FASB Codification

Alert: The SEC has reported that financial statements for periods after September 15, 2009 should reflect references provided in the Accounting Standards Codification. The SEC further reported that it does not expect companies to revise or amend previously filed reports.

Overview: On June 29, 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 168 The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles. Pursuant to Statement 168, the FASB Accounting Standards Codification TM (“Codification”) will become the single, official source of authoritative U.S. Generally Accepted Accounting Principles (GAAP) recognized by the FASB and the SEC. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009.

The Codification does not change GAAP. Instead, it introduces a new structure that is organized into an easily accessible, user-friendly online research system. The Codification reorganizes the thousands of U.S. GAAP pronouncements into roughly 90 accounting Topics, and displays all Topics using a consistent structure. Also included is relevant SEC guidance that follows the same topical structure used in the Codification.

The SEC’s views on the application of the Codification (as disseminated to its members by the Center for Audit Quality of the American Institute of Certified Public Accountants) are as follows:

Financial Statement References Pre-Codification Effective Date:  If references to specific GAAP are made in financial statements for periods ending on or before September 15, 2009 (i.e., before the Codification becomes effective) the SEC staff believes pre-Codification GAAP references continue to be acceptable, even if those financial statements were issued after September 15, 2009 (e.g., in a Form 10-K or Form 10-Q for the annual or quarterly period ended August 31, 2009). Further, the SEC staff will not object if those financial statements refer to either the Codification or both the Codification and pre-Codification GAAP literature.

Financial Statement References Post-Codification Effective Date:  Once a company issues financial statements for a period ending after September 15, 2009 the SEC staff believes any references to specific elements of GAAP should use Codification references. That is, if references to specific GAAP are made in financial statements for periods ending after September 15, 2009 (e.g., annual or interim financial statements as of September 30, 2009), those references should be to the Codification. Moreover, references to specific GAAP throughout the financial statements should be on a consistent basis for all periods (i.e., disclosures for comparative periods should not refer to only pre-Codification GAAP literature).

Services: Companies will be required, for periods after September 15, 2009, to revise their references from legacy accounting standards to those reflected in the Codification. We are currently assisting companies prepare for these filings. We note that the SEC, in stating its views, encouraged companies to make their financial statements more useful to users by drafting the financial disclosures to avoid specific GAAP references and to more clearly explain accounting concepts. Accordingly, we emphasize that the efforts to incorporate the modifications contemplated by the Codification may be better served by redrafting disclosures to be more responsive to the concepts and underlying principles, rather than simply the reference.