FASB Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles, identified the sources of accounting principles and the framework for selecting the principles used in preparing the financial statements of nongovernmental entities that are presented in conformity with U.S. generally accepted accounting principles (GAAP). As previously communicated, the FASB Accounting Standards Codification soon will become the source of authoritative GAAP recognized by the Financial Accounting Standards Board (FASB) to be applied by nongovernmental entities. Once the Codification is in effect, all of its content will carry the same level of authority. The FASB therefore has issued Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162, to indicate this change to the GAAP hierarchy. Following the issuance of Statement No. 168, the FASB will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates, which will not be authoritative in their own right but will serve to update the Codification, provide background information about the guidance, and provide the basis for conclusions on the changes to the Codification.
On the effective date of Statement No. 168, the FASB Accounting Standards Codification will become the single source of authoritative U.S. accounting and reporting standards to be applied by nongovernmental entities, except for rules and interpretive releases of the SEC under authority of federal securities laws, which are sources of authoritative GAAP for SEC registrants. All other nongrandfathered, non-SEC accounting literature not included in the Codification would become nonauthoritative. Sources of nonauthoritative accounting guidance and literature include, for example, practices that are widely recognized and prevalent either generally or in the industry, FASB Concepts Statements, American Institute of Certified Public Accountants (AICPA) Issues Papers, International Financial Reporting Standards, pronouncements of other professional associations or regulatory agencies, Technical Information Service Inquiries and Replies included in AICPA Technical Practice Aids, and accounting textbooks and articles. Grandfathered guidance consists of two general types. The first is where an entity has followed and continues to follow an accounting treatment that was previously in category (c) or category (d), as described in Statement No. 162, if the effective date of that guidance was before March 15, 1992. The second is superseded accounting standards that have allowed for the continued application of that guidance for transactions that have an ongoing effect on the entity’s financial statements.
The FASB believes the Codification retains existing GAAP without changes, except that the FASB decided to include paragraphs 38 through 76 of AICPA Technical Inquiry Service (TIS) Section 5100, Revenue Recognition, in the Codification, which may result in an accounting change for nonpublic entities that had not previously applied this guidance. Those TIS paragraphs address various accounting issues related to computer software revenue recognition. Affected nonpublic entities would be required to apply the guidance prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after December 15, 2009, and interim periods within those years.
Except as discussed in the immediately preceding paragraph, Statement No. 168 will be effective for financial statements issued for interim and annual periods ending after September 15, 2009.
Statement No. 168 is available in full at http://www.fasb.org.
Source: McGladrey & Pullen
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