ASC 105: Overview of GAAP
In this blog post, we will take a look at ASC 105: Overview of Generally Accepted Accounting Principles (GAAP). ASC 105 is the first chapter of the Accounting Standards Codification or ASC. This chapter provides an overview of GAAP, how it is organized, and how it is created.
What is GAAP?
GAAP is a common set of accounting principles, standards, and procedures. Public companies in the United States must follow GAAP when they compile their financial statements. The Financial Accounting Standards Board (FASB) maintains GAAP. The board issues new rules as necessary to ensure that GAAP remains up-to-date.
Where Can I Research GAAP?
FASB provides free online access to the Accounting Standards Codification, which is the only authoritative source for US GAAP. FASB and the AICPA also provide access to other authoritative literature that supplements the GAAP Hierarchy.
To access the Accounting Standards Codification, visit asc.fasb.org. Anyone can access the codes using a basic account. For more advanced features you can set up a professional account. If you work at a company subject to GAAP rules, your company likely has a professional account.
What is ASC 105?
ASC 105 is the first chapter of the Accounting Standards Codification or ASC. This chapter provides an overview of GAAP, how it is organized, and how it is created. Anyone looking to understand GAAP in detail should read ASC 105. Therefore, this chapter is a must-read for anyone looking to gain a deeper understanding of GAAP.
GAAP Overview
GAAP is a set of rules that accountants use to make sure financial reports are accurate. These rules change over time as the economy changes and as the world changes. This is so businesses and other organizations can have accurate information about their finances.
GAAP Organization
FASB designed the hierarchy of GAAP to improve financial reporting and consists of a framework for selecting the principles that public accountants should use. To that end, they break down the hierarchy as follows:
- Statements by the Financial Accounting Standards Board (FASB) and Accounting Research Bulletins and Accounting Principles Board opinions by the American Institute of Certified Public Accountants (AICPA)
- FASB Technical Bulletins and AICPA Industry Audit and Accounting Guides and Statements of Position
- AICPA Accounting Standards Executive Committee Practice Bulletins and positions of the FASB Emerging Issues Task Force (EITF)
- FASB implementation guides, AICPA Accounting Interpretations, AICPA Industry Audit, and Accounting Guides, and Statements of Position not cleared by the FASB
- Accounting practices widely accepted and followed
Creating GAAP
GAAP develops when questions arise about how best to accomplish accurate accounting. GAAP comes from two places. First, groups such as FASB that have the power to make rules prescribe GAAP in official rules. Secondly, GAAP comes from custom or the way things have always been done.
Who It Applies To?
The Codification is a set of rules that everyone must follow. The rules are the same for public companies and private companies. The SEC Sections (marked with an “S” before the number) are just for companies that have to follow SEC rules.
Why Does It Matter?
This chapter helps organizations understand how to use GAAP and unlocks the rest of the Account Standards. Most importantly, this chapter lays out the GAAP hierarchy (discussed above) which is the tactical approach to researching GAAP and applying its standards to your business.
Let’s Recap
ASC 105 is the first chapter of the Accounting Standards Codification or ASC. This chapter provides an overview of GAAP, how it is organized, and how it is created. This chapter is a must-read for anyone looking to gain a deeper understanding of GAAP. If you want to learn more about ASC 105 or any other part of GAAP, please visit our website where you can find free resources on accounting and financial statement preparation.
Have any questions? Are there other topics you would like us to cover? Leave a comment below and let us know! Make sure to subscribe to our Newsletter to receive exclusive financial news right to your inbox.
