Statements of Position



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The Financial Accounting Foundation (FAF) has oversight responsibilities for the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB). In late 1989, the FAF determined that "an entity subject to the jurisdiction of one board should not be required to change its reporting principles as a result of a standard issued by the other board." In making this determination, the FAF recognized that the existing hierarchy of generally accepted accounting principles (GAAP) contained in AICPA Professional Standards, volume 1, AU section 411, "The Meaning of 'Present Fairly in Conformity With Generally Accepted Accounting Principles' in the Independent Auditor's Report," would need to be revised. The Auditing Standards Board (ASB) formed a task force to reconsider the existing GAAP hierarchy. That task force included representatives of the Accounting Standards Executive Committee (AcSEC, the AlCPA's senior technical committee on financial accounting and reporting standards), the FASB, the GASB, and the ASB. In addition to revising the hierarchy so that the FASB and the GASB would each have primary responsibility for setting standards for those reporting entities subject to the jurisdiction of that board, the task force evaluated whether certain sources of GAAP were classified in the appropriate category and whether each category should have a separate level of authority. The task force developed the guidance described in this exposure draft, which would revise the existing hierarchy described in AU section 411, the sources for which are Statement on Auditing Standards (SAS) Nos. 5, 43, and 52. This proposed Statement would: 1. Establish two separate but parallel hierarchies: one for state and local governmental entities and one for nongovernmental entities (see the summary chart immediately following this summary). 2. Distinguish between AcSEC documents that have been cleared by either the FASB or the GASB and those documents that have not been cleared. AcSEC's operating policies permit the committee to issue accounting guidance over the objection of the FASB or GASB. The proposed Statement notes that the word cleared means that the rule 203 body— the FASB or the GASB—has not objected to the issuance of a proposed pronouncement. 3. Establish a separate category for cleared AICPA AcSEC Practice Bulletins and Emerging Issues Task Force consensus positions (category (c) of the proposed hierarchy). 4. Make each successive category in the hierarchy a different level of authority. (Categories (b) and (c) of the existing hierarchy, both sources of established accounting principles, are considered to be equal in authority.) As shown in the summary chart, this change would elevate the authority of certain accounting pronouncements, such as AICPA AcSEC Statements of Position, Audit and Accounting Guides, and Practice Bulletins that have been cleared, as well as Emerging Issues Task Force consensuses, that are effective after the effective date of this proposed Statement above the authority of widely recognized and prevalent industry accounting practices. The intent of this proposed Statement is for the revised levels of authority of the respective categories to apply prospectively. Thus, although the issuance of this proposed Statement would not in itself trigger accounting changes, accounting pronouncements in categories (b) and (c) of paragraphs .08 and .10 that are effective after the effective date of this proposed Statement might require accounting changes since they would be of greater authority than widely recognized and prevalent industry accounting practices. Thus, for example, a non-state-and-local-govemmental entity that follows a widely recognized and prevalent industry practice would need to change to an accounting treatment specified by a cleared AICPA Statement of Position, a cleared AICPA Industry Audit and Accounting Guide, a cleared AcSEC Practice Bulletin, or a consensus position of the FASB Emerging Issues Task Force whose effective dates are after the effective date of the proposed Statement. This proposed Statement would replace paragraphs .05 through .11 of AU section 411 (AICPA, Professional Standards, vol. 1). Those paragraphs set forth the existing hierarchy, which is presented in the summary chart immediately following this summary.

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Financial Accounting Standards Board; Governmental Accounting Standards Board; Administrative agencies -- Accounting -- Standards -- United States; Auditors' reports --Standards -- United States


Accounting | Taxation


Originally published by: American Institute of Certified Public Accountants; Copyright and permission to reprint held by: American Institute of Certified Public Accountants.

Proposed statement on auditing standards : the meaning of



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