Codification gets warm welcome

June 5th, 2009

The FASB’s Small Business Advisory Committee expressed enthusiasm about the upcoming Accounting Standards Codification during the group’s meeting on June 5, 2009. If used as intended, the Codification will facilitate a better understanding of financial statements as today’s esoteric alphabet soup of technical references is replaced with more plain-English explanations in the notes to financial statements and other parts of SEC filings. But uncertainties about reactions by accounting firms are causing concern. 

Keys to success: Discussions at the June 5th meeting provided insights into how and when the Codification should be used by companies, auditors and regulators:  

  • The FASB expects to finalize the Codification and make it available for use on July 1, 2009. To provide a smooth transition, the Codification will be effective for financial statements for periods ending after September 15, 2009. A key concern for companies is the extent to which technical references will be permitted and/or required in the coming months by their auditors and the SEC. 

  • Accounting firms differ in their advice on the use of technical references. One member of the Small Business Advisory Committee said his firm has already advised its audit clients that they won’t need to mention specific technical accounting pronouncements, (such as FASB Statement No, 109), after the Codification is effective. This appears to be a best practice, but other firms may undermine the benefits of the Codification by encouraging or even insisting on dual references to both the traditional pronouncements and the Codification. 

  • SEC spokesperson Jenifer Minke-Gerard stressed that the SEC staff in general and the staff of the SEC’s Division of Corporation Finance in particular are great advocates of dropping the technical references and replacing them with plain-English explanations. But, she said, Corp Fin intends to take a “practical approach” to compliance. 

  • Further clarification may be forthcoming in the near future. Jenifer added that the SEC staff expects to issue some interpretive guidance in July 2009 and that the staff will likely undertake a clean-up approach to its own literature with an eye toward dropping what she described as the current “hard-wiring” of technical references into the literature. 

The format of the Codification will take the form of an interactive web-based tool, rather than a document that can be downloaded in its entirety. This format is designed to improve access to US accounting standards and simplify the sometimes tedious process of researching the standards that apply to a particular situation. A print version will be available sometime in late August or early September. 

A preview of the Codification is available now at For more information on the Codification, see my article in the June 15, 2009 edition of the NY State Society of CPAs’ newsletter, The Trusted Professional available at  

Copyright © 2009 Center for Financial and Accounting Literacy 

Entry Filed under: Accounting

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