Reheating the alphabet soup of accounting standard setting.

• Author: Garmong, Sydney K.
• Position: Regulation

In recent years there has been extensive activity in the world of financial reporting, from the ongoing efforts to converge International Financial Reporting Standards (IFRS) with U.S. generally accepted accounting principles (GAAP) to the launch of the Private Company Council (PCC) to the release of the American Institute of Certified Public Accountants (AICPA) Financial Reporting Framework for Small and Medium-Sized Entities (FRF for SMEs).

The alphabet soup of today's accounting standard-setting organizations can be challenging to decipher. It is important to understand the roles of the various organizations that set standards and which standards apply to which entities.

Standard Setting for U.S. GAAP

U.S. GAAP is the most acknowledged set of accounting standards in this nation. The term "generally accepted accounting principles" was first formally used in the 1930s by the Committee on Accounting Procedure of the American Institute of Accountants (AIA), which was later reorganized as the AICPA.

For decades, three organizations effectively set the standards under U.S. GAAP: the Financial Accounting Standards Board (FASB), the FASB's Emerging Issues Task Force (EITF) and the AICPA. In 2002, however, the AICPA bowed out of the standard-setting process, leaving the task for nongovernmental entities in the United States solely to the FASB and EITF.

Until a few years ago, U.S. GAAP was scattered across a hodgepodgeof difference sources published by the FASB, EITF or AICPA, including:

By Sydney K. Garmong and Alex Vodka

* Statements of Financial Accounting Standards (FAS);

* FASB Interpretations (FINs);

* FASB Staff Positions (FSPs);

* FASB Technical Bulletins (FTBs);

* EITF Abstracts;

* Derivatives (Statement 133) Implementation Group (DIG) Issues;

* Accounting Research Bulletins (ARBs);

* Accounting Principles Board (APB) Opinions;

* AICPA Practice Bulletins (PBs);

* AICPA Accounting Interpretations (AINs);

* AICPA Accounting Statements of Position (SOPS).

In 2009, following a four-year process, the FASB formally approved the Accounting Standards Codification (ASC) as the single source of authoritative U.S. accounting and reporting standards, other than guidance issued by the U.S. Securities and Exchange Commission (SEC). The ASC thus superseded all of the existing non-SEC standards. The codification reorganized the thousands of U.S. GAAP pronouncements into roughly 90 accounting topics. The ASC also includes relevant SEC guidance. Updates are made via the issuance of FASB Accounting Standards Updates (ASUs).

Public vs. Private Companies Under U.S. GAAP

Until recently, the differences between the U.S. GAAP standards for public and private companies were primarily in the effective dates, which typically are earlier for public than nonpublic entities. Public companies might have greater disclosure obligations as well. Otherwise, private companies are generally subject to the same standards as public companies.

In 2012, though, the Financial Accounting Foundation (FAF), which oversees the FASB, established the Private Company Council (PCC) with the goal of improving the process of setting accounting standards for private companies. PCC is charged with determining whether exceptions or modifications to existing U.S. GAAP are needed to address the needs of users of private-company financial statements. PCC also serves as the primary advisory body to FASB on the appropriate private-company treatment for items under active consideration on the FASB's technical agenda.

Although PCC can propose changes, any changes are subject to endorsement by FASB and will be issued as ASUs and included in the ASC. PCC...