gaap hierarchy
TRANSCRIPT
GAAP Hierarchy
Review of Standard Setting
The primary standard-setting bodies responsible for establishing GAAP are the: FASB
SEC
Financial Accounting Standards Board
Securities & Exchange Commission
The primary standard-setting bodies responsible for establishing GAAP are the: AICPA
IASB
American Institute of Certified Public Accountants
International Accounting Standards Board
AICPA Code of Ethics .01 Rule 203—Accounting principles. A member shall not (1)
express an opinion or state affirmatively that the financial statements or other financial data of any entity are presented in conformity with generally accepted accounting principles or (2) state that he or she is not aware of any material modifications that should be made to such statements or data in order for them to be in conformity with generally accepted accounting principles, if such statements or data contain any departure from an accounting principle promulgated by bodies designated by Council to establish such principles that has a material effect on the statements or data taken as a whole. • [As adopted January 12, 1988.]
Council has designated . . . Financial Accounting Standards Board
(FASB)• FASB Statements of Financial Accounting
Standards, together with those Accounting Research Bulletins and APB Opinions which are not superseded by action of the FASB, constitute accounting principles as contemplated in rule 203
Council has designated . . . Governmental Accounting Standards Board (GASB),
with respect to Statements of Governmental Accounting Standards issued in July 1984 and thereafter, is the body designated to establish financial accounting principles for state and local governmental entities pursuant to rule 203
Federal Accounting Standards Advisory Board (FASAB), with respect to Statements of Federal Accounting Standards adopted and issued in March 1993 and subsequently, is the body designated to establish accounting principles for federal government entities pursuant to rule 203
Sarbanes-Oxley? Things are changing, obviously, with the
new body. AICPA will no longer set auditing standards.
The SEC has designated FASB to establish accounting principles for publicly-traded companies so that probably will not change
Organizational Structure for Setting Accounting Standards
FAF
FASB GASB
Staff andTask Forces
FASAC GASAC
Evolution of U.S. GAAP
1938
CAPformed
1959
APBformed
1973
FASBformed
CAPIssued
51ARBs
APBIssued
31Opinions
FASBIssued____
Statements
21 years 14 years 31 years
150+
5 to 6 per year
Place topic onagenda
Appoint TaskForce
ConductResearch
IssueDiscussion
Memorandum
Hold publichearing
Analysis ofpublic response
Issue ExposureDraft
Hold PublicHearings
Analysis ofpublic response
Modify exposuredraft
Vote(approval requires
4 of 7)
Issue StandardsStatement
The Process of StandardSetting
AICPA AccountingInterpretations
FASB ImplementationGuides (Q&A), FSP
Widely recognized andprevalent industry
practices
FASBStatements andInterpretations
APBOpinions
AICPA
AccountingResearchBulletins
FASBTechnical Bulletins
AICPAIndustry Audit andAccounting Guides
AICPAStatements of
Position
FASB Emerging Issues Task Force AICPA AcSEC Practice Bulletins
The House of GAAP
MostAuthoritative
LeastAuthoritative
AICPA AccountingInterpretations
FASB ImplementationGuides (Q&A), FSP
Widely recognized andprevalent industry
practices
FASBStatements andInterpretations
APBOpinions
AICPA
AccountingResearchBulletins
FASBTechnical Bulletins
AICPAIndustry Audit andAccounting Guides
AICPAStatements of
Position
FASB Emerging Issues Task Force AICPA AcSEC Practice Bulletins
The House of GAAP
MostAuthoritative
LeastAuthoritative
FSP = something
new
FASB Statements These have traditionally been numbered
in sequence In Dec 2003, they have apparently
started a new system of issuing REVISED versions of existing numbers
FAS 132 (revised 2003) FIN 46 (revised Dec. 2003)
FASB Statements Two ways to reference (works until we
figure out impact of the new “revised version” system)
From “Original Pronouncements”• FAS140, ¶102
Current Text F39.187
Current Text vs. Original Pronouncements
Current Text has all the latest rules by SUBJECT• Omits basis for conclusions material from original
pronouncements• There is always a cross reference to the original
pronouncement– General Standards’ chapters have single letter in
reference– Industry Standards’ chapters have two letters in
reference (first one capitalized): In6.110
Current Text vs. Original Pronouncements
Original Pronouncements notes rules no longer in effect by SHADING and rules modified by a LINE IN MARGIN• No cross reference to Current Text• The basis for conclusions if often helpful in
figuring out why FASB chose one course over another and MIGHT be helpful but it is not GAAP per se
Interpretations FASB Interpretations are just as
authoritative as the Statements Reference: FIN 46, ¶4
Concept Statements These are NOT in and of themselves
GAAP for purpose of audit opinions They function more like a “constitution”
to which FASB is supposed to adhere when setting standards
Reference = CON2, ¶6
Emerging Issues Task Force Formed in 1984 The mission of the EITF is to assist the FASB
in improving financial reporting through the timely identification, discussion, and resolution of financial accounting issues within the framework of existing authoritative literature.• The EITF was designed to minimize the need for
the FASB to spend time and effort addressing narrow implementation, application, or other emerging issues that can be analyzed within existing GAAP.
