Pwc guide to accounting for stock based compensation

Accounting

Financial Accounting Standards Board

of the Financial Accounting Foundation

Acknowledgements

Bruce Pounder, CMA, CFM, DipIFR (ACCA), was the lead contributor for the Lessons included in the FASB Learning Guide For the Codification Research System. Special thanks to Karen Guasp of the FASB, Mary Nassef of the FAF, and numerous other FASB and FAF staff members for their editorial contributions.

Copyright © 2015 by Financial Accounting Foundation, Norwalk, Connecticut. All rights reserved.

This publication is for informational purposes only and the content herein is not a substitute for legal, accounting or other professional advice. As such, users should not rely on this publication for instruction, opinions, guidance, advice, or strategies on the interpretation or application of accounting or accounting standards of the Financial Accounting Standard Boards, specifically or generally, and should always consult his or her own professional advisors and discuss the facts and circumstances that apply to the user. While every effort has been made to make the information presented here as complete and accurate as possible, it may contain errors, omissions or misinformation. Neither Financial Accounting Foundation nor the Financial Accounting Standard Boards accepts any liability or responsibility to any person or entity with respect to any loss or damage alleged to have been caused, directly or indirectly, by the information, ideas, opinions or other content in this publication. If you do not agree to these terms, you should not use, consult or refer to this publication.

Table of Contents i

Table of Contents Click on any section title listed below to go directly to the section. To return to the table of contents from that section, right click and select “Previous View.” You may also use the keyboard shortcut “Alt+Left Arrow” to return to the previous view.

Getting the Most Out of This Guide ................................................................ v-vi PART I: Core Skills Lesson 1: Getting Started with the Codification ........................................... 1-10 Recognizing When to Consult the System .............................................................1

Logging In ..............................................................................................................3

How the Codification Content is Organized ..........................................................5

How to Navigate through the Codification Content ..............................................6

How to Find Relevant Guidance by Systematically Browsing the

Codification Content ............................................................................................7

Logging Out ...........................................................................................................8

Lesson 2: Navigating the Codification ......................................................... 11-21 Identifying Relevant Areas ..................................................................................12

Identifying Relevant Topics .................................................................................12

Identifying Relevant Subtopics ............................................................................16

Assembling All Sections within a Subtopic.........................................................18

Lesson 3: Working with Section-Level Content .......................................... 22-34 Identifying Relevant Sections ..............................................................................23

Finding and Distinguishing between FASB Guidance and SEC Guidance .........26

Systematically Browsing Content within Sections ..............................................28

How Content Is Organized within Each Section .................................................29

FASB versus SEC Content within Sections .........................................................30

System Features Available Only at Individual Section Pages .............................30

Table of Contents ii

Lesson 4: Understanding the Scope of Guidance ........................................ 35-43 Recognizing Where Scope Information is Located .............................................36

Navigating among Sections within a Subtopic ....................................................37

Comprehending Scope Information .....................................................................38

Lesson 5: Citing Codification Content ......................................................... 44-58 Elements of Codification Citations ......................................................................45

Citation Styles ......................................................................................................48

Navigating to Cited Content ................................................................................54

Lesson 6: Working with Research Results .................................................. 59-70 Printing Codification Content ..............................................................................59

Copying Codification Content to Paste Elsewhere ..............................................61

Emailing Links to Codification Sections .............................................................62

Annotating Paragraphs in the System ..................................................................64

PART II: Skills for Working with Different Types of Content Lesson 7: Working with Pending Content ................................................... 71-76 About Pending Content ........................................................................................72

Accessing Transition Guidance ...........................................................................73

Comprehending Transition Guidance ..................................................................73

Lesson 8: Working with the Pending Content System ............................... 77-90 About the Pending Content System .....................................................................78

Setting System Profile Preferences ......................................................................78

Special Cases .......................................................................................................80

Set Pending Content Profile Information – First Screen .....................................81

Options for Early Adoption – Second Screen ......................................................82

PCS Integration Status – Third Screen ................................................................83

Searching While the PCS is Enabled ...................................................................87

System Limitations ..............................................................................................87

Lesson 9: Working with Archived Content ................................................. 91-97 About Archived Content ......................................................................................91

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Accessing Archived Content................................................................................93

Understanding Archived Content ........................................................................95

Lesson 10: Working with Glossaries .......................................................... 98-106 Accessing Definitions of Glossary Terms ...........................................................98

About Pending and Archived Glossary Term Definitions .................................102

Working with Glossary Term Definitions .........................................................103

