Which Rules Rule? Now Ask FASB

New FAS 162 determines that FASB statements top staff positions and AICPA bulletins — at least until IFRS takes over.
Alan RappeportMay 13, 2008

The Financial Accounting Standards Board has issued a new statement creating a “GAAP hierarchy” intended to clarify what should happen in the event that accounting principles conflict with each other.

In an effort to reduce complexity, the new statement, FAS 162, identifies the sources of various accounting principles, and outlines the ranking of their importance to companies and corporate structures that are not part of governments. Moreover, FASB has concluded that this hierarchy should reside in its own FASB accounting literature, rather than with the American Institute of Certified Public Accountants.

This shift from basing the hierarchy with FASB rather than AICPA has been in the making since 2005. But FAS 162 now replaces the AICPA’s older version of a hierarchical description, which was directed at auditors and was seen by many as too complicated. (The AICPA’s hierarchy, however, still applies for governmental agencies.) FAS 162 also puts FASB’s authority at the forefront, rather than ranking its standards below other industry practices in some cases.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

Atop the new hierarchy will be FASB statements of standards and implementations, staff positions, and AICPA research bulletins not in conflict with FASB actions. Next are FASB technical bulletins and, if FASB approves them, AICPA audit and accounting guides and positions statements.

Further down the list are practice bulletins produced by the AICPA accounting standards executive committee, which also require FASB approval, and consensus positions of FASB’s emerging issues task force. At the bottom of the hierarchy are FASB implementation guides, AICPA accounting interpretations and industry guides and, finally, any other positions or generally recognized practices that are not cleared by FASB.

The new statement will become effective 60 days after the Securities and Exchange Commission approves new auditing amendments from the Public Company Accounting Oversight Board.

FAS 162 is not expected to have an impact on investment decisions, Jack Ciesielski, author of the The Analyst’s Accounting Observer, notes on his blog.

The impact of the statement could also be moot relatively soon, as America’s generally accepted accounting standards appear likely to eventually be dumped in favor of International Financial Reporting Standards used around much of the rest of the world.