New Accounting Standards Codification Effective July 1
| Abbreviations Key |
| FASB: Financial Accounting Standards Board |
| GAAP: Generally accepted accounting principles |
| Codification: FASB Accounting Standards Codification |
| ASC: Accounting Standards Codification |
| SEC: Securities and Exchange Commission |
| EITF: Emerging Issues Task Force |
On July 1, 2009, the FASB
Accounting Standards Codification will become the single authoritative source of nongovernmental U.S. GAAP (other than guidance issued by the SEC). Any guidance not included in the Codification will be considered non-authoritative.
The online Codification doesn't change GAAP, but it restructures the way it is organized. The goal is to make information easier to find, and in turn, make it easier to comply with the accounting standards. This change affects financial statement preparers, auditors, analysts, and academics alike.
Preparers must begin using the Codification for periods that begin on or about July 1, 2009, because the Codification will be effective for interim and annual periods ending after September 15, 2009.
The benefits of the Codification
“The online Codification will require a change in thinking, accessing, documenting, and referencing, but the benefits greatly outweigh the negatives,” says Steve Bodine, assurance and accounting principal with LarsonAllen. FASB plans to update the Codification continuously, which, unlike with a published document, assures accounting professionals will be able to access the most current guidance. In addition, the Codification will:
- Provide access to all authoritative literature related to a topic in one place
- Reduce the amount of time and effort required to research accounting standards
- Mitigate the risk of noncompliance with standards through improved usability
- Provide accurate information with real-time updates
How the Codification will affect you
As of July 1, 2009, FASB will no longer issue statements, interpretations, staff positions, or EITF abstracts. Irrespective of how they would have been issued under the current structure, all changes to GAAP will be issued in the form of Codification updates. New standards will be organized under the same section headings as those used in the Codification.
- The Codification does not change current GAAP, except for certain software revenue recognition arrangements.
- Financial statement disclosures will need to be updated to replace references to specific existing standards with general references to the topic or specific references to the Codification.
- Going forward, accounting guides may not be approved by FASB and, therefore, would be considered non-authoritative. Previously issued guides have been included in the Codification.
- On July 1, 2009, The Hierarchy of Generally Accepted Accounting Principles will be rendered irrelevant.
How the Codification is structured and referenced
- The Codification is organized by topics, subtopics, sections, and paragraphs. For example SFAS 34, Capitalization of Interest, paragraph 9, addresses assets qualifying for interest capitalization. This information is included in the Codification and referenced as FASB ASC 835-20-15-5.
- Topic 835—Interest
- Subtopic 835-20—Capitalization of Interest
- Section 835-20-15—Scope and Scope Exceptions
- Paragraph 835-20-15-5—Assets for Which Interest Shall Be Capitalized
- The Codification includes a cross-reference report allowing users to reference between the original standards and the Codification.
- The Codification also has an easy-to-use search feature, making finding accounting standards less complicated.
- Exposure drafts and Codification updates are included in the Codification Web site.
Referencing accounting standards going forward
Periods ending before September 15, 2009
- There is no requirement to make reference to specific accounting standards in financial statement disclosures, although it may be difficult to avoid references when disclosing the adoption of new standards. Entities may continue to make reference to pre-Codification standards when referencing GAAP for periods ending prior to the effective date of the Codification.
- Entities may choose to provide references to both current GAAP and the Codification when preparing financial statements with a period end before the effective date. Entities may want to avoid only referencing the Codification because the basis for preparing these financial statements would be pre-Codification GAAP.
Periods ending after September 15, 2009
- For periods ending after September 15, 2009, references to pre-Codification GAAP should be replaced with references to the Codification.
- For comparative financial statements, entities may choose to provide references to both the Codification and pre-Codification GAAP because the basis of the prior year financial statements was pre-Codification GAAP. This presentation may make financial statements verbose, so consider referencing only the Codification.
Where to find help
To help constituents adjust to the change, FASB offers a free online tutorial. A FASB Web cast will be held on June 22.
LarsonAllen can help guide you through this or any other changes in accounting standards. For more information, contact Steve Bodine or your LarsonAllen advisor.
Helpful links