Lesson 11: Working with Nonauthoritative Content ............................. 107-115 About Nonauthoritative Content ........................................................................107

Consulting Nonauthoritative Content ................................................................109

Accessing Nonauthoritative Content .................................................................110

PART III: Skills for Simple and Advanced Searching Lesson 12: Searching: Fundamental Techniques ................................... 116-126 Searching versus Systematic Browsing .............................................................117

Performing a Simple Search ..............................................................................117

Reviewing Search Results—Authoritative Codification Content ......................119

Reviewing Search Results—Sources of Nonauthoritative Content ...................123

Lesson 13: Searching: Advanced Techniques ......................................... 127-139 Performing an Advanced Search .......................................................................128

Using the “Refine Search” Feature ....................................................................133

Using the “Narrow” Feature ..............................................................................133

PART IV: Skills for Special Situations Lesson 14: Keeping Track of Changes to the Codification .................... 140-146 How the Codification is Updated .......................................................................141

Working with Status Sections ............................................................................141

Using the “Recently Issued” Feature .................................................................142

Using “Related Exposure Draft” Links ..............................................................143

Lesson 15: Cross Referencing Codification Content and Its Sources ... 147-157 Background on Cross Referencing ....................................................................148

Table of Contents iv

Identifying Sources of Codification Content .....................................................149

Identifying Where Source Content is Located in the Codification ....................152

Printing Codification Content with Sources ......................................................154

Lesson 16: Assembling Content for Greater Efficiency ......................... 158-166 Using the “Combine Subsections” Feature ........................................................158

Using the “JOIN SECTIONS” Feature ..............................................................160

Using the “JOIN ALL SUBTOPICS” Feature...................................................163

Lesson 17: Working with XBRL Elements .............................................. 167-175 Background on XBRL .......................................................................................167

The U.S. GAAP Financial Reporting Taxonomy (UGT) ..................................169

Identifying XBRL Elements That are Linked to a Subtopic ..............................170

Identifying XBRL Elements That are Linked to a Paragraph or

Glossary Term ..................................................................................................171

Identifying Paragraphs and/or Glossary Terms to Which an XBRL

Element Is Linked ............................................................................................173

Lesson 18: Providing Feedback on the Codification .............................. 176-184 Using the System’s Feedback Features ..............................................................176

Submitting Feedback on Specific Content .........................................................177

Submitting General Feedback ............................................................................180

Appendix A: Answer Key .......................................................................... 185-205

Getting the Most Out of This Guide v

Getting the Most Out of This Guide READ THIS FIRST

Introduction

Welcome to the FASB Learning Guide for the Codification Research System. The FASB Accounting Standards Codification® (hereafter referred to as the Codification) is the source of authoritative generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities in the United States. The FASB’s Codification Research System (hereafter referred to as the System) provides access to the Codification content. The purpose of this Learning Guide is to help you acquire the knowledge, skills, and abilities that you will need in order to use the System effectively and efficiently.

This Learning Guide was written for anyone who:

 Must research authoritative financial accounting and reporting standards applicable to nongovernmental entities in the United States, as documented in the Codification; and

 Intends to use the “Professional View” of the System in performing such research. (Many of the features discussed in this guide are not included in the “Basic View”.)

The emphasis in this Learning Guide is on “learning by doing.” Be prepared to practice what you are learning as you read about it.

Using This Guide

This Learning Guide is organized into 17 lessons. It may be useful to work the lessons in sequence because each lesson builds progressively on the ones before it. If you have a specific area that you have questions on, the table of contents provides links to the appropriate lessons.

The structure explained below is the same across all lessons. It has been designed to maximize your learning.

 Each lesson begins with a Lesson Scenario that “sets the stage” for your learning. Each scenario is a very short story about someone using the System in a typical work situation. Reading the Lesson Scenario first will prepare you for what the lesson will help you learn to do. You will also gain a sense of the real-world relevance of the lesson and how your learning will benefit you in

Getting the Most Out of This Guide vi

your work. Disclaimer: Any research answers provided in the answer key are not intended to represent guidance on GAAP or all of the sources of authoritative guidance for the particular scenario; they are illustrative in nature.

 Learning Outcomes are listed following each Lesson Scenario. Learning Outcomes are the specific work-related tasks that the lesson will help you learn to do. Your objective should be to achieve the Learning Outcomes by the end of the lesson.

 The instructional content within each lesson is based directly on the Learning Outcomes. It is in this portion of each lesson that you will learn what to do, why, when, and how.

