CPA Resources
CPA Resources

FASB issues new GAAP hierarchy

NORWALK, Conn., May 13, 2008 — The Financial Accounting Standards Board has issued FASB Statement No. 162, "The Hierarchy of Generally Accepted Accounting Principles."

The new standard is intended to improve financial reporting -- identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for non-governmental entities.

Prior to the issuance of Statement 162, GAAP hierarchy was defined in the American Institute of CPAs' Statement on Auditing Standards (SAS) No. 69, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." SAS 69 has been criticized because it is directed to the auditor rather than the entity.

Statement 162 addresses these issues by establishing that the GAAP hierarchy should be directed to entities because it is the entity (not its auditor) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP.

Statement 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles." It is only effective for non-governmental entities; therefore, the GAAP hierarchy will remain in SAS 69 for state and local governmental entities and federal governmental entities.