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Demystifying the Accounting Standards Codification. Peggy Gallagher, CPA [email protected] Demystifying the Accounting Standards Codification. What is it? When is it effective? How will it affect me? Resources. Overview of the Codification.

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Demystifying the Accounting Standards Codification

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Demystifying the accounting standards codification l.jpg

Demystifying the Accounting Standards Codification

Peggy Gallagher, CPA

[email protected]


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Demystifying the Accounting Standards Codification

  • What is it?

  • When is it effective?

  • How will it affect me?

  • Resources


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Overview of the Codification

  • FASB’s Accounting Standards Codification (“ASC”)

  • Does not change US GAAP

  • Integration and categorization

  • Includes most SEC content


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Why was the ASC needed?

  • Simplifies access

  • Improves accuracy of research

  • Mitigates risk of non-compliance

  • Streamlines research process

  • Provides real-time updates

  • Assists with IFRS convergence


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Before the ASC

FASB statements ~ FASB Staff Positions ~ FASB

Interpretations ~ Accounting Principles Board Opinions ~

EITF Abstracts ~ AICPA Audit & Accounting Guides ~ FASB

Technical Bulletins ~ SEC S-X Rules ~ SEC Staff Accounting

Bulletins ~ AICPA Statements of Position ~ SEC S-K Items ~

SEC Speeches ~ AICPA Practice Bulletins

ETCETERA


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What’s Not in the ASC

  • Governmental standards

  • Non-GAAP standards (modified cash basis, income tax basis or regulatory basis)

  • “Non-essential” content of previous standards

    • Basis for Conclusions

    • Document summary

    • Constituent feedback


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What’s Not in the ASC (cont.)

  • FASB used 12-31-08 as a target date for authoring

  • Content amended or superseded by FIN 48, SFAS 141(R)

  • Pre-SFAS 158 literature (employers’ accounting for DB plans)

  • Generally, most other grandfathered material


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SEC Standards

  • “SEC content is the domain of the SEC”

  • “Relevant” SEC materials included to “increase the utility” of the ASC, in separate sections

  • Regulation S-X, Financial Reporting Releases, Accounting Series Releases, SABs, SEC Staff Observer comments are in

  • Content related to the following is EXCLUDED:

    • MD & A

    • Auditing matters

    • Independence matters


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How the ASC is Structured

  • New citations: “ASC 210-20-60-5” or ASC XXX-YY-ZZ-PP

  • New classification system

    • Areas – 5 groupings of topics

    • Topics = XXX = 210

    • Subtopics = YY = 20

    • Sections = ZZ = 60

    • Paragraph or subsections = P or PP = 5


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ASC Areas and Topics (“XXX”)

Approximately 90 topics, in 5 main areas

  • General Principles (105 – 199)

    • Example: 105, GAAP

  • Presentation (205 – 299)

    • Balance sheet, Statement of Cash Flows, EPS

  • Financial Statement Accounts (305 – 700)

    • Receivables, Equity, Revenue Recognition

  • Broad Transactions (805 – 899)

    • Leases, Business Combinations, Consolidation

  • Industry ( 905 – 999)


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Topic – “Broad Transactions”

  • 805 – Business Combinations

  • 808 – Collaborative Arrangements

  • 810 – Consolidation

  • 815 – Derivatives and Hedging

  • 820 – Fair Value Measurements and Disclosures

  • 825 – Financial Instruments

  • 830 – Foreign Currency Matters

  • 835 – Interest

  • 840 – Leases

  • 845 – Nonmonetary Transactions

  • 850 – Related Party Disclosures

  • 852 – Reorganizations

  • 855 – Subsequent Events

  • 860 – Transfers and Servicing


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Topic – “Presentation”

  • 205 – Presentation of Financial Statements

  • 210 – Balance Sheet

  • 215 – Statement of Shareholder Equity

  • 220 – Comprehensive Income

  • 225 – Income Statement

  • 230 – Statement of Cash Flows

  • 235 – Notes to Financial Statements

  • 250 – Accounting Changes and Error Corrections

  • 255 – Changing Prices

  • 260 – Earnings per Share

  • 270 – Interim Reporting

  • 272 – Limited Liability Entities

  • 275 – Risks and Uncertainties

  • 280 – Segment Reporting


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ASC Subtopics (“YY”)