 As you work through the instructional content, you will notice sidebars— various supplementary items appearing in the page margins. Pay particular attention to sidebars labeled Look Now and Try It Now and always do what they prompt you to do.

 Also appearing throughout the instructional content are Tip for Success boxes that contain very important advice for using the System.

 Following the instructional content in each lesson you will find a Lesson Summary—a “bullet list” of the lesson’s key points. Reviewing the Lesson Summary will help you gauge the extent of your learning before undertaking activities that will reinforce it.

 The final portion of each lesson is titled Reinforce Your Learning. It consists of questions, exercises, and problems for you to work through to improve your understanding and retention of what you have learned. Do not skip these items. The results of your performance on these end-of-lesson activities are the best indicator of whether or not you are ready to move on to the next lesson. The answer key for this portion of the lesson is found in Appendix A.

Navigating through the Learning Guide PDF Online You may click on any section title listed in the Learning Guide table of contents to go directly to the section. To return to the table of contents from that section, right click and select “Previous View.” You may also use the keyboard shortcut “Alt+Left Arrow” to return to the previous view.

Notice

Specific Codification content and specific System features that appear in this Learning Guide may have changed since this Learning Guide was published. Such changes may affect the examples, illustrations, questions, exercises, and problems herein.

Sidebars A sidebar looks like this. Be sure to read the ones that appear in the lessons of this Learning Guide.

Lesson 1: Getting Started with the Codification 1

Getting Started with the Codification LESSON

1 Lesson Scenario

Angela is an accountant who works for a manufacturing company. She just received an email from her boss, Barry, who wants her to meet with him to discuss “writing down” the carrying value of certain inventory items. Angela is not familiar with the authoritative accounting guidance for inventory write-downs, so she prepares for her meeting with Barry by consulting the Codification.

Angela logs in to the System and proceeds to navigate through the various levels of the Codification content. She goes first to the Assets Area, then within that Area to the Inventory Topic, and then within that Topic to the Overall Subtopic. Finally, she goes to the Subsequent Measurement Section of that Subtopic and begins reading about the circumstances under which U.S. GAAP requires accounting adjustments to reduce the recorded dollar value of inventory on-hand. After reviewing that Section, Angela logs out of the System, ready for her meeting with Barry.

Learning Outcomes

In the scenario above, Angela used the System to find the provisions of U.S. GAAP related to a particular aspect of financial accounting. This lesson will help you learn to do what Angela did, specifically:

 Recognize when to consult the System  Log in to the System  Find relevant accounting guidance by systematically browsing the Codification

content

 Log out of the System.

RECOGNIZING WHEN TO CONSULT THE SYSTEM

The System provides access to a large amount of diverse information. Understanding what information is and is not available through the System will help you to save time by consulting the appropriate sources of information to answer your research questions.

Lesson 1: Getting Started with the Codification 2

The System provides access to the content of the Codification. Here are key things to remember about the Codification content that will help you know when it is appropriate to consult it:

 The Codification contains only accounting guidance, not auditing, tax preparation, or other kinds of guidance.

 The Codification contains only authoritative guidance. Nonauthoritative guidance is not included in the Codification content itself, although certain sources of nonauthoritative guidance are available through the System (see below).

 The Codification is applicable only to U.S. entities. It does not contain GAAP for other countries or International Financial Reporting Standards (IFRS).

 The Codification is the source of authoritative U.S. GAAP recognized by the FASB to be applied to nongovernmental entities. It does not contain guidance for governmental entities.

 To increase the utility of the Codification for public companies, relevant portions of authoritative content issued by the SEC and selected SEC staff interpretations and administrative guidance have been included for reference in the Codification, such as:

a. Regulation S-X (SX) b. Financial Reporting Releases (FRR)/Accounting Series Releases (ASR) c. Interpretive Releases (IR) d. SEC Staff guidance in:

1. Staff Accounting Bulletins (SAB) 2. EITF Topic D and SEC Staff Observer comments.

 The SEC Sections do not contain the entire population of SEC rules, regulations, interpretive releases, and staff guidance. For example, the Codification does not include all content related to matters outside the basic financial statements, such as Management’s Discussion and Analysis (MD&A), or to auditing or independence matters.

 The Codification content includes examples and implementation guidance.

 The System also provides access to certain nonauthoritative sources of information:

a. About the Codification b. Accounting Standards Updates c. Proposed Accounting Standards Updates d. Other Exposure Documents e. Pre-Codification Standards

FASB vs. SEC Guidance Lesson 3 of this Learning Guide explains how FASB guidance and SEC guidance are distinguished from each other in the Codification.

