FASB Accounting Standards Codification Prof. Sonia Feliciano, CPA Workshop to: Accounting Professors UPR Bayamón March 27, 2009

OBJECTIVES To obtain a good understanding of the FASB Standards Codification System To encourage the use of the Codification Research System for research

CAP Accounting Research Bulletins House of GAAP AICPA Accounting Interpretations FASB Implementation Guides Recognized Industry Practices Category D (Least Authoritative) FASB Emerging Issues Task Force AICPA AcSEC Practice Bulletins Category C FASB Technical Bulletins AICPA Industry Audit and Accounting Guides AICPA Statements of Position Category B FASB Statements, Interpretations, and Staff Positions APB Opinions CAP Accounting Research Bulletins Category A (Most Authoritative)

FASB Accounting standards, interpretations, and bulletins Standard Setting Business Entities Illustration 1-5 User Groups that Influence Accounting Standards CPAs and Accounting Firms Financial Community AICPA (AcSEC) FASB Preparers (e.g., FEI) Academicians Government (SEC, IRS, other agencies) Investing Public Industry Associations Accounting standards, interpretations, and bulletins LO 8 Describe the impact of user groups on the standard-setting process.

Why Codify U.S. GAAP? Constituent concern that U.S. GAAP is overly confusing and difficult to research Multiple types of standards, multiple standard setters, multiple indexing schemes, and different levels of authority make it difficult to retrieve all relevant U.S. GAAP The main areas where there are changes to the Methodology are listed on the slide. We will go through each of these in detail, but will pick each of them up in context as we run through the audit approach.

FASB Accounting Standards Codification Four-year project involving over 200 people from multiple entities Significantly different from the structure of existing accounting standards A major restructuring of accounting and reporting standards: a reconfiguration of current GAAP

The FASB’s intent in creating the Codification is that the content accurately represent existing standards Authors were instructed to change as few words as possible when authoring their topics As of July 1, 2009 the FASB expects to formally approve the Codification as the single source of authoritative US accounting and reporting standards

FASB Accounting StandardsCodification Primary Goal Simplify user access to all authoritative US generally accepted accounting principles (GAAP) by providing all the authoritative literature in one place

FASB expects that the codification: Will help mitigate the risk of noncompliance with accounting standards Provide real-time updates as standards change and, Reduce the amount of time and effort required to research accounting issues.

Reassembled the pieces into approximately 90 topics Contents in each topic are further organized first by subtopic, then section and finally paragraph.

The paragraph level is the only level that contains substantive content; all higher levels in the topical structure exist merely to organize the paragraph level content The SEC guidance in the codification will be provided strictly on a convenience basis, and FASB has made extensive disclaimer regarding reliance on it.

Before Codification is authoritative FASB strongly encourages use of the Codification Research System for research Until Codification is authorithative, the web-based online research tool is freely available to users Users must keep in mind that the Codification has not been approved as authoritative

Codification structure, content and styles Presentation – Topic codes 205-299 only to presentation matters. Financial Statements Accounts – Topic codes 305 -700 organizes topics in a financial statement order including Assets, Liabilities Equity, Revenue, and Expenses. Topics include Receivables, Revenue Recognition, Inventory, and so forth.

Broad Transactions – Topic Codes 805 – 899 relate to multiple financial statement accounts and are generally transaction- oriented. Topics include Business Combinations, Derivatives, Nonmonetary transactions, an so forth. Industries – Topic Codes 905-999 relate to accounting that is unique to an industry or type of activity. Topics include Airlines, Software, Real State, and so forth.

Description of the Sections XXX-YY-ZZ XXX – Topic YY – Subtopic ZZ - Section

Sections of each Subtopic XXX-YY-00 Status XXX-YY-05 Overview and Background XXX-YY-10 Objectives XXX-YY-15 Scope and Scope Exceptions XXX-YY-20 Topical Definitions-Glossary XXX-YY-25 Recognition XXX-YY-30 Initial Measurement XXX-YY-35 Subsequent Measurement

XXX-YY-40 Derecognition XXX-YY-45 Other Presentation Matters XXX-YY-50 Disclosure XXX-YY-55 Implementation Guidance and illustrations XXX-YY-60 Relationship XXX-YY-65 Transition and Other Effective Date information XXX-YY-70 Links to Grandfathered Material XXX-YY-75 XBRL Definitions

Description of the Sections XXX-YY-00 - Status : includes references to the post- Codification standards that affect the Subtopic XXX-YY-05 – general overview and background regarding the subtopic XXX-YY10 – states the high-level objectives of the Subtopic, but does not discuss the main principles of the Subtopic

XXX-YY-15 – Scope and Scope Exceptions: outlines the items( for ex XXX-YY-15 – Scope and Scope Exceptions: outlines the items( for ex. entities, transactions, instruments or events) to which the guidance in the Subtopic does or does not apply. It does not contain actual accounting or reporting guidance (for ex. subsequent measurement) XXX-YY-20 – Glossary: all the glossary terms used in the Subtopic

XXX-YY-25 – Recognition: criteria, timing, and location(within the financial statements) for recognizing a particular item. XXX-YY-30 - Initial Measurement: criteria and amounts used to measure a paricular item at date of recognition.

XXX-YY-35 – Subsequent Measurement: criteria and amounts used to measure a particular asset, liability, or equity item subsequent to the date of recognition (for ex. impairment, fair value changes, depreciation, amortization, and similar items).

XXX-YY-40 - Derecognition: criteria, basis, and timing to be used when derecognizing a particular asset, liability or equity item for purposes of determining gain or loss if any (Ex. Sale, other disposal or loss of assets; and settlement and cancellation of liabilities) XXX-YY-45 - Presentation matters: related to the topic (Ex. Specific balance sheet classification, specific cash flow requirements, specific effect on EPS)

XXX-YY-50 – Disclosure: specific disclosure requirements for a subtopic. Excludes general disclosure requirements XXX-YY-55 – Implementation guidance and illustrations: provides guidance relating to the standards in simplified and generalized situations. XXX-YY-60- Relationships: includes references to other subtopics that may contain guidance related to the subtopic XXX-YY-65 – Transition and open effective date information

XXX-YY-70 - Links to Grandfathered material: the guidance will be archieved within a database that contain all superseded and grandfathered literature (Ex. APB 16 Business Combinations: FASB 141 eliminated the pooling of interest method for all business combination initiated after June 30, 2001. Entities with pooling transactions prior to June 30, 2001 shall refer to APB 16). XXX-YY-75 – XBRL Definitions SEC Sections – SEC content is included for reference to improve the usefulness of the Codification for public companies

How to use the Codification: Go to: http://asc.fasb.org View tutorial: click navigation and content View help pages: click navigating the codification Navigate the codification using a selected topic Continue using the ASC for the academic process

SELECTED TOPIC Go to PRESENTATION (205-299) CLICK Accounting Changes and Error Corrections Click expand, overall, join all sections, overall

SELECTED TOPIC: REVENUE View expanded table of content Select a section or Click overall Click join all sections Overall Navigate thought a selected topic

Summary & Questions

Thank you for participating

References: Ford Caroline O., C. William Thomas, Test Driving the Codification, Journal of Accountancy, December 2008, Vol. 206, pg. 62 Heffes Ellen M., Conceptual Framework, Revenue Recognition Top FASAC Priority List, Financial Executive, December 2006, Vol. 22, pg.14 Pounder Bruce, Framing the Future, Journal of Accountancy, May 2008, Vol.205,pg.40 Williams Kathy, FASB Wants Feedback on Codification, Strategic Finance, February 2008, Vol. 89, pg.21