  • Distinguished by type or scope

  • All will contain “Overall” – pervasive guidance for topic

  • Remainder will vary by topic

    Example

    Topic: Leases

    Subtopics: Overall, Operating, Capital


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ASC Sections (“ZZ”)

  • Standardized across all Subtopics

  • 16 categories, examples:

    • 00, Status

    • 05, Overview and Background

    • 15, Scope and Scope Exceptions

    • 25, Recognition

    • 50, Disclosure

    • SEC: “S” before Section number, i.e., S


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USER TIP

Select the feature “Join all Sections” in order to combine each element of this backbone into one, seamless discussion

Example: Join the Disclosure section for all subtopics within the Revenue Recognition Topic


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USER TIP

Q: How will I be able to find the original source (old standards) of the ASC material?

A: The Codification includes a cross-reference report that allows users to identify where current standards reside in the Codification, or the source of material included in the Codification. (see example)


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Future Codification Updates

  • Accounting Standard Updates or “ASUs”

  • Numbered by year of issuance, ASU 2009-01 or ASU 09-01

  • 15 issued since July 1, 2009

  • Several “Proposed ASUs”

  • Same look and feel as pre-ASC standards


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Codification Updates

  • Current and transitional text presented together in ASC

  • Transitional text = not yet effective

  • Transitional text will be distinguished from current (authoritative) text

  • FASB does not consider them authoritative as an ASU (no references to ASU 2009-10)


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FASB Exposure Draft Information

  • FASB.org

  • Similar format to ASUs

  • Click on “Projects” tab, then “Exposure Drafts”

  • Sign up for “Action Alerts” :

    • Send an email to [email protected]

    • confirmation email will be sent back to you

    • all newly issued ASUs, Exposure Drafts and FASB Activity will be emailed to you


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Before and After

“Old” citation

“New” ASC Citation

ASC 450, Contingencies

ASC 740, Income Taxes

ASC 350 Intangibles – Goodwill and Other

ASC 820 Fair Value Measurements and Disclosures

  • SFAS 5

  • SFAS 109/FIN 48

  • SFAS 142

  • SFAS 157


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Before and After

NEW

ASC 275, Risks & Uncertainties

ASC 805 Business Combinations

ASC 718 , Compensation – Stock Compensation

OLD

SOP 94-6, Significant Risks & Uncertainties

FAS 141(R), Business Combinations

SFAS 123(R)


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Afraid to Change?

Two ways of linking ASC materials to old standards:

  • Cross reference tool

  • Select “Printer friendly with Sources” view


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Effective Date

  • Became authoritative on July 1, 2009

  • Mandatory for interim and annual periods ending AFTER September 15, 2009

  • For public companies: Q3


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Accounting Citations – Going Forward

  • Periods ending before September 15, 2009:

    • Do NOT refer to ASC only

    • May use “old” references only, or both

  • Periods ending after September 15, 2009:

    • Refer to ASC only, may NOT use “old” references

    • Comparative statements: may use both


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USER TIP

Streamline: remove unnecessary, outdated technical references in footnotes

Consider: deleting all technical citations in favor of a “Plain English” approach (recommended)

Example: “….as required by the Derivatives and Hedging Topic of the FASB ASC…”


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Not Just for Financial Reports

Other documents impacted by ASC:

  • Internal policy manuals, memos, etc

  • Management’s Discussion and Analysis (MD&A) (public companies only)


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Transition Planning

  • ASC structure requires practice and training

  • Old standards may be split across several topics

  • Review financial statements and identify where changes are needed

  • Update all internal policies, memos, etc.

  • Determine how you will access the Codification


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Resources

  • FASB website (www.fasb.org)

  • FASB on-line tutorials (free)

  • FASB “Notice to Constituents” for ASC (free)

  • FASB online ASC annual subscription, $850; print (4 volumes), $195

  • AP & M website


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“The material contained in this presentation is for general information and should not be acted upon without prior professional consultation.”

QUESTIONS ?????????


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