Accounting Standards Codification (ASC) is a systematic framework used in the United States to organize and present accounting standards and principles. It was developed by the Financial Accounting Standards Board (FASB) to provide a single source of authoritative accounting guidance for both public and private companies. The ASC covers various topics related to financial accounting and reporting and serves as the primary reference for accounting professionals. The Codification is effective for interim and annual periods ending after September 15, 2009.
The ASC is divided into various topics, which are represented by a series of four numbers separated by hyphens. These numbers include a three-digit topic, a two-digit subtopic, a two-digit section, and a two-digit paragraph.
What is the Difference Between FASB and ASC?
Though related, FASB and ASC are different. In short, FASB is the entity that created the accounting standards (ASC) used by accountants in the U.S.
FASB is an independent organization whose primary responsibility is to develop and issue accounting standards in the United States. It sets the rules and principles that govern financial accounting and reporting for public and private companies. It engages in research, deliberations, and public consultations to issue new standards or amend existing ones. FASB is generally recognized as the authority on accounting standards in the U.S.
ASC, on the other hand, is the centralized online database and codification system established by FASB. It serves as the single authoritative source for U.S. Generally Accepted Accounting Principles (GAAP). The ASC is organized into topics, subtopics, sections, and paragraphs, providing a comprehensive framework for financial accounting guidance. It consolidates various sources of accounting literature, such as Statements of Financial Accounting Standards (SFAS), Interpretations (FIN), and Accounting Research Bulletins (ARB), into a unified and structured format.
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When Did FASB Establish ASC?
The ASC was created by the FASB in 2009 as a new structure for presenting accounting standards. The goal was to streamline and simplify accounting principles in the United States. Prior to the establishment of ASC in 2009, accounting standards in the United States were spread across various sources, including SFAS, FIN, and ARB. This led to a complex and fragmented system that made it challenging for users to locate and apply the relevant accounting guidance.
With the implementation of the ASC, the FASB sought to create a single source of accounting guidance that would improve the clarity, accessibility, and consistency of U.S. GAAP. With ASC, FASB reorganized and restructured the existing accounting literature into a codified system, and it became the sole reference for accounting professionals.
Topics Covered by ASC
The Accounting Standards Codification is meant to be comprehensive in its coverage of accounting standards. The ASC is broken down into nine topics, which are further divided into subsections. The nine overarching topics are as follows.
Businesses operating in the U.S. should follow the guidelines established in the ASC to ensure their financial reporting is reliable. More importantly, compliance with ASC is mandatory for many entities, particularly those that are publicly traded or regulated by government agencies. Compliance with these accounting standards can reduce the risk of penalties, legal issues, and reputational damage.
Is your business compliant with the ASC? Schedule a demo of our lease accounting software and to learn more about how Accruent can help. Contact us today!
- 100 – General Principles:This section pertains to General Principles and Master Glossary. It provides an overview of the structure and organization of the ASC, as well as defines key terms and concepts used throughout the codification.
- 200 – Presentation: This section sets out the general principles and requirements for the presentation of financial information to ensure transparency and comparability.
- 300 – Assets: This section covers detailed guidance on receivables and various investments, including debt securities, equity securities, and equity method and joint ventures. It also covers credit losses, inventory, deferred costs, intangibles, and property and equipment.
- 400 – Liabilities: This section provides guidance on the recognition, measurement, presentation, and disclosure of various types of liabilities in financial statements.
- 500 – Equity: This section covers the recognition, measurement, presentation, and disclosure of equity-related items in financial statements. It addresses various aspects of equity, including capital stock, retained earnings, other comprehensive income, and equity transactions.
- 600 – Revenue: This topic is related to transaction-specific revenue recognition, revenue related to the transfer of promised goods or services to customers, and other income from the derecogntion of nonfinancial assets, and gains and losses related to involuntary conversions.
- 700 – Expenses: This section provides guidance on the measurement and disclosure of fair value for financial and non-financial assets and liabilities.
- 800 – Broad Transactions: This topic covers broad transactions, including business combinations, collaborative arrangements, consolidation, derivatives and hedging, fair value measurement, financial instruments, foreign currency matters, government assistance, interest, accounting for leases, nonmonetary transactions, reference rate reform, related party disclosures, reorganizations, service concession arrangements, subsequent events, and transfers and servicing. This section also includes the ASC 842 lease accounting standards.
- 900 – Industry: This topic covers standards related to specific industries, including agriculture, airlines, contractors, development stage entities, entertainment, extractive activities, financial services, franchisors, health care entities, not-for-profit entities, plan accounting, real estate, regulated operations, software, U.S. steamship entities.
Businesses operating in the U.S. should follow the guidelines established in the ASC to ensure their financial reporting is reliable. More importantly, compliance with ASC is mandatory for many entities, particularly those that are publicly traded or regulated by government agencies. Compliance with these accounting standards can reduce the risk of penalties, legal issues, and reputational damage.
Is your business compliant with the ASC? Schedule a demo of our lease accounting softwareand to learn more about how Accruent can help. Contact us today!
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