What is an Accounting Interpretation?

An accounting interpretation is a document that is intended to clarify the uses to which an accounting standard can be put. As such, it can provide valuable additional information to an accountant regarding how to apply an accounting standard. Interpretations are especially useful when the associated standard applies to a new area of accounting, or significantly alters an existing practice. They are also useful when new accounting situations arise that were not anticipated by the original accounting standard.

An interpretation is intended to be an accompaniment to an accounting standard. In practical usage, an accounting standard lays out the requirements for how to deal with a business transaction, and must be followed by accountants.

Who Issues Accounting Interpretations?

Accounting interpretations are issued by regulatory and standard-setting bodies responsible for developing and maintaining accounting standards. The primary issuers of accounting interpretations include the following:

Financial Accounting Standards Board (FASB). In the United States, FASB issues Accounting Standards Updates (ASUs) and occasionally Interpretations to clarify U.S. Generally Accepted Accounting Principles (GAAP). Interpretations and ASUs help accountants understand and apply GAAP accurately and consistently.
International Financial Reporting Interpretations Committee (IFRIC). Operating under the International Accounting Standards Board (IASB), IFRIC issues interpretations that clarify and offer guidance on applying International Financial Reporting Standards (IFRS). These interpretations are called IFRIC Interpretations and address specific questions on IFRS application.
Governmental Accounting Standards Board (GASB). GASB is responsible for standards related to public sector (government) entities in the United States. It issues interpretations to clarify Governmental Accounting Standards and address unique issues faced by government organizations.
American Institute of Certified Public Accountants (AICPA). The AICPA, through its Accounting Standards Executive Committee (AcSEC), can issue Statements of Position (SOPs) and other guidance documents that interpret GAAP, especially on industry-specific issues.

These interpretations are essential for standardizing accounting practices and ensuring that financial reporting is transparent and aligned with regulatory expectations.