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GAAP Hierarchy

Review of Standard
Setting
The primary standard-setting
bodies responsible for
establishing GAAP are the:
◆ FASB ◆ Financial
Accounting
Standards Board

◆ SEC
◆ Securities &
Exchange
Commission
The primary standard-setting
bodies responsible for
establishing GAAP are the:
◆ AICPA
◆ American Institute of
Certified Public
Accountants

◆ International
◆ IASB 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which are not superseded by action of the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 and
Task Forces

FASAC GASAC
Evolution of U.S. GAAP

21 years 14 years 31 years

1938 1959 1973 5 to 6


per
CAP APB FASB
formed formed formed
year

CAP APB FASB


Issued Issued Issued
51 31 150+
____
ARBs Opinions Statements
The Process of Standard Hold Public
Hearings
Setting

Place topic on Analysis of


agenda public response

Appoint Task Hold public Modify exposure


Force hearing draft

Conduct Analysis of Vote


(approval requires
Research public response 4 of 7)

Issue
Issue Exposure Issue Standards
Discussion
Draft Statement
Memorandum
The House
of GAAP

Widely recognized and


Least AICPA Accounting FASB Implementation
prevalent industry
Authoritative Interpretations Guides (Q&A), FSP
practices

FASB Emerging Issues Task Force AICPA AcSEC Practice Bulletins

AICPA AICPA
FASB
Industry Audit and Statements of
Technical Bulletins
Accounting Guides Position

AICPA
FASB
APB Accounting
Statements and
Opinions Research
Most Interpretations
Authoritative Bulletins
FSP =
The House
something of GAAP
new
Widely recognized and
Least AICPA Accounting FASB Implementation
prevalent industry
Authoritative Interpretations Guides (Q&A), FSP
practices

FASB Emerging Issues Task Force AICPA AcSEC Practice Bulletins

AICPA AICPA
FASB
Industry Audit and Statements of
Technical Bulletins
Accounting Guides Position

AICPA
FASB
APB Accounting
Statements and
Opinions Research
Most Interpretations
Authoritative Bulletins
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"