Question

Please discuss some of the sources the researcher will use to find authoritative and nonauthoriative U.S. GAAP sources?

Answer 1

Financial statements play an integral role in business as well as a multitude of legal matters, including, but not limited to, bankruptcy, mergers and acquisitions, shareholder disputes, fraud and class action activities. As a result of the widespread use of financial statements, lawyers should be aware of a major change in structure and hierarchy of accounting standards occurring this month. These changes will affect auditors, preparers of financial statements and educators as well as lawyers counseling clients in many areas including regulatory, transactional and litigation matters.

Authoritative guidance is founded on the basic assumption and principles of financial accounting and reporting. The fundamental assumptions underlying financial reporting include the assumptions of economic entity, going concern, monetary unit, and periodicity. The fundamental principles relate to measurement, revenue recognition, expense recognition, and full disclosure. The assumptions and principles are constrained by cost/benefit and industry practices. Qualitative characteristics identify the types of information to be included in financial accounting and reporting. The fundamental characteristics are relevance and faithful representation. Information is relevant (capable of making a difference) if it has predictive value, confirmatory value, or both. It is constrained by materiality.

To the extent that an entity has a transaction or event for which guidance does not exist in the body of IFRSs, a preparer would follow the GAAP hierarchy and determine whether there are any requirements in IFRSs dealing with similar or related issues based on guidance in IAS 8. An entity is not bound to follow the non-authoritative guidance and can develop an accounting policy based on its own research and reference to the existing words in the standards, including the GAAP hierarchy. In situations when those words allow for more than one interpretation, an entity can apply the interpretation that produces relevant and reliable information about the transaction in the financial statements

whether non-authoritative guidance should be followed depends on the type of nonauthoritative guidance and the facts and circumstances of the situation. If the rejection notice provides clear guidance on how to apply a standard in a given situation, it could be supported that the guidance would be followed when an entity is faced with the same situation. However, professional judgment should be applied when the facts or circumstances differ. There is an expectation that rejection notices will be carefully considered by preparers.
Educational material is similar in a sense that it is non-mandatory. If the educational material provides guidance on factors to consider, it may be seen as informative. In other cases, if the educational material provides guidance on a particular fact pattern or situation, it may need to be carefully considered. Unlike rejection notices and educational material, which are considered “final” when issued, staff agenda papers are an intermediate step in a process and are preliminary views expressed by the staff. Similarly, there is no suggestion that proposals in exposure drafts be followed.