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Demystifying the Accounting Standards Codification

November 09, 2009

"View the 2012 article on Demystifying accounting Standards Codification" 

  • What is it?
  • When is it effective?
  • How will it affect me?
  • Resources

Overview of the Codification

FASB's Accounting Standards Codification ("ASC") does not change US GAAP

  • Integration and categorization
  • Includes most SEC content

Why was the ASC needed? 

  • Simplifies access
  • Improves accuracy of research
  • Mitigates risk of non-compliance
  • Streamlines research process
  • Provides real-time updates
  • Assists with IFRS convergence

Before the ASC 

FASB statements ~ FASB Staff Positions ~ FASB Interpretations ~ Accounting Principles Board Opinions ~ EITF Abstracts ~ AICPA Audit & Accounting Guides ~ FASB Technical Bulletins ~ SEC S-X Rules ~ SEC Staff Accounting Bulletins ~ AICPA Statements of Position ~ SEC S-K Items ~ SEC Speeches ~ AICPA Practice Bulletins ETCETERA

What's Not in the ASC 

  • Governmental standards
  • Non-GAAP standards (modified cash basis, income tax basis or regulatory basis)
  • "Non-essential" content of previous standards
    • Basis for Conclusions
    • Document summary
    • Constituent feedback
     
  • FASB used 12-31-08 as a target date for authoring
  • Content amended or superseded by FIN 48, SFAS 141(R)
  • Pre-SFAS 158 literature (employers’ accounting for DB plans)
  • Generally, most other grandfathered material

SEC Standards 

  • "SEC content is the domain of the SEC"
  • "Relevant" SEC materials included to "increase the utility" of the ASC, in separate sections
  • Regulation S-X, Financial Reporting Releases, Accounting Series Releases, SABs, SEC Staff Observer comments are in
  • Content related to the following is EXCLUDED:
    • MD & A
    • Auditing matters
    • Independence matters
     

How the ASC is Structured 

  • New citations: "ASC 210-20-60-5" or ASC XXX-YY-ZZ-PP
  • New classification system
    • Areas – 5 groupings of topics
    • Topics = XXX = 210
    • Subtopics = YY = 20
    • Sections = ZZ = 60
    • Paragraph or subsections = P or PP = 5
     

ASC Areas and Topics ("XXX") Approximately 90 topics, in 5 main areas

  • General Principles (105 – 199)
    • Example: 105, GAAP
     
  • Presentation (205 – 299)
    • Balance sheet, Statement of Cash Flows, EPS
     
  • Financial Statement Accounts (305 – 700)
    • Receivables, Equity, Revenue Recognition
     
  • Broad Transactions (805 – 899)
    • Leases, Business Combinations, Consolidation
     
  • Industry ( 905 – 999)

Topic – "Broad Transactions" 

  • 805 – Business Combinations
  • 808 – Collaborative Arrangements
  • 810 – Consolidation
  • 815 – Derivatives and Hedging
  • 820 – Fair Value Measurements and Disclosures
  • 825 – Financial Instruments
  • 830 – Foreign Currency Matters
  • 835 – Interest
  • 840 – Leases
  • 845 – Nonmonetary Transactions
  • 850 – Related Party Disclosures
  • 852 – Reorganizations
  • 855 – Subsequent Events
  • 860 – Transfers and Servicing

Topic – "Presentation" 

  • 205 – Presentation of Financial Statements
  • 210 – Balance Sheet
  • 215 – Statement of Shareholder Equity
  • 220 – Comprehensive Income
  • 225 – Income Statement
  • 230 – Statement of Cash Flows
  • 235 – Notes to Financial Statements
  • 250 – Accounting Changes and Error Corrections
  • 255 – Changing Prices
  • 260 – Earnings per Share
  • 270 – Interim Reporting
  • 272 – Limited Liability Entities
  • 275 – Risks and Uncertainties
  • 280 – Segment Reporting

