Question

How are IFRS and the codification related? Do you feel that IFRS adoption could happen without codification?

Answer 1

How are IFRS and the codification related?

• FASB released the FASB Accounting Standards Codification (ASC or codification). The codification simplifies the classification of accounting standards by restructuring all authoritative U.S. GAAP for nongovernmental entities into one online database under a common referencing system.
• The Codification is a major restructuring of accounting and reporting standards designed to simplify user access to all authoritative U.S. GAAP by providing the authoritative literature in a topically organized structure. The Codification was developed by disassembling and reassembling thousands of nongovernmental accounting pronouncements (including those of FASB, the Emerging Issues Task Force, and the AICPA) to organize them under approximately 90 topics and include all accounting standards issued by a standard setter within levels A - D of the current U.S. GAAP hierarchy.
• The codification is a first step in organizing U.S. accounting standards for convergence with IFRS.
• The Codification collects all existing US GAAPs in a single codified structure, being conceptually different from previous standard-based accounting structures typical to the IFRS, and to accounting structures applied.

IFRS adoption could happen without codification?

Each country applies an accounting law edited in a consistent and correlated structure. As such, in these countries, the framework based IFRS represents an overall challenge for the accounting profession to overcome the differences. The Accounting Standards Codification challenges considering the viability of a codified structure, instead of consolidating all the existing standards into a new set of clearedout standards. If the framework and standard based approach was taken for best practice, a good solution would have been to reissue the former standards, reaching a number of two thousand, previously issued by several standard setters into a new set of standards in a single edition without further overlaps or conflicting information. If the standard-based approach was the best approach, the FASB would have considered to edit a new list of standards, similar to the IFRS, and consolidate the former standards into that edition given that the US GAAP traditionally represents concepts common in the UK GAAP and IFRS, where framework and standards based accounting applies. Based on the US GAAP experience, it is clear that changes in the system and in the environment necessitated a codified accounting system suitable for easy review and maintenance of existing accounting standards.

By having a codified structure, countries can easily compare, link and reconcile national accounting systems to the global, codified regulations. The codified structure enables transparency of systems and underpins the users and regulators in the maintenance of the system.