Try the new Google Books
Check out the new look and enjoy easier access to your favorite features
Page 2
Try the new Google Books
Check out the new look and enjoy easier access to your favorite features
The hierarchy of generally accepted accounting principles (GAAP) refers to a four-level framework that classifies the Financial Accounting Standards Board (FASB), the U.S. Securities and Exchange Commission (SEC), and the American Institute of Certified Public Accountants (AICPA) guidance on accounting practices and standards by their level of authority. Top-level guidance typically addresses broad accounting issues while those at a lower level deal with more technical issues.
- The GAAP hierarchy is a four-tiered framework for selecting the principles that accountants should use in preparing financial statements of nongovernmental entities.
- Because multiple organizations regulate separate parts of the accounting world, there was a need to identify the most relevant standards for various accounting topics.
- The hierarchy of GAAP identifies which standards and best practices are the most authoritative for a particular instance or problem.
- If no information on the topic is given at the higher levels, the accountant should look to the next level down for relevant pronouncements.
With multiple regulatory bodies overseeing various parts of the accounting profession, there was a need to pinpoint the most relevant and authoritative guidance on accounting topics. Additionally, each regulatory body releases accounting guidance in multiple formats that have varying levels of authority. The hierarchy of GAAP is designed to improve consistency and comparability within financial reporting. It is a framework for selecting the principles that accountants should use in preparing financial statements of nongovernmental entities in conformity with U.S. GAAP.
The FASB, formed in 1973, is an independent nonprofit organization that is responsible for establishing accounting and financial reporting standards for public and private companies and nonprofit organizations in the United States. This allows for more standardized reporting, enabling investors and other financial statement users to better compare the financial statements of multiple companies within a common sector or industry.
The SEC, created in 1934, is an independent federal government agency responsible for protecting investors, maintaining fair and orderly functioning of the securities markets, and facilitating capital formation. The SEC sets forth reporting standards and regulations for public companies.
The AICPA, founded in 1887, is the non-profit professional organization that represents certified public accountants (CPAs) in the United States. Among other tasks, the AICPA develops standards for external audits of private companies.
There are four levels of the GAAP hierarchy. The top of the hierarchy is the most authoritative guidance. An accountant researching a given topic should consult first with the highest level for relevant advice. If no information on the topic is given at the higher levels, the accountant should look to the next level for relevant pronouncements.
- At the top of the GAAP hierarchy are statements and interpretations by the FASB, rules and interpretive releases by the SEC (for all SEC registrants), and accounting research bulletins and opinions issued by the AICPA.
- The second level consists of FASB Technical Bulletins and, if cleared by the FASB, the AICPA Industry Audit and Accounting Guides and Statements of Position.
- On the third level are AICPA Accounting Standards Executive Committee Practice Bulletins, consensus positions of the FASB Emerging Issues Task Force (EITF), and topics discussed in Appendix D of EITF Abstracts.
- On the lowest level are FASB implementation guides, AICPA Accounting Interpretations, and AICPA Industry Audit and Accounting Guides and Statements of Position not cleared by the FASB. Also included on the lowest level are accounting practices that are widely recognized and commonly used, either in general or within a given industry.
The FASB's Statement of Accounting Standards No. 162 provides a detailed explanation of the hierarchy.
The Financial Accounting Standards Board (FASB)
The Financial Accounting Standards Board (FASB) is an independent nonprofit organization responsible for establishing accounting and financial reporting standards for companies and nonprofit organizations in the United States, following generally accepted accounting principles (GAAP).
Who has the primary responsibility for developing accounting principles?
Standards Board (FASB) has the primary responsibility for developing accounting principles.
Which of the following is the authoritative body in the United States that has the primary responsibility for developing accounting principles A aicpa B Sec C IRS D FASB?
The FASB is recognized by the U.S. Securities and Exchange Commission as the designated accounting standard setter for public companies. FASB standards are recognized as authoritative by many other organizations, including state Boards of Accountancy and the American Institute of CPAs (AICPA).
Who is responsible for setting accounting standards in the US?
The Securities and Exchange Commission (SEC) designated the FASB as the organization responsible for setting accounting standards for public companies in the US. The FASB replaced the American Institute of Certified Public Accountants’ (AICPA) Accounting Principles Board (APB) on July 1, 1973.
What is the purpose of the AICPA?
The AICPA develops standards for audits of private companies and other services by CPAs; provides educational guidance materials to its members; develops and grades the Uniform CPA Examination; and monitors and enforces compliance with the profession’s technical and ethical standards.
What is the primary purpose of financial accounting?
In a practical sense, the main objective of financial accounting is to accurately prepare an organization’s financial accounts for a specific period, otherwise known as financial statements. The three primary financial statements are the income statement, the balance sheet and the statement of cash flows.
Who has primary responsibility for preparing and making sure that a company’s financial statements follow GAAP?
Responsibility for enforcement and shaping of generally accepted accounting principles (GAAP) falls to two organizations: The Financial Accounting Standards Board (FASB) and Securities and Exchange Commission (SEC). The SEC has the authority to both set and enforce accounting standards.
Which one of the following is the authoritative body in the United States having the primary responsibility for developing accounting principles quizlet?
The Financial Accounting Standards Board (FASB) is the authoritative body that has primary responsibility for developing accounting principles.
What is the purpose of the aicpa?
What are the two primary organizations in the United States that are responsible for setting standards related to the preparation of accounting information?
The accounting standards developed and established by the Financial Accounting Foundation’s (FAF) standard-setting Boards—the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB)—determine how those financial statements are prepared.
What is the role of AICPA in the formulation of accounting principles?
AICPA was the first organization to create the original financial accounting standards under GAAP. They are designed to maintain credibility and transparency in the financial world before handing over the role to the Financial Accounting Standards Board (FASB).