For the first time in history, this country’s generally accepted accounting practices will be issued by a single authority. “When the codification goes live on July 1, 2009, it will vastly improve the ease of researching U.S. GAAP issues,” said Financial Accounting Standards Board Chairman Robert Herz. “The (standards board) is confident that preparers, auditors and users of financial statements who for years have had to wade through hundreds of pieces of disparate GAAP literature to resolve an accounting issue will find the codification provides a much more efficient, user-friendly method of researching up-to-date solutions.” Echoing that sentiment Larry Haworth, partner at Bessolo, Haworth & Vogel, LLP, said having a single authoritative source for answers to questions about generally accepted accounting practices will take off layers of research procedures that have included sourcing not only FASB references, but also material from the American Institute of Certified Public Accountants, and another set of findings from FASB’s own Emerging Issues Task Force. Add to those trade organizations, as well as state governments, which also have their own boards of accountancy. While there is plenty of cross-referencing among all of those bodies, there has never been a successful measure that would nationally codify American accounting practices. But Herz said this is it. His organization’s new codified database for all things accounting will be the last word in what is a generally accepted accounting practice. “Hopefully, it’s going to make things easier to find, because there have been so many places you’ve had to look,” Haworth said. According to Haworth, there has always been a hierarchy in terms of where accountants turn for answers to accounting questions. Asked if GAAP codification might be seen by some clients as simply a scheme to drum up business for accountants, one local CPA was circumspect. “I do think there’s going to be some up-front external costs if you need to obtain accountants or consultants to get employees up to speed,” said Joe Montero, partner at the Woodland Hills office of J.H. Cohn LLP. “The way (accounting) research is done is going to change for companies.” According to Montero, the conversion from a universe of sources for the always-evolving GAAP to one authoritative repository is revolutionary. “It’s very significant in regard to being something new,” he said. “This is something that’s going to change the way every company in the U.S. does its financial reporting.” Montero pointed out that formally codifying GAAP in a single format does not equate to an essential change in generally accepted accounting practices, such as they have evolved through the years. Rather, he said, the change affects how data for financial statements, tax returns, SEC filings, etc. are compiled and how the forms are completed. “The codification is not changing GAAP,” he said. “It’s bringing it into one place. And, it’s now organized in a topical format, whereby you go to the topic and you drill down.” The IRS, regulatory bodies, and the courts expect, and require, companies to keep their books using GAAP. However, in order to comply, firms’ internal and contracted accountants have had to consult the myriad sources issuing GAAP standards, as well as special addenda, such as the ubiquitous FAS (financial accounting standard) 141 and FAS 142 findings, which relate to valuing “intangible assets.” Montero sees two sides of the fiscal coin in terms of GAAP codification. “There will be costs but there will be savings in the amount of time spent searching through different sources,” he said. According to Montero, companies that insist certain circumstances specific to their businesses or industries must have a good reason for doing so. “If you have a departure from the authoritative literature, you need to justify first to your auditors, and define why your position is such that you need to implement alternative standards very clearly, and in plain language,” Montero said. Correspondingly, codification has been seen also as an opportunity to push for plainer language in financial reporting, said Montero. Furthermore, many CPAs believe codifying GAAP will also help prepare the domestic accounting profession for the expected transition to international financial reporting standards sometime next year. “Nobody knows for sure when that will happen,” Haworth said. “Hopefully, this will make it easier to make the conversion when it does happen.” Joe Montero agrees. “I think some people will say ‘why go to this if we’re ultimately going to IFRS,'” he said. “But with the uncertainty of the ‘if’ and the ‘when’ we will have IFRS, this may be a good precursor to that conversion.” At least, said Montero, when the conversion to international standards occurs it will be a matter of converting from one codified system to another, rather than funneling several systems into one. As an aside, Montero believes many think of IFRS as an existing international accounting standards regime that other countries have been following all along. But, he said, IFRS will have to be created from many “local” standards now in use by various countries around the globe. With a codified GAAP, the old FAS footnote system will be gone. In addition, Montero advises companies hire accounting consultants to train staff on how to adhere to the new GAAP system of reporting without FAS footnotes to save money on a go-forward basis.
Single GAAP Authority Brings Changes to Accounting