The top level of the GAAP hierarchy is for the authoritative bodies with the greatest authority. Their guidelines must be followed in the event of a conflict of opinions. When two or more sources of GAAP in the same hierarchy level disagree on how to handle a transaction, whichever approach best portrays the substance of the transaction should be used.
The sources of GAAP that make up the top level of the GAAP hierarchy are FASB Statements of Financial Accounting Standards (SFAS), FASB Interpretations (FIN), APB Opinions (APB), and Accounting Research Bulletins (ARB). The next level of the hierarchy includes FASB Technical Bulletins (FTB), AICPA Industry Audit and Accounting Guides, and AICPA Statements of Position (SOP). The sources of GAAP included in the next level of the GAAP hierarchy are Consensus Positions of the Emerging Issues Task Force (EITF), AICPA AcSEC Practice Bulletins (PB), and SEC and FASB Staff Positions (Topic Ds). The lowest level of the GAAP hierarchy includes AICPA Accounting Interpretations (AIN), FASB Implementation Guides (FIG), and widely recognized and prevalent industry practices.
Also included in the GAAP hierarchy are some other sources of accounting literature that are helpful for resolving financial reporting problems in situations where the issues are not already covered in the standard sources of GAAP. Some examples of these additional types of accounting literature are APB Statements, FASB Concepts Statements (CON), and AICPA Issues Papers. Also included are International Accounting Standards Committee Statements, as well as GASB Statements, Interpretations, and Technical Bulletins. Other important references are AICPA Technical Practice Aids, pronouncements of other professional associations and regulatory bodies, and also accounting textbooks, handbooks, and articles.
Generally accepted accounting principles must be followed in regard to accounting changes, disclosure of significant accounting policies, balance sheet classification, business combinations, statement of cash flows, and changing prices. GAAP also exists for computer software, consolidated financial statements, and for reporting contingencies, risks, and uncertainties. Other important topics regulated by GAAP are convertible debt and debt with warrants, deferred compensation contracts, depreciation and depreciable assets, development stage enterprises, earnings per share, using the equity method of accounting for investments, and extinguishment of debt.
GAAP guidance and pronouncements exist for all major and common accounting topics. To list all of the categories here is impossible. Some of the other major issues worth mentioning are stockholders’ equity, stock compensation, revenue recognition, results of operations, related party disclosures, real estate transactions, pension plans, leases, inventory, capitalized interest, interim financial reporting, income taxes, and installment sales.
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