Other Sources Lesson 11 of this Learning Guide describes each of these nonauthoritative sources of information.

Lesson 1: Getting Started with the Codification 3

f. Concepts Statements g. Maintenance Updates.

 The Codification is not a textbook or tutorial on accounting. It is assumed that users possess basic knowledge of double-entry accounting techniques and the principal financial statements.

LOGGING IN

To use the System, you must have a user account and access to the internet. Instructions for obtaining a user account can be found at http://asc.fasb.org.

This Learning Guide assumes that you have “Professional View” access to the System, either through a paid subscription or through the American Accounting Association’s Academic Accounting Access initiative.

Your user account is identified by your email address, which serves as your username when logging into the System. You will also be asked to choose a password for your account.

Once you have established your user account, you must enter your username and password at the System’s login page in order to use the System, as shown in the following screen image.

To Log In to the System:

 Using a web browser (for example, Microsoft Internet Explorer), go to https://asc.fasb.org.

 Click the “Login” link in the upper right-hand corner of the page.  Enter your username and password (passwords are case-sensitive), then click the

SUBMIT button.

 Try It Now Go ahead and log in to the System using your username and password.

Lesson 1: Getting Started with the Codification 4

 Verify that your web browser is displaying the home page of the System, as

shown in the following screen image.

Lesson 1: Getting Started with the Codification 5

FINDING RELEVANT ACCOUNTING GUIDANCE BY SYSTEMATIC BROWSING

A simple and direct way to find the provisions of U.S. GAAP related to a particular aspect of financial accounting is to systematically browse the Codification content. To do so effectively and efficiently, you will need to know how the Codification content is organized and how to navigate through the content in the System.

How the Codification Content is Organized

The Codification content is organized by subject matter in a hierarchy.

The Codification’s hierarchy can be visualized as an “outline” structure, as the four highest levels are shown here:

Area Topic Subtopic Section

In this hierarchical structure, Areas represent large collections of accounting guidance. Topics, Subtopics, and Sections represent increasingly smaller collections of guidance within Areas.

Each of the Codification’s nine Areas is identified by a title. Each Topic, Subtopic, and Section has a numeric identifier as well as a title. For example, the Area, Assets, contains multiple Topics, including Topic 330, Inventory, which contains multiple Subtopics, including Subtopic 10, Overall, which contains multiple Sections, including Section 35, Subsequent Measurement.

Areas The Codification’s nine Areas are • General Principles • Presentation • Assets • Liabilities • Equity • Revenue • Expenses • Broad Transactions • Industry

 TIP FOR SUCCESS: Focus on Sections The Codification is the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. If the answers to your research questions are in the Codification, you will find them in one or more of the Codification’s Sections. The higher levels in the Codification’s hierarchical structure exist merely to contain and organize the Section-level content and do not add anything to what is in the Sections. So when using the System, you should focus on identifying the specific Section or Sections that are relevant to the research questions you are trying to answer. For example, the Assets Area and Inventory Topic landing pages do not contain any Codification content. Instead, the pages display tables of contents that provide links to all of the Topics in the Area and links to all of the Subtopics in the Topic, respectively.

Lesson 1: Getting Started with the Codification 6

How to Navigate through the Codification Content

In the System, each content Area, Topic, Subtopic, and Section has its own page. The pages for Areas, Topics, and Subtopics are often referred to as “landing pages.” When using the System, you can navigate through the Codification content simply by clicking links that take you to the pages you want to go to. Area, Topic, and Subtopic landing pages only contain linked tables of contents. Sections are the only pages with Codification content.

Remember that you will need to navigate to a specific Section or Sections to find answers to your research questions. You can navigate to a Section’s page from anywhere within the System in just four clicks—one click for each of the four levels of the content hierarchy at and above the Section level.

On your journey to the page for a particular Section, you will navigate through the pages for the Section’s Area, Topic, and Subtopic—in that order. Navigating through this sequence of pages is easy because each Area, Topic, and Subtopic page contains links to the pages at the next-lower level of the content hierarchy.

Area Pages: Navigating to a particular Section starts with navigating to its parent Area. Links to each of the Codification’s nine Area pages are listed on the left-hand side of every page in the System, near the top of each page.

Each Area landing page contains a list of the Topics in that Area. Both the Topic numbers and Topic titles are shown in the list of Topics. Some Areas have just one Topic; other Areas have many. Each Topic’s number and title link to the page for that Topic. You can click on any Topic number or title in the list to navigate to that Topic’s page.

