Moving on up: FAS 168 changing how CPAs view, research, evaluate GAAP.

• Author: McPartlan, Michael J.
• Position: Regulatory update

With the issuance of the FASB Accounting Standards Codification came a single source of authoritative U.S. generally accepted accounting principles for nongovernmental entities--and a major change in the way CPAs view, research and evaluate the application of GAAP.

FASB Statement No. 168, which becomes effective for financial statements issued for interim and annual periods ending after Sept. 15, 2009, replaced FAS 162, The Hierarchy of Generally Accepted Accounting Principles, which became effective in November 2008.

When FAS 162 was issued, the GAAP hierarchy set forth in SAS 69 was moved from the auditing standards into the "home" in which it truly belongs: the accounting standards. While FAS 162 essentially kept the GAAP hierarchy intact, it reaffirmed that the responsibility to prepare financial statements in accordance with GAAP rests on a reporting entities' management, rather than its outside auditors.

Moreover, FAS 162 recognized the various authoritative sources of GAAP and presented a hierarchal structure containing categories (a) through (d) GAAP, with Category (a) as the most authoritative. Some readers may be asking why FAS 162 has become extinct before the paint is barely dry. The answer is that FASB had much bigger plans in place that involved moving on up to FAS 168.

The Codification

FAS 168 establishes the Codification as the source of authoritative GAAP recognized by FASB to be applied by nongovernmental entities. The SEC's rules and interpretive releases under federal securities laws are also sources of authoritative GAAP for SEC registrants. Once the Codification becomes effective, all of its content will hold an equal level of authority.

The Statement also reduces the GAAP hierarchy to two levels: authoritative and nonauthoritative. Basically, an accounting treatment that's not in the Codification is not authoritative. The Codification aims to synthesize and integrate existing GAAP--not to create new GAAP.

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The Codification contains authoritative standards broken down by topics, rather than by pronouncements, that are applicable to both public and nonpublic nongovernmental entities. The topics represent a collection of related guidance and reside in five areas:

1. General Principles (Topic Code 105-199): Relates to conceptual matters and includes GAAP (whereby FAS 168 is codified in Topic 105).

2. Presentation (Topic Codes 205-299): Relates to presentation matters.

3. Financial Statement Accounts...