Magazine article Strategic Finance

Technical Corrections to the FASB's Codification: The FASB Occasionally Makes Technical Corrections to Its Codification of Accounting Standards. Some Recent Corrections Are More Significant Than Usual

Magazine article Strategic Finance

Technical Corrections to the FASB's Codification: The FASB Occasionally Makes Technical Corrections to Its Codification of Accounting Standards. Some Recent Corrections Are More Significant Than Usual

Article excerpt

From time to time, the U.S. Financial Accounting Standards Board (FASB) makes technical corrections to its Accounting Standards Codification[R] (ASC). Usually, technical corrections aren't very significant--that is, they don't actually change accounting in practice. But some technical corrections are more significant than others. In this month's column, I'll explain the technical-correction process in general and examine the varying significance of the technical corrections that the FASB has made to date.

Background

The FASB sets authoritative financial accounting and reporting standards that are used by nongovernmental entities in the United States. The FASB's standards, which are also known as Generally Accepted Accounting Principles (GAAP), are documented in the ASC. Major changes that the Board decides to make to the ASC are documented in pronouncements known as Accounting Standards Updates (ASUs). Minor changes--mainly typographical in nature--are documented in pronouncements known as Maintenance Updates (MUs).

Most ASUs document major substantive changes to the ASC. Such changes are the result of the FASB's formal standards-setting process and reflect the Board's intent to change accounting practice in specific ways. Occasionally, however, the FASB concludes that certain nonsubstantive changes to the ASC are necessary to clarify the Board's unchanged intent for an existing standard. These kinds of improvements--which go beyond mere editorial corrections--are what the Board considers technical corrections. They're documented in ASUs, just as substantive changes are.

Since November 2010, the FASB has had a standing project to identify, develop, and promulgate technical corrections. In many cases, it identifies the need for technical corrections as a result of stakeholders' requests for clarification of current GAAP. In other cases, the Board proactively identifies the need for technical corrections on its own.

Summary of Technical Corrections to Date

Since codifying GAAP in 2009, the FASB has issued three ASUs that document technical corrections to its standards:

* No. 2009-02, Omnibus Update--Amendments to Various Topics for Technical Corrections;

* No. 2010-08, Technical Corrections to Various Topics; and

* No. 2012-04, Technical Corrections and Improvements.

ASU No. 2009-02 was issued June 30, 2009--the eve of the FASB's formal adoption of its ASC as authoritative GAAP. This ASU documented amendments to the previously nonauthoritative ASC, in many cases based on comments received from stakeholders during and after the ASC's verification period.

ASU No. 2010-08 was issued February 2, 2010. It represented the end product of the FASB's "Technical Corrections to FASB Statements and Other U.S. GAAP Literature" project, a stand-alone initiative that had been on the Board's agenda since May 2008. The primary purpose of the ASC amendments documented in ASU No. 2010-08 was to resolve certain technical issues that arose from the pre-Codification issuance of Statement of Financial Accounting Standards (SFAS) No. 141(R), Business Combinations, and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. The secondary purpose was to resolve noncontentious issues in other areas of GAAP.

ASU No. 2012-04 was issued October 1, 2012. It's the first ASU that was issued under the FASB's standing "Technical Corrections and Improvements" project. In addition to containing nonsubstantive amendments to a wide variety of ASC topics, the 220-page ASU included more substantive, limited-scope improvements to the content of the ASC. The inclusion of amendments having greater significance relative to previously issued technical corrections invites us to examine ASU No. 2012-04 in greater detail.

A Closer Look at ASU No. 2012-04

ASU No. 2012-04 documented five broad types of ASC amendments:

* Source literature amendments,

* Guidance clarifications,

* Reference corrections,

* Guidance relocation, and

* "Conforming" amendments. …

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