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Research protocol remade: accounting rule change called 'most significant' in 15 years.

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RESEARCHING ACCOUNTING ISSUES became less of a headache on July 1.

The Financial Accounting Standards Board launched the Accounting Standards Codification, which will be the single authoritative source of U.S. accounting and reporting standards. The new codification is being promoted as a faster, easier way to research accounting issues.

"I would say that it's the most significant accounting rule change since I've been involved in accounting, which has been about 15 years," said Steven Booth, a partner with JPMS Cox PLC in Little Rock. "It is a huge change in the way accounting literature is distributed and organized."

Others in the accounting industry also noted the significance of the project.

"Today's launch of the Codification represents a milestone in U.S. accounting standards," said FASB Chairman Robert Herz in a July 1 news release. "After years of development, this much more efficient, user-friendly method of researching up-to-date solutions has become a reality."

The codification doesn't change accounting guidance, so all the rules are the same.

Under the new system, however, accountants won't have to spend as much time researching an item, which in turn could save clients money on fees. Also, non-accountants will have an easier time researching footnotes in financial statements.

"The FASB's long-awaited Accounting Standards Codification is like taking everything out of your kitchen pantry and reorganizing it in a way that makes more sense," Jean Houston Shore, a CPA and management consultant in Roswell, Ga., said in an e-mail statement to Arkansas Business. "All the items are still there, but until you understand the new arrangement, you might have difficulty finding the cereal."

She said accountants would enjoy the new system when they get used to it.

'Thousands of Standards'

The FASB said on its Web site that it decided to tackle the problem in 2004 because there were "thousands of standards" in various forms.

"Additionally, there is no defined organization within each standard to assist in retrieval," the Web site said. "Users must read the entire standard to find relevant material."

Under the old system, if the FASB came out with a pronouncement, it might be called FASB 157. The following pronouncement would be called FASB 158 and so on. The topics from one number to the next could cover any accounting subject. Then another organization, such as the Emerging Issues Task Force, would release its authoritative pronouncements as well.

"You might have to look at 10 to 15 different FASBs and EITF pronouncements to find the rules," said Bob Fehlman, the chief financial officer for Simmons First National Corp. of Pine Bluff. "And one might supersede the other. You would have to keep doing research to find out."

The confusing system might have led accountants to inadvertently rely on one section of code when another standard actually was the rule.

In January 2008, the FASB made the codification available for free to test, and users were encouraged to submit their comments. By December 2008, the FASB announced it was going live with the project on July 1.

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But even with the notice, many financial officers weren't aware of the changes in the system, a survey showed.

Grant Thornton LLP of Chicago conducted a national survey of 530 CFOs and senior comptrollers between March 23 and April 4 and found about half didn't know the changes were taking place.

And fewer than one in five CFOs thought the codification project would make accounting standards easier to use, according to an April 29 news release from Grant Thornton, the U.S. member firm of Grant Thornton International Ltd., a global audit, tax and advisory company.

The Grant Thornton survey also showed that the CFOs weren't too eager to make the switch. "Only 16 percent of CFOs think that the Codification should become the sole source of authoritative GAAP this year," the news release said.

Booth, the partner with JPMS, wasn't surprised that a number of CFOs didn't know about the codification. "It's not going to change the way a CFO accounts for his inventory,"

Booth said. "It's just going to change the way he researches how to account for the inventory."

Others in the accounting industry, however, welcomed the change with open arms.

The codification reorganizes thousands of GAAP pronouncements into about 90 accounting topics. (GAAP stands for generally accepted accounting principles.) It also includes Securities & Exchange Commission guidance that follows the same topical structure in different sections in the codification.

"The biggest thing that it will help is in research," said Booth, the partner with JPMS. "Now when I go do research, I will look in one place and that will be in codification."

Potential Money-Saver

Booth said it's possible the new system will save money for clients because the time billed for research will be trimmed.

Booth recently had to research a question about how a franchisor accounts for franchise revenue. He estimated that the new codification system quickened his research time by about 10 percent.

Booth cautioned, however, that it is difficult to estimate how much faster the new codification system will be.

"Right now it's so new," he said. "Everybody is learning how to use it and getting comfortable with the newness of it. I'd say overnight it's not going to make any noticeable decline in anybody's fees."

Booth said fees might drop next year once the codification becomes second nature to accountants.

Drew Speed, a partner in the Arkansas office of BKD LLP, said clients might see a drop in fees in the future. However, "In the long run, I don't know that that's going to be significant," Speed said.

Others don't see fees dropping as a result of the new procedure. "I don't think anything will reduce fees," said Fehlman of Simmons.

Drawbacks

One drawback might be the cost of the new system. To gain access to the professional section of the codification Web site, an annual subscription of $850 is required, but there are discounts for multiple users. The basic view that allows users to browse by topic is free.

The annual fee might be a hardship for a small accounting firm, said Doug Richardson, head of assurance services for Frost PLC of Little Rock.

In addition, becoming familiar with the new system will take time and training, said BKD's Speed.

"For all the accountants in the world that have been doing research one particular way," Booth said, "it's going to change the way they have to do research. Nobody likes change."

Simmons' Fehlman said he thinks that it is going to take time for accountants to adjust.

Non-accountants also should see some benefits from the new codes, said Scott Rodgville, director of Gorfine Schiller & Gardyn PA, a business consulting and CPA firm in Owings Mills, Md.

If an investor is combing through financial statements and runs across an unclear footnote, the investor can quickly turn to the codification system for answers, Rodgville said.

"I think it's going to be a lot easier for that user to get the answer that they are looking for," he said. The new system will be "a tremendous benefit for lay people who choose to get more involved."

Fehlman disagreed, saying financial statements still would be complex, technical documents. "I can't imagine how it would make it easier," Fehlman said.

Whatever its benefits to laymen, the codification will make it easier for accountants to be in compliance with the rules, said Keira Lichtenstein, a CPA and technical manager for accounting and auditing publications at the American Institute of Certified Public Accountants of New York.

"It makes it clear what's authoritative and what's not authoritative," Lichtenstein said.

Shore, the CPA from Georgia, said the key thing for non-accountants to remember is the change is a "good thing."

The FASB "made the authoritative guidance needed to run our businesses easier and faster to use," she said in the e-mail. "The only thing people will wonder is why they didn't do it sooner."

By Mark Friedman

mfriedman@abpg.com
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Title Annotation:Accounting
Comment:Research protocol remade: accounting rule change called 'most significant' in 15 years.(Accounting)
Author:Friedman, Mark
Publication:Arkansas Business
Geographic Code:1USA
Date:Jul 13, 2009
Words:1327
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