ul></ul><ul><ul><ul><li>30-Initial measurement </li></ul></ul></ul><ul><ul><ul><li>35-Subsequent measurement </li></ul></ul></ul>
  24. 24. How is the Codification Structured? (cont.) <ul><li>Standard Sections (continued) </li></ul><ul><ul><ul><li>40-Derecognition </li></ul></ul></ul><ul><ul><ul><li>45-Other presentation matters </li></ul></ul></ul><ul><ul><ul><li>50-Disclosure </li></ul></ul></ul><ul><ul><ul><li>55-Implementation guidance and illustrations </li></ul></ul></ul><ul><ul><ul><li>60-Relationships </li></ul></ul></ul><ul><ul><ul><li>65-Transition and open effective date information </li></ul></ul></ul><ul><ul><ul><li>70-Links to grandfathered material </li></ul></ul></ul><ul><ul><ul><li>75-XBRL definitions </li></ul></ul></ul>
  25. 25. How is the Codification Structured? (cont.) <ul><li>Subsections </li></ul><ul><ul><li>Allow further segregation and navigation of content. </li></ul></ul><ul><ul><li>Occur in a limited number of cases. </li></ul></ul><ul><ul><li>Unlike sections, subsections are not numbered. </li></ul></ul>
  26. 26. Features of the Codification
  27. 31. Topic Subtopics Sections Subsections Leases Scope Disclosure Scope Scope Disclosure Disclosure Capital Leases Operating Leases Overall Lessees Lessors Note: This is for illustration only and does not include all Topics, Subtopics, Sections, and Subsections. Lessees Lessors Codification Structure Example Lessees Lessees Lessors Lessors Lessors Lessors Lessees Lessees
  28. 32. How to Use the Codification
  29. 33. Ways to Research in the Codification <ul><li>On the Codification homepage </li></ul><ul><ul><li>“Go To” box on left </li></ul></ul><ul><ul><li>“Area” tabs on left </li></ul></ul><ul><ul><li>“Search” feature on top right </li></ul></ul><ul><ul><li>“Cross Reference” feature </li></ul></ul><ul><ul><li>“Join Sections” feature </li></ul></ul><ul><ul><li>“Other Sources” section </li></ul></ul>
  30. 35. How to Use the Codification <ul><li>Cross Reference Search by Standard Type </li></ul><ul><ul><li>AAG AICPA Audit and Accounting Guide </li></ul></ul><ul><ul><li>AIN AICPA Interpretations </li></ul></ul><ul><ul><li>APB APB Opinions </li></ul></ul><ul><ul><li>ARB Accounting Research Bulletins </li></ul></ul><ul><ul><li>CFRR Codification of Financial Reporting Releases </li></ul></ul><ul><ul><li>DIG FASB Derivative Implementation Group Issues </li></ul></ul><ul><ul><li>EITF Emerging Issues Task Force </li></ul></ul><ul><ul><li>FAS FASB Statements </li></ul></ul><ul><ul><li>FIN FASB Interpretations </li></ul></ul>
  31. 36. How to Use the Codification (cont.) <ul><li>Cross Reference Search by Standard Type (continued) </li></ul><ul><ul><li>FSP FASB Staff Positions </li></ul></ul><ul><ul><li>FTB FASB Technical Bulletins </li></ul></ul><ul><ul><li>IR SEC Interpretive Release </li></ul></ul><ul><ul><li>PB AICPA Practice Bulletins </li></ul></ul><ul><ul><li>QA FASB Staff Implementation Guides </li></ul></ul><ul><ul><li>SAB SEC Staff Accounting Bulletin </li></ul></ul><ul><ul><li>SOP AICPA Accounting Statement of Position </li></ul></ul><ul><ul><li>SX SEC Regulation S-X </li></ul></ul><ul><ul><li>TIS AICPA Technical Inquiry Service (only for software revenue recognition) </li></ul></ul>
  32. 37. Ongoing Standard Setting Process
  33. 38. Exposure Drafts <ul><li>Exposure drafts are located in the “Other Sources” section of the Codification. </li></ul><ul><li>Exposure drafts will be titled “Exposure Draft YY-XX,” with YY as the last 2 digits of the year and XX as the sequential number of each exposure draft (for example, 09-01 represents the first exposure draft issued in 2009). </li></ul><ul><li>Within a topic related to the exposure draft, a link to the exposure draft appears as “Related Exposure Draft” in the section to alert the user. </li></ul><ul><li>The standard FASB due process for exposure drafts is not changing due to the Codification. </li></ul>
