Riding The GAAP Elevator

by: Belvedere

While the SEC’s “complexity-killer committee” gets all the attention these days (the first meeting is in just two more weeks), there’s another anti-complexity effort underway that’s been much lower-key - and if successful, could make life a lot complex for anyone who tries to understand accounting rules/principles.

I’m talking about the FASB’s effort to codify all existing accounting standards into one neat (maybe) bundle. Generally accepted accounting principles in the United States have grown in a haphazard fashion due to the multiple standard setters on the accounting scene. You’ve got your FASB “Statements” and you’ve got Accounting Principles Board “Opinions,” which were adopted by the FASB. You’ve got your AICPA Accounting Standards Executive Committee “Statements of Position,” no longer issued, and the same body’s “Accounting and Auditing Guides.” You’ve got your Emerging Issues Task Force “Consensuses.” Throw in SEC interpretations of that pool of literature and you’ve got a dizzying hierarchy of GAAP - - one that drives practitioners crazy when they search for the right answer for a particular accounting question.

What the FASB intends to do is knit all of the literature into one giant, searchable codification of the standards, with some weeding along the way. In the process, some lower level standards (like AcSEC’s or the EITF’s) might move up the hierarchy; some higher level standards or pieces of them might get tossed. It’s a grand proposal; logical and worthwhile, it’s the accounting equivalent of deciding to put a man on the moon by the end of the 1960’s.

Which happened, by the way. (Unless you’re one of those truly dedicated paranoiacs who don’t believe it happened.) So maybe it can happen in the accounting world, too.

Yesterday, the moon shot arched a little higher in the sky. The FASB discussed 10 topics that might be eliminated or could present conflicts in the current literature. This is a project that’s likely to pick up steam as the SEC’s public wish for reduced complexity becomes louder.