U.S. Generally Accepted Accounting Principles (GAAP) consists of a large number of standards established by an assortment of standard-setters over the last 50-plus years.  It is commonly recognized that the standards lack a rational structure.  Moreover, the accelerated pace in financial reporting guidance over the past 20 years has exacerbated GAAP’s confusing architecture.

Users expressed their distress and in response the Financial Accounting Standards Board (FASB) embarked on a project to tackle the issue.  The focus of the project was to codify and simplify GAAP.  Among other things, the project was designed to:

    a.    Reduce the time and effort to perform accounting research

    b.    Lessen the risk of noncompliance by improving the usability of written guidance

    c.     Provide accurate and immediate updates as new standards are published

    d.     Help the FASB with U.S / international convergence efforts

    e.    Become the single source of literature for XBRL taxonomy (a language for the

           electronic communication of business and financial data)

 

    f.    Clarify that guidance not contained in the Codification is not considered to be

          authoritative               

While the Codification is a major restructuring of accounting and reporting standards, only a few words were changed from the original source material.  Thus, the information in the Codification will generally be familiar to those who have, to date, relied on traditional guidance.

As of July 1, 2009, the FASB expects to formally approve the Codification as the single source of authoritative U.S. accounting and reporting standards, other than guidance issued by the Securities and Exchange Commission (SEC).   At that time, the Codification will supersede all then-existing non-SEC accounting and reporting standards.  All other non-grandfathered, non-SEC accounting literature not included in the Codification will become nonauthoritative.

Following the FASB approval of the Codification as the single source of non-SEC authoritative accounting and reporting standards, the FASB will no longer consider new standards as authoritative in their own right.  Instead, new standards will serve only to provide background information about an issue, update the Codification, and provide the basis for conclusions regarding changes in the Codification.

The Codification does not include guidance for non-GAAP matters such as:

• Other Comprehensive Basis of Accounting (OCBOA)
• Cash Basis
• Income Tax Basis
• Regulatory Accounting Principles (RAP)
• Governmental accounting standards