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The alphabet soup of acronyms in accounting literature is winnowed drastically as the new accounting standards codification takes effect.
Kate O'Sullivan, CFO Magazine
October 1, 2009
Thanks to the Financial Accounting Standards Board's five-year effort to distill all of the existing accounting literature into a single database, the jumble of acronyms that make up generally accepted accounting principles (GAAP) has been edited down to a trio of letters. Instead of FAS, FIN, SOP, and APB, there is now only ASC, or accounting standards codification.
David English, CFO at Ryan & Co., a tax-services firm, has begun transitioning to the new codification system as it applies to the private company's year-end financials. That means revising footnote references and watching for any changes to GAAP resulting from codification. (While FASB has said that the project was not intended to change any principles, experts say the reorganization may have placed a new emphasis on some accounting rules that could, for example, make authoritative something in lower-level GAAP that was previously ambiguous.) The new system "makes perfect sense," says English, but also imposes some additional cost. While FASB does offer a free searchable online database of the new codification, English says the capabilities of that search function are "very, very limited," making the $850-per-user "professional-view" option nearly a necessity.
Companies are taking a variety of approaches to how they cite accounting policies in their financial statements. English plans to simply cite the new ASC references. Some companies, such as Citigroup, have provided references to the old standards alongside the new codification references, although such guidance is not required. Qualcomm, meanwhile, decided to use "plain English" in its latest financials, submitting a third-quarter filing that features nary a reference to a FAS or an ASC.
All of those approaches are valid, but one potential problem with the so-called plain-English approach is that what passes for plain English can vary greatly from company to company. This could pose a further obstacle to searching and comparing documents, says John Hepp, a partner at Grant Thornton. Still, he predicts, the transition to the new codification system will soon be second nature. "Within a year, people will be citing those ASC numbers as easily as they did the others."