New GAAP to be Launched in July – What Does This Mean?

The Financial Accounting Standards Board has recently announced that it plans to release its codification of accounting standards in July of 2009.  Generally Accepted Accounting Principles, or GAAP as we know it, will not change as a result of this new codification.  Instead, this codification is in process to simplify the existing structure of guidance by re-organizing and codifying GAAP, which had become very complex and confusing in many cases.  In addition, rather than the existing format that is organized by standards, the new codification will be based on a topical format.  So, how does this affect our San Diego accounting firm, other San Diego accountants, CPAs, and others within the industry?  And is this a change for the better?

To begin, once released, the codification will supersede all existing guidance from the Financial Accounting Standards Board (FASB), the American Institute of Certified Public Accountants (AICPA), emerging issues task forces (EITF), and other related sources.  So, adios to every acronym that once went by FASB, FIN, EITF, SOP, ARB, SAB, etc, etc, etc...  All of this literature will now be considered non-authoritative.  As a result, all professionals in the accounting industry must familiarize themselves with the new codification.  This not only will assist professionals in their research capabilities, but will also ease the transition that we all see coming down the road, which is the transition to International Financial Reporting Standards (IFRS).

Next, as opposed to the current format, the new codification will be topical in format, reorganizing U.S. GAAP into about 90 accounting topics.  As a result, the research process should be greatly simplified.  The researcher can now take comfort that all information on the related topic is organized in one topic based section, thus reducing the risk of noncompliance with standards and reducing time and effort in research.

The current codification changes are a step towards simplifying and organizing the current structure of GAAP.  In addition, it is a switch toward the more topical approach.  This provides the intermediate step before the final conversion to IFRS.  Most accounting and financial personnel will applaud the change as overdue.  Some seasoned veterans of the profession may grumble about having to find where everything is again.  Overall, this is a positive step for the FASB and will assist in easing the transition into IFRS.