Compliance & Regulation

A rule by any other name

The recent name change to FAS 157, which is now known as ASC 820, is part of an effort to make it easier to research accounting issues. However, it may lead to some initial time costs as firms and accountants adjust.

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Private equity firms that haven’t seen the name “FAS 157” lately shouldn't get too excited; that accounting headache hasn't disappeared. The rule is still in force, but has been given a new name: Topic ASC 820.

The change to how Financial Accounting Standards Board (FASB) Statements are identified is intended to provide more clarity to accountants about what the GAAP rules are. According to a FASB statement: “The Codification reorganises the thousands of US GAAP pronouncements into roughly 90 accounting topics and displays all topics using a consistent structure. It also includes relevant Securities and Exchange Commission (SEC) guidance that follows the same topical structure in separate sections in the Codification.”

The rules are exactly the same, they are just reformatted so that different things are combined in a different fashion.

David Larsen

In effect, what were previously known as Statements, such as FAS 157 or FAS 161, will know be known as Topics. For example, FAS 133 is now Topic ASC (Accounting Standards Codification) 815.

“The main reason (FASB) stated for doing that is so that you could put everything in the accounting guidance and literature that pertains to a particular topic in one place,” said David Larsen, a managing director at Duff & Phelps. “So historically you had Statements 157, 158, 160, 114 etc. You had 141 deal with business combinations and 142 dealt with goodwill; now if you want to deal with business combinations and goodwill it’s just one single topic. They call it codification, to try and codify things in a more logical fashion. The rules are exactly the same, they are just re-edited or reformatted if you will so that different things are combined in a different fashion.”

FASB has also said that while the codification does not change GAAP, it is intended to reduce the amount of time and effort needed to research an accounting issue. However, it may also take time for firms and accountants to adjust, as updates to each Topic will be categorised as separate Subtopics, and will need to be examined as well during such research in order to get the full picture.

“For those of us who grew up in the old system, we are trying to re-learn this new way of thinking and doing things,” Larsen said.