It’s called “Codification” for short, but there’s nothing small about the impact that the new FASB Accounting Standards CodificationTM (also referred to as FASB ASC) will have on the accounting profession and on you as an accounting student and future CPA.
If it’s not already part of your school’s accounting coursework, Codification will soon become a key component. If you plan to sit for the CPA Exam in 2011 or beyond, knowing how to use Codification will be essential to passing. And as a practicing accountant, Codification is the new “user’s manual” for the rest of your professional life. Learn it well; you’ll be using it forever.
Simplification. Consolidation. Ease of use.
Codification completely changes how you research and refer to accounting and reporting standards by consolidating thousands of U.S. General Accepted Accounting Principles (GAAP) pronouncements into a single, authoritative, easy-to-access online research tool.
The goal from the start has been to greatly reduce the time and effort—and often the frustration and ambiguity—of having to research volume after volume of disparate, individual pronouncements issued by numerous standard setters, including FASB, the AICPA, and the Emerging Issues Task Force. Although it does not include International Financial Reporting Standards now, the new Codification has been structured with future integration in mind.
Who uses it and how.
Codification benefits anyone who uses or refers to U.S. GAAP. This includes those who prepare financial statements, auditors, educators, analysts, and yes, individuals planning to sit for the CPA Exam. It is structured to make their research tasks easier, more efficient, and more accurate.
According to the AICPA website, the FASB has “disassembled and reassembled thousands of nongovernmental accounting pronouncements” and organized them into 90 topics. The resulting structure can be thought of as one big drop down menu that logically leads to the information you seek. The structure also provides a hierarchical method for assigning reference “code” numbers to specific content, as explained later.
The above chart provides a general overview of this “menu” structure. As the chart shows, the 90 topics are allocated among nine areas, the “main menu” items. Each area has its own three-digit “area” code range. All topics within an area have corresponding three-digit codes within that range.
For example, all the topics in the Asset area have a three-digit code within the 300 range (e.g., 305, 310, and so on.) These topics are then divided into subtopics, each of which has its own numerical code. Subtopics are further divided into sections, which are always numbered and named exactly as shown in the exhibit, regardless of the section.
The method for determining the FASB ASC reference number for a specific pronouncement mirrors the menu hierarchy and is the combination of the topic, subtopic, and section codes. For example, FASB ASC 605-25-25 represents topic number 605, Revenue Recognition; subtopic 25, Multiple-Element Arrangements; and section 25, Recognition.
Using the online tool.
When using the online FASB ASC tool, you can research information four different ways:
- Browse by topic by clicking through the menu hierarchy to reach the desired entry
- Search by keyword, which is similar to typical online search engine functions
- Search by codification site using the FASB ASC reference number, if you know it, which leads directly to the entry
- Cross-reference by the “historical” GAAP designation, for example EITF 00-21, an Emerging Issues Task Force promulgation from the year 2000
See for yourself.
If you haven’t yet, take a look at the Codification website at asc.fasb.org. The Basic View is free of charge and offers browse and print features. The Professional View, which requires an annual fee, offers numerous advanced features. The site also provides information on how faculty and students can gain free access to the Professional View.
Those familiar with working and researching online should find the online tool clearly organized, intuitive to learn, and fairly easy to use. In response to requests from the profession, however, the FASB is also making available a four-volume print version. More information about Codification in general is available from AICPA at aicpa.org in the Professional Resources/Accounting and Auditing section.