Understanding the FASB Accounting Standards Codification Project By Diane Janvrin and Jan Duffy Contemporary Issues in Accounting Conference December 15, 2009

Outline History Codification Details Implications for Accountants Practice with New Codification

History and Motivation Codification project started in 2004 FASB comment period Effective July 1, 2009 To be used by filers for interim and annual periods ending after September 15, 2009

History and Motivation Prior levels of GAAP –Level A – FASB and AICPA authoritative literature –Level B – FASB Technical Bulletins and AICPA Industry Audit and Accounting Guides and Statements of Position –Level C – less authoritative such as FASB Emerging Issues Task Force and AICPA Accounting Standards Executive Committee Practice Bulletins –Level D – least authoritative pronouncements – Q&A’s by FASB staff, AICPA accounting interpretations, etc. –For issues not addressed in Levels A to D, other sources of GAAP include AICPA Issues Papers and Technical Practice Aids, FASB Statements of Financial Accounting Concepts

FASB Accounting Standards Codification Supersedes all existing accounting standards documents as described in FASB 168 Reorganizes thousands of US GAAP pronouncements into roughly 90 accounting topics and displays all topics using a consistent format Includes relevant SEC guidance that follows the same topical structure in separate sections of the Codification

FASB Accounting Standards Codification Does NOT change GAAP Instead, introduces new, more user-friendly online research structure FASB expects new system to –reduce amount of time and effort to research an accounting issue –mitigate risk of noncompliance with standards through improved usability of the literature –provide accurate information with real-time updates as new standards are released –assist FASB with research efforts required during the standard-setting process

FASB Accounting Standards Codification - includes FASB o Statements (FAS) o Intepretations (FIN) o Technical Bulletins (FTB) o Staff Positions (FSP) o Staff Implementation Guides (Q&A) Emerging Issues Task Force (EITF) o Abstracts o Appendix D Topics

FASB Accounting Standards Codification – includes (continued) Derivative Implementation Group (DIG) Issues Accounting Principles Board (APB) Opinions Accounting Research Bulletins (ARB) Accounting Interpretations (AIN) American Institute of Certified Public Accountants (AICPA) o Statements of Position (SOP) o Audit and Accounting Guides (AAG) – only incremental accounting guidance o Practice Bulletins (PB) o Technical Inquiry Service (TIS) only for Software Revenue Recognition

Will Codification include content that is not yet required for entities? Yes. –Content from new standards that is not yet fully effective for all entities will appear as boxed text and labeled as "Pending Content." –Pending Content text box includes the earliest transition date and link to the related transition guidance.

What content is excluded from Codification? FASB concluded that Codification represents authoritative GAAP. Thus, Codification does not include guidance for non-GAAP matters such as Other Comprehensive Basis of Accounting (OCBOA), Cash Basis, Income Tax Basis, and Regulatory Accounting Principles (RAP). Codification also does not include governmental accounting standards.

How will one be able to find the original source of Codification paragraphs? Codification includes Cross-reference report that allows users to identify where current standards reside in Codification, or source of material included in Codification.

How does someone find information about particular issue in Codification? Three primary ways to get to guidance related to particular accounting issue. 1.Go directly to Topic (e.g., Revenue Recognition) and then expand Topic outline to find relevant material. 2.Codification includes robust word search function. 3.Go directly to paragraph if reference is known.

Topics – represent collection of related guidance. Topics correlate closely to standards issued by International Accounting Standards Board (IASB). Topics reside in four main areas: Presentation—Topics relating only to presentation matters; they do not address recognition, measurement, and de-recognition matters. Examples: Income Statement, Balance Sheet, and Earnings per Share. Financial Statement Accounts—Codification organizes Topics into financial statement order including Assets, Liabilities, Equity, Revenue, and Expenses. Topics include Receivables, Revenue Recognition, and Inventory. Broad Transactions—These Topics relate to multiple financial statement accounts and are generally transaction-oriented. Topics include Business Combinations, Derivatives, and Nonmonetary Transactions. Industries—These Topics relate to accounting that is unique to industry or type of activity. Topics include Airlines, Software, and Real Estate.

Subtopics Subtopics represent subsets of Topic and are generally distinguished by type or by scope. – Example: Operating Leases and Capital Leases are two Subtopics of Leases Topic, distinguished by type of lease. Each Topic contains Overall Subtopic that generally represents pervasive guidance for the Topic (i.e. Overall Subtopic includes guidance that applies to all other subtopics). Each additional Subtopic represents incremental or unique guidance not contained in Overall Subtopic.

Sections Sections represent the nature of content in Subtopic such as Recognition, Measurement, Disclosure, etc. Sectional organization for all Subtopics is the same. Similar to Topics, Sections correlate closely with sections of individual International Accounting Standards. Sections are further broken down into Subsections, Paragraphs, and Subparagraphs, depending on specific content of each Section.

How are Topics, Subtopics, Sections, and Paragraphs classified? FASB developed a hybrid classification system specifically for Codification. Structure of classification system: –XXX Topic -YY Subtopic –-ZZ Section »-PP Paragraph

How will new standards be incorporated into Codification? New standards will be composed of two items: Standard (similar to existing standards with Basis for Conclusions) and Appendix of Codification Update instructions. Title of combined set of standard and instructions will be "Codification Update YYXX" where YY is last two digits of year and XX is sequential number for each Update. –Example for 2009 would be 09-01, 09-02, etc. –All authoritative GAAP will be issued in this format.

Will new standards have Basis for Conclusions? Yes. Format will be same as the format used currently. Upon adoption of Codification as authoritative, users will be able to access new standards and related Basis for Conclusions.

What happens to US GAAP when Codification goes live? U.S. GAAP Hierarchy Authoritative Contained in Codification Non-Authoritative Not contained in Codification Level AX Level BX Level CX Level D – Issued by a standard setterX Level D – PracticeX Level E – Concept Statements, Textbooks, etc. X Note – As described in Notice to Constituents, certain items currently included below level D have been included in Codification.

What will be search capabilities for locating archived standards? Two approaches to locating archived standard. 1. After adoption of Codification, archived standards will be accessible from left navigation panel of Web site. –Users will be able to browse standards by standard setter, type, and number similar to organization of most existing accounting research tools. 2. Users will be able to use text search

How will Codification fit into FASB’s work with International Accounting Standards Board (IASB) to create single set of converged, high- quality accounting standards? Codification will assist FASB with research and convergence efforts required during standard-setting process. FASB is working with IASB to determine the Codification role in converged accounting world.

Where can we find more information on Codification? FASB offers an online tutorial, available by logging on to FASB website also includes archived webcast offering step-by-step instructions. American Institute of Certified Public Accountants (AICPA) also offers archived webcast on Codification - see

Implications for Accountants Codification does NOT change GAAP Includes new, more user-friendly online research structure

Integration with XBRL In 2008, FASB worked with XBRL.US to release the new XBRL extension taxonomy for the codification Companies can now directly link from the taxonomy extension to the specific Codification reference posted on FASB’s Codification Web site. –Helps companies select the right element from the taxonomy

Practice with New Codifcation