FASB Codification Project

FASB Codification Project

The Financial Accounting Standards Board, FASB, was implemented in 1973 in the private sector. It was meant to set up the standards for which financial accounting should operate. Its duty was to establish and improve the standards of financial accounting and reporting the financial matters to the general public as well as guiding and educating them. It also helps the auditors, issuers, and users who benefit from financial information.

The FASB codification process includes all the accounting values issued by a standard setter. The standard setter is in the levels ‘A’ right through ‘D’ of the present US Generally Accepted Accounting Principles, GAAP, ladder. Also included is the American Institute of Certified Public Accountants, AICPA, and the Emerging Issues Task Force, EITF (FASB, 1984). The codification process involves the assigning of numbers or letters to documents to enable faster access to those documents as well as their retrieval.

The FASB codification project will allow thousands of declarations currently in US GAAP to be organized into about 90 accounting subjects. Contents in every subject are then subdivided into subtopics followed by sections and lastly paragraphs. The paragraph is the sole part that contains the important material. The other higher levels are there to help in arranging the contents of the paragraph. A number is allocated to particular contents in each level (Smith 2005). Then the levels are displayed suitably using a dependable arrangement and prepared in an easily accessible way which is online user-welcoming. This will enable easy access to the topics and subtopics since they will be presented using a particular standard arrangement that can easily be understood by all parties concerned.

The process of codification of FASB will not bring about alterations to the GAAP but it will change sufficiently how GAAP is accessed. This will lead to the simplification of the accounting standards.

FASB codification involves identifying and assigning the material from existing sources of information to the various significant codification topics and subtopics; this process is known as the mapping phase. After the mapping phase has been completed, external experts start the next process which is known as the authoring stage (Smith 2005).

Authoring stage involves the mapped content being incorporated into significant guidelines by using a particular standard procedure. In this process, authors will use a new language known as the bridging language which will bring together all the isolated GAAP information in a consistent manner. This will assist when reading the guidelines. Authoring will also match changes which will bring about consistence in terms and styles being used. After the bridging language and conforming changes have been attained, all materials will be reviewed by a committee and then they will have to be acknowledged by the board.

There are also multiple review phases used throughout the codification process to make sure that all appropriate Generally Accepted Accounting Principles are recognized, interpreted and built up together, without affecting the intention of existing GAAP standards. Review stages include procedural review, editorial review after authoring has been finished, reviewing and confirming FASB membership (FASB, 2005). When all sections are to be included in the codification process, then every declaration that is identified as an element of GAAP has to be observed. For instance, Financial Accounting Standards Board Statements, FAS, may include sections which are titled as Status, Introduction, and Standards for Financial Reporting, and efficient dates (FASB, 2005).

To facilitate the codification process the codification team has come up with various sections for each type of standard as either authoritative or non-authoritative such that it is easier to know whether all significant guidelines are arranged in the right manner. Some of the sections selected as Authoritative within FASB Statements include the Introduction, Standards for Financial Reporting, Appendices containing illustrating examples or how the implementation process is done, and the word list. There are those parts which are formulated as non-authoritative and they include Status, Summary, Effectual Date and Translation, Background, Foundation for Conclusions and other Indices which do not contain examples of illustrations or the guidelines for implementation (AICPA, 1975).

There are some benefits which accompany the FASB codification. They include lessening of the amount of time and the hard work needed by the users in the process of retrieving the specific information they need in order to solve an accounting research issue. Those who will be doing research online will have easy time in doing so. This is so since the vast GAAP material will be pooled together under precise codes. The current works of GAAP are largely dispersed; this creates a major problem to online researchers because they have to look for information from a wide range which at times may bring about inaccuracy. Codification will eliminate this problem.

The codification is also likely to bring about an improvement in the way the contents are used. This way it will reduce the risks involved if the standards are not complied with. The codification is also going to be very important in providing up to date and correct information about the discharge of latest standards. The process will also lead to the assistance of the FASB with the research and the necessary efforts during the process of setting standards. In this way the fundamental, and usually the least considered, requirements are placed for the financial bodies.

It is also expected that when the new formation has been concluded, FASB will become the only authorized source of commanding and non legislative United States generally accepted accounting principles. When FASB approves the Codification, it will become the only level of respected GAAP other than regulations issued by the Securities and Exchange Commission, SEC, for the eXensible Business Reporting Language categorization, XBRL (FASB 2005).

FASB codification process will affect most of the users of GAAP. It will require that those who use the GAAP, that is the students and the certified public accountants, to become conversant with the codification. The CPAs will have to take education in the personal study classes in order to get familiarized with the new codification and organization. They should look for any significant changes that may have been introduced into the new standards. Without this, they may not understand fully the codification process. This is because codification will change many aspects in the GAAP, that is, the way GAAP will be recognized, restructured, located, and accessed.  Research will only be done online in order to access the codification subject and neither on written materials nor on compact discs (FASB 2005). The users of codification process will have to register online for them to be granted access to the relevant material.

The codification process will change greatly the accounting studies in the US in the levels of college and as well as in the practicing education. Every learning resource will have to be updated according to specified standards. The rearranged GAAP content will bring about challenges to those who provide research tools and services objectively for CPA practicing. The CPAs as well as their firms may be required to reorganize their decision making processes concerning their procurements.

From the FASB codification process it can therefore been seen that there are benefits as well as some a few shortcomings. But in overall, benefits are more forthcoming.



American Institute of Certified Public Accountants, AICPA. (1975). The Meaning of

            Present Fairly in Conformity With Generally Accepted Accounting Principles

Statement on Auditing Standards No. 69, NY, NY: AICPA.

Financial Accounting Standards Board, FASB. (1984). Recognition and

            Measurement in Financial Statements of Business Enterprises. Concepts

Statement No. 5, Norwalk, CT: FASB

Financial Accounting Standards Board, FASB. (2005). Codification Process Manual,

Norwalk, CT: FASB

Smith, L. W. (2005). The FASB’s efforts toward simplification, The FASB Report, retrieved June 24, 2009, from http://www.fasb.org/articles&reports/fasb_efforts_toward_simplification_tfr_feb_2005.pdf


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