United States: Impact of FASB’s Accounting Standards Codification on Filings by U.S. Public Companies

Originally published September 1, 2009

Keywords: Statement of Financial Accounting Standards No. 168, FASB, reporting standards, compliance, financial statements, disclosure documents, SEC,

On June 30, 2009, the Financial Accounting Standards Board (the "FASB") adopted Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification^TM and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162 (the "FASB Codification"). In short, the purpose of the FASB Codification was to reorganize all existing U.S. accounting and reporting standards issued by the FASB and other related private-sector standard setters into one authoritative body of literature, which will ease research of accounting literature and reduce the risk of noncompliance.¹ Going forward, all revisions will be made in real time to the FASB Codification. The FASB Codification is effective for all financial statements issued for interim and annual periods ending after September 15, 2009.

As a result of the adoption of the FASB Codification, all references² in public company financial statements and related footnotes will be to the classification system set forth in the FASB Codification, rather than to the applicable previously existing literature.³ Conforming changes will also need to be made throughout a company's disclosure documents, with changes most likely arising in the Management's Discussion and Analysis of Financial Condition and Results of Operations⁴ and, most particularly, in the discussion of critical accounting policies usually contained in that discussion. Accordingly, the entire next Quarterly Report on Form 10-Q (the third quarter report for calendar year-end companies) and the entire next Annual Report on Form 10-K will need to be carefully reviewed to ensure that all appropriate changes are made.

Finally, on August 18, 2009, the Securities and Exchange Commission published interpretive guidance titled "Commission Guidance Regarding the Financial Accounting Standards Board's Accounting Standards Codification."⁵ In its guidance, the SEC states that concurrent with the Effective Date, references in the SEC's rules and SEC staff guidance to specific standards under U.S. generally accepted accounting principles should be understood to mean the corresponding reference in the FASB Codification. The SEC also states that the FASB Codification does not supersede any SEC rules or regulations and is not the authoritative source for SEC rules or SEC staff guidance, and also that the inclusion of any SEC rules or SEC staff guidance in the FASB Codification will not affect how such items may be updated in the future by the SEC.

Footnotes

1. Additional benefits of the FASB Codification are that it will assist with international convergence of accounting standards and it will serve as the authoritative reference source for the new XBRL requirements.

2. There is a limited exception for companies that continue to follow grandfathered guidance not included in the FASB Codification. These companies will continue to reference the grandfathered provisions as appropriate, rather than the FASB Codification. A listing of the grandfathered provisions, as of July 1, 2009, can be found in the FASB's Notice to Constituents located at http://asc.fasb.org/imageRoot/63/6537863.pdf.

3. The accounting literature replaced by the FASB Codification includes the FASB Financial Accounting Standards (FASs), FASB Interpretations (FINs), FASB Technical Bulletins (FTBs), FASB Staff Positions (FSPs), FASB Staff Implementation Guidelines (Q&As), Emerging Issues Task Force Abstracts, Emerging Issues Task Force Topic D, Derivative Implementation Group Issues (DIG), Accounting Principles Board Opinions (APBs), Accounting Research Bulletins (ARBs), Accounting Interpretations (AINs), the American Institute of Certified Public Accountants (the "AICPA") Accounting Statements of Position (SOPs), AICPA Audit and Accounting Guides (AAGs) – incremental accounting guidance, AICPA Practice Bulletins (PBs) and AICPA Technical Inquiry Service (TIS) – for software revenue recognition.

4. Item 303 of Regulation S-K.

5. Release No. 33-9062A; 34-60519A; FR-80A.

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