Emerging Issues Task Force The 12 or so Task Force members are drawn from a
cross section of the FASB’s constituencies, including auditors, preparers, and users of financial statements.
FASB’s Director of Technical Application and Implementation Activities is chairman of the Task Force.
Observers (non-voting participants)• Chief accountant of the Securities and Exchange
Commission • Chairman of the Accounting Standards Executive
Committee (AcSEC) of the AICPA. • FASB Board members
Emerging Issues Task Force If the group can reach a consensus on an issue,
usually that is taken by the FASB as an indication that no Board action is needed.
If the Task Force is unable to reach a consensus, it may be an indication that action by the FASB is necessary.
A consensus on an EITF issue is reached if no more than three of the voting members present at the meeting object to a proposed position on an issue.
Although FASB Board members do not vote on consensuses at Task Force meetings, all consensuses are subject to ratification by the FASB at an ensuing open public meeting of the Board.
Emerging Issues Task Force A consensus on an EITF issue is reached if no more
than three of the voting members present at the meeting object to a proposed position on an issue.
If the group can reach a consensus on an issue, usually that is taken by the FASB as an indication that no Board action is needed. • If the Task Force is unable to reach a consensus, it may be
an indication that action by the FASB is necessary. EITF consensuses are subject to ratification by the
FASB at an ensuing open public meeting of the Board
Emerging Issues Task Force Meetings of the Task Force are open to the
public and generally are well attended EITF Abstracts comes in a loose-leaf version,
which is updated after each Task Force meeting. A soft-bound version of EITF Abstracts, which is updated annually, is sold separately.
EITF Abstracts are also included in the FASB's Financial Accounting Research System (FARS), available on CD-ROM or diskettes.
Referencing EITFs EITF’s numbers refer to the year consensus
was reached• So the numbering starts over with a new year• Example: EITF 02-18, ¶2
Be very careful that you are quoting the “conclusion” rather than just the discussion.
These are like “minutes” of a meeting rather than an official standard
Referencing EITFs EITF documents preceded by “D”
instead of a number for the year are not as authoritative as the regular EITF• They are staff announcements and NOT a
consensus reached and approved by FASB
• We’ll probably see FSPs now instead of “EITF D-2” issuances
Supplemental Guidance The FASB staff frequently receives questions
about the appropriate application of FASB literature.
Historically, questions are considered to have widespread relevance to constituents have been disseminated through • Staff Implementation Guides (Q&As)• Staff Announcements (EITF Abstracts, Topic No.
D-XXX), • Technical Bulletins
FASB Staff Announcements Staff Announcements, in particular, permitted
the FASB and SEC staffs to use EITF meetings as a forum to take advantage of the timely nature of the distribution of information associated with the EITF
Staff Announcements are published first in the EITF minutes and later in EITF Abstracts.
Reference is to Appendix D of EITF abstracts (e.g., EITF D-44)
FASB Staff Positions Beginning in February 2003, the FASB staff
introduced the FASB Staff Position (FSP) to issue application guidance (like that found in Staff Implementation Guides and Staff Announcements). • Because the procedures for issuing an FSP
provide for ease of distribution and retrieval, as well as an exposure period, the staff believes that this new form of guidance will ensure more timely and consistent communication about the application of FASB literature.
FASB Staff Positions At the direction of the Board, the FASB staff
also may use FSPs to make narrow and limited revisions to Statements or Interpretations that would have previously been made through Technical Bulletins
Examples:• To delay the effective date of a pronouncement • To make technical corrections required to better
convey the Board’s intent with respect to a particular issue
FASB Staff Positions Constituents’ input is sought prior to
issue but it is a faster process than is typical for exposure drafts• The comment period for FSPs is generally
30 days• A shorter comment period of not less than
15 days may be used for Board-directed FSPs to defer an effective date or make a technical correction.
Referencing of FSPs FSPs are numbered according to the
standard they address. • FSP FIN 46-5
FSPs will be incorporated into Current Text similar to the manner used for Q&As in the Staff Implementation Guides.
Referencing of FSPs During the drafting stage, an FSP will have a
letter suffix to distinguish it from any other draft FSP for that particular standard.
Example: The first draft FSP related to Statement 141
would be listed as "FSP FAS 141-a" Upon final approval it would be numbered as
"FSP FAS 141-1"