THE HOUSE OF GAAP

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THE HOUSE OF GAAP

• A Concept Outline Graphic-By Jim Patten
• Based on SAS 69 as published in the March 1992
  JofA

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5th Floor
4th Floor
3rd Floor
2nd Floor
Ground Floor
Foundation
The hierarchy of GAAP can be thought of as a five
story house.
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FOUNDATION

• The FASBs Conceptual Framework provides the
  foundation for the house of GAAP
• CONSTRAINTS
• OBJECTIVES OF FINANCIAL REPORTING
• QUALITATIVE ASPECTS OF ACCOUNTING DATA
• ELEMENTS OF FINANCIAL STATEMENTS
• OPEARTING GUIDELINES

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CONSTRAINTS

• Cost-Benefit
• Is there enough bang for our buck?
• Materiality
• Dollar amount of item relative to_________
• Nature of the item.
• Did Bill Clinton tell the truth?

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OBJECTIVES OF FINANCIAL REPORTING

• Useful in making investment credit decisions
• Helpful in predicting future cash flows
• Specifies
• Economic resources-ASSETS
• Claims against resources-LIABILITIES
• Changes in assets liabilities for the reporting
  period

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Qualitative Characteristics of Accounting
Information

• RELEVANCE
• RELIABILITY
• CONSISTENCY COMPARABILITY

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ELEMENTS OF FINANCIAL STATEMENTS

• STATEMENT OF CASH FLOWS
• INCOME STATEMENT
• STATEMENT OF CHANGES IN EQUITY
• BALANCE SHEET
• Notes to the financial statements
• Always includes a summary of significant
  accounting policies

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OPERATING GUIDELINES

• PRINCIPLES
• Revenue recognition
• Expense recognition (matching)
• Full disclosure
• Historical (hysterical) cost

• ASSUMPTIONS
• ENTITY
• MONETARY UNIT
• PERIODICITY

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HOUSE TOUR-OVERVIEW

• Ground floor items are GAAP by themselves if not
  superseded.
• Upper floors are not GAAP by themselves!
• CAUTION- Skeletons can appear in any closet.
• Sometimes you find things in the attic.

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GROUND FLOOR GAAP

• 1973 to present
• FASB Statements Interpretations
• 1959 to 1972
• APB Opinions AICPAs APBOs
• 1938-1958
• Accounting Research Bulletins AICPAs ARBs
• IF YOU CANT FIND YOUR GAAP HERE GO TO THE 2nd
  Floor.

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2nd Floor

• FASB TECHNICAL BULLETINS
• AICPA INDUSTRY ACCOUNTING GUIDES
• AICPA STATEMENTS OF POSITION
• If you find your answer here, and it does not
  conflict with Ground Floor GAAP you are done.
  Otherwise go to the 3rd Floor.

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3rd Floor

• CONSENSUS POSITIONS OF FASBs Emerging Issues
  Task Force EIFT
• AICPA Practice Bulletins
• NOTE Practitioner's Publishing Company (PPC)
  probably has the most complete GAAP research
  guides, but there is no such thing as A
  COMPLETE GAAP GUIDE

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4TH Floor

• AICPA ACCOUNTING INTERPRETATIONS
• QAs prepared by FASB staff
• Prevalent industry practice
• Things are technical here, but in the real world
  this is a well used floor.

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5th Floor

• APB Statements
• AICPA ISSUES PAPERS
• GASB Statements
• FASB Concept Statements
• TEXTBOOKS and professional articles
• Other professional pronouncements

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END OF TOUR

• Hopefully you will not have to spend time in the
  attic.
• Sometimes you have to think out of the house to
  get to your goal!