GAAP hierarchy definition
/What is the GAAP Hierarchy?
The GAAP hierarchy defines the level of authority of different accounting pronouncements. When researching an accounting issue, you should first look for relevant advice at the top of the GAAP hierarchy. If there is no relevant information at the top of the hierarchy, then work down through the various levels of the hierarchy until you find the relevant pronouncement.
Levels of the GAAP Hierarchy
There are four levels within the GAAP hierarchy, where the highest levels contain the most authoritative guidance. In descending order, the levels are as follows:
FASB Statements of Financial Accounting Standards and Interpretations, FASB Staff Positions, and AICPA Accounting Research Bulletins and Accounting Principles Board Opinions that are not superseded by actions of the FASB.
FASB Technical Bulletins and AICPA Industry Audit and Accounting Guides and Statements of Position.
AICPA Accounting Standards Executive Committee Practice Bulletins, consensus positions of the FASB Emerging Issues Task Force (EITF), and the Topics discussed in Appendix D of EITF Abstracts.
Implementation guides (Q&As) published by the FASB staff, AICPA Accounting Interpretations, AICPA Industry Audit and Accounting Guides and Statements of Position not cleared by the FASB, and practices that are widely recognized and prevalent either generally or in the industry.
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The reason for the hierarchy is that the top-level pronouncement are intended for broader issues, and so may not address smaller technical topics. The lesser pronouncements are designed to deal with these technical issues, and so can be a rich source of information.
The acronyms noted in the preceding hierarchy are expanded upon as follows:
AICPA - American Institute of Certified Public Accountants
EITF - Emerging Issues Task Force
FASB - Financial Accounting Standards Board
GAAP - Generally Accepted Accounting Principles
A longer explanation of the GAAP hierarchy is contained within the FASB's Statement of Accounting Standards No. 162.
The Entities Governing Accounting Standards in the United States
In the United States, several entities govern accounting standards, each with a specific role in ensuring transparency, consistency, and compliance in financial reporting. The key entities include the following:
Financial Accounting Standards Board. This is the primary body responsible for establishing Generally Accepted Accounting Principles (GAAP) in the U.S. It is a private, independent organization, and is responsible for issuing Accounting Standards Updates (ASUs) and the Accounting Standards Codification (ASC), which consolidates all authoritative GAAP.
Securities and Exchange Commission. This is a federal agency that regulates public companies and enforces compliance with financial reporting laws. It issues regulations such as Regulation S-X (financial statement requirements) and Regulation S-K (disclosure requirements).
Governmental Accounting Standards Board. This entity establishes accounting and financial reporting standards for state and local governments in the U.S; it is similar to the FASB but focuses on public sector entities. It issues Governmental Accounting Standards (GAS), which form the basis of governmental GAAP.
Public Company Accounting Oversight Board. This entity oversees the audits of public companies and SEC-registered brokers and dealers. It was created by the Sarbanes-Oxley Act of 2002 to enhance corporate accountability.
American Institute of Certified Public Accountants. This entity develops and enforces ethical standards for CPAs, and issues auditing guidelines through the Auditing Standards Board (ASB) for private companies.
Federal Accounting Standards Advisory Board. This entity sets accounting standards for the U.S. federal government. It issues Statements of Federal Financial Accounting Standards (SFFAS), which form the basis for federal GAAP.
Each of these entities plays a crucial role in ensuring reliable and transparent financial reporting across different sectors of the U.S. economy.