  34. 39. Ongoing Standard Setting Process <ul><li>New standards will consist of the standard and an appendix of Codification Update instructions. </li></ul><ul><li>Codification Updates for new standards follow the same referencing system as exposure drafts do (for example, 09-01 would represent the first codification update issued in 2009). </li></ul><ul><li>All new standards will be issued this way regardless of how such guidance was issued previously (for example, FASB Statements, FASB Staff Positions, and EITF Abstracts). </li></ul>
  35. 40. Ongoing Standard Setting Process (cont.) <ul><li>Upon release, the actual standard will not be authoritative; the Codification Update instructions will be the source used to update the Codification. </li></ul><ul><li>When amending paragraphs in the Codification, both the old and new paragraphs will be presented until the new guidance is completely effective. </li></ul><ul><li>When fully operational, the Codification Research System will be updated concurrently with the release of a new standard. </li></ul>
  36. 41. Transitional Matters
  37. 42. Transitional Matters <ul><li>What is the Codification timeline? </li></ul><ul><ul><li>One-year verification period ended in January 2009 </li></ul></ul><ul><ul><ul><li>Users are still able to submit feedback, and are encouraged to do so by FASB, on any fatal flaws in the Codification. </li></ul></ul></ul><ul><ul><ul><li>FASB is also encouraging users to communicate any questions or concerns with GAAP requirements. </li></ul></ul></ul><ul><ul><ul><li>Content is not yet authoritative. </li></ul></ul></ul><ul><ul><ul><li>Constituents have the ability to use the Codification (free of charge) to research accounting issues and provide content-related feedback until the effective date. </li></ul></ul></ul><ul><ul><ul><li>The Codification will be updated through the effective date for feedback received and newly issued standards. </li></ul></ul></ul><ul><ul><li>Expected to release as authoritative in July 2009 </li></ul></ul><ul><ul><ul><li>Constituents will be REQUIRED to use the Codification </li></ul></ul></ul>
  38. 43. Transitional Matters (cont.) <ul><li>Information FASB hoped to receive during verification: </li></ul><ul><ul><li>Did FASB omit anything in U.S. GAAP? </li></ul></ul><ul><ul><li>Did FASB inappropriately change U.S. GAAP? </li></ul></ul><ul><ul><li>Did FASB put things in the wrong place? </li></ul></ul><ul><ul><li>Are the functional features working as intended? </li></ul></ul><ul><ul><li>Responses to specific requests included in the Codification Notice to Constituents. </li></ul></ul>
  39. 44. Transitional Matters (cont.) <ul><li>Examples of feedback FASB is interested in receiving via the submit feedback feature after the Codification becomes effective on July 1, 2009: </li></ul><ul><ul><li>The pooling of interest method better reflects the economics of certain business combinations. </li></ul></ul><ul><ul><li>Fair value is not the proper measurement attribute for derivatives. </li></ul></ul><ul><ul><li>The accounting required in EITF 06-10 for split-dollar insurance arrangements is wrong. </li></ul></ul>
  40. 45. Codification Current Happenings <ul><li>FASB is continually updating and improving the Codification. </li></ul><ul><li>For information on updates, users are encouraged to consult both the FASB Web site and Codification Web site. </li></ul><ul><ul><li>Codification Q&As </li></ul></ul><ul><ul><li>Codification Notice to Constituents </li></ul></ul><ul><ul><li>Codification Updates </li></ul></ul>
  41. 46. Resources <ul><ul><li>Web sites </li></ul></ul><ul><ul><ul><li>Codification site is at </li></ul></ul></ul><ul><ul><ul><li>AICPA resources related to the Codification can be found at </li></ul></ul></ul><ul><ul><li>Financial Reporting Alert FASB Codification Developments 2008 </li></ul></ul><ul><ul><ul><li>Provides accountants with a better understanding of the Codification, outlines its structure, and provides case studies on how to navigate the FASB ASC Research System and perform accounting research. </li></ul></ul></ul>
  42. 47. Summary and Questions