ASC Subtopics ("YY") 

  • Distinguished by type or scope
  • All will contain "Overall" – pervasive guidance for topic
  • Remainder will vary by topic

Example Topic: Leases
Subtopics: Overall, Operating, Capital

ASC Sections ("ZZ") 

  • Standardized across all Subtopics
  • 16 categories, examples:
    • 00, Status
    • 05, Overview and Background
    • 15, Scope and Scope Exceptions
    • 25, Recognition
    • 50, Disclosure
    • SEC: "S" before Section number, i.e., S
     

USER TIP: Select the feature "Join all Sections" in order to combine each element of this backbone into one, seamless discussion

Example: Join the Disclosure section for all subtopics within the Revenue Recognition Topic

USER TIP 

Q: How will I be able to find the original source (old standards) of the ASC material?

A: The Codification includes a cross-reference report that allows users to identify where current standards reside in the Codification, or the source of material included in the Codification.

Future Codification Updates 

  • Accounting Standard Updates or "ASUs"
  • Numbered by year of issuance, ASU 2009-01 or ASU 09-01
  • 15 issued since July 1, 2009
  • Several "Proposed ASUs"
  • Same look and feel as pre-ASC standards

Codification Updates 

  • Current and transitional text presented together in ASC
  • Transitional text = not yet effective
  • Transitional text will be distinguished from current (authoritative) text
  • FASB does not consider them authoritative as an ASU (no references to ASU 2009-10)

FASB Exposure Draft Information 

  • FASB.org
  • Similar format to ASUs
  • Click on "Projects" tab, then "Exposure Drafts"
  • Sign up for "Action Alerts" :
    • Send an email to join-actionalert@listserv.lists.fasb.org
    • confirmation email will be sent back to you
    • all newly issued ASUs, Exposure Drafts and FASB Activity will be emailed to you
     

Before and After

 

 

"Old" citation  "New" ASC Citation  
SFAS 5 ASC 450, Contingencies
SFAS 109/FIN 48 ASC 740, Income Taxes
SFAS 142 ASC 350 Intangibles – Goodwill and Other
SFAS 157 ASC 820 Fair Value Measurements and Disclosures

Old  New  
SOP 94-6, Significant Risks & Uncertainties ASC 275, Risks & Uncertainties
FAS 141(R), Business Combinations ASC 805 Business Combinations
SFAS 123(R) ASC 718, Compensation – Stock Compensation

 

Afraid to Change? Two ways of linking ASC materials to old standards:

  • Cross reference tool
  • Select "Printer friendly with Sources" view

Effective Date 

  • Became authoritative on July 1, 2009
  • Mandatory for interim and annual periods ending AFTER September 15, 2009
  • For public companies: Q3

Accounting Citations – Going Forward 

  • Periods ending before September 15, 2009:
    • Do NOT refer to ASC only
    • May use "old" references only, or both
     
  • Periods ending after September 15, 2009:
    • Refer to ASC only, may NOT use "old" references
    • Comparative statements: may use both
     

USER TIP 

Streamline: remove unnecessary, outdated technical references in footnotes

Consider: deleting all technical citations in favor of a "Plain English" approach (recommended)

Example: "...as required by the Derivatives and Hedging Topic of the FASB ASC..."

Not Just for Financial Reports Other documents impacted by ASC:

  • Internal policy manuals, memos, etc
  • Management’s Discussion and Analysis (MD&A) (public companies only)

Transition Planning 

  • ASC structure requires practice and training
  • Old standards may be split across several topics
  • Review financial statements and identify where changes are needed
  • Update all internal policies, memos, etc.
  • Determine how you will access the Codification

Resources 

  • FASB website (www.fasb.org)
  • FASB on-line tutorials (free)
  • FASB "Notice to Constituents" for ASC (free)
  • FASB online ASC annual subscription, $850; print (4 volumes), $195
  • AP & M website

Related Article: Do You Speak ASC? 

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