Topic Pages: Each Topic landing page contains a “Table of Contents” outline, which shows how content is organized within the Topic. Immediately within the Topic are the Topic’s Subtopics; both Subtopic numbers and Subtopic titles are shown in the “Table of Contents” outline. Some Topics have just one Subtopic; other Topics have many. Each Subtopic’s number and title link to the page for that Subtopic. You can click on any Subtopic number or title in the “Table of Contents” outline to navigate to that Subtopic’s page.

Subtopic Pages: Each Subtopic landing page contains a “Table of Contents” outline, which shows the Topic to which the Subtopic belongs as well as how content is organized within the Subtopic. Immediately within the Subtopic are the Subtopic’s Sections; both Section numbers and Section titles are shown in the “Table of Contents” outline. Subtopics typically have many Sections. Each Section’s number and title link to the page for that Section. You can click on any Section number or title in the “Table of Contents” outline to navigate to that Section’s page.

Section Pages: Each Section page contains a “Table of Contents” outline, which shows the Subtopic and Topic to which the Section belongs as well as how content is organized within the Section. (Lesson 3 of this Learning Guide explains how content is organized within Sections.) The following screen image shows the Section page for Section 35, Subsequent Measurement, within Subtopic 10, Overall, within Topic 330, Inventory, within the Assets Area.

Pop-Up Menus Notice that when you move your mouse pointer over an Area link, pop-up menus of the Area’s Topics are displayed. The pop-up menus provide a fast way to navigate to Topics and Subtopics, but for now, it will be easier for you to learn about navigating through the Codification content if you click the Area link directly instead of using the pop-up menu. (Lesson 2 of this Learning Guide explains how to navigate using the pop-up menus.)

Lesson 1: Getting Started with the Codification 7

How to Find Relevant Guidance by Systematically Browsing the Codification Content:

 Identify one of the Codification’s nine Areas that you think may be relevant to your research. From any page in the System, click the Area in the list of Areas that appears on the left-hand side near the top of the page.

 Identify one of the Area’s Topics that you think may be relevant to your research. Click the Topic in the list of Topics on the Area page.

 Identify one of the Topic’s Subtopics that you think may be relevant to your research. Click the Subtopic in the “Table of Contents” outline on the Topic page.

 Identify one of the Subtopic’s Sections that you think may be relevant to your research. Click the Section in the “Table of Contents” outline on the Subtopic page.

 Review the Section’s content. (Many Section pages are lengthy, so you may need to scroll down to see all of the content.)

 Repeat the above steps for any other Areas, Topics, Subtopics, and/or Sections that you think may be relevant to your research.

 Try It Now Go to the Assets Area, then within that Area to the Inventory Topic, then within that Topic to the Overall Subtopic, and finally within that Subtopic to the Subsequent Measurement Section.

Lesson 1: Getting Started with the Codification 8

LOGGING OUT

When you have finished working with the System, you should log out of the System by clicking the “Log Out” link near the upper right-hand corner of any page in the System, as shown in the following screen image.

To Log out of the System:

 Click the “Log Out” link near the upper right-hand corner of any page of the System.

 Verify that your web browser is displaying the System’s log-in page.  Most subscriptions have a limited number of seats. If you do not log

out, other users in your account will not be able to log in if you have exceeded the number of seats.

 Try It Now Log out of the System. You can always log in again later.

Lesson 1: Getting Started with the Codification 9

LESSON SUMMARY

 The Codification is the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities.

 The System provides access to all of the Codification’s content as well as certain other nonauthoritative sources of information.

 To use the System, you must log in to the System with your username and password at http://asc.fasb.org.

 A simple and direct way to find specific accounting guidance in the Codification is to systematically browse the Codification content.

 The Codification content is organized by subject matter in a hierarchy. The four highest levels of the hierarchical structure are Area, Topic, Subtopic, and Section.

 When looking in the Codification for the answer to a research question, you should focus on identifying the Section or Sections that are relevant to the question you are trying to answer.

 The hierarchical “outline” structure of the Codification content is represented on the pages of the System. You can navigate through the Codification content by clicking links to Areas, Topics, Subtopics, and Sections that appear on the System’s pages.

 When you have finished working with the System, you should log out.

Lesson 1: Getting Started with the Codification 10

REINFORCE YOUR LEARNING

Questions

You are not expected to answer these questions from memory. Use the System to determine the correct answers.

Q1: For each of the following kinds of information, state whether or not it is available through the System:

a. Generally Accepted Auditing Standards (GAAS) applicable to audits of nongovernmental entities in the U.S.

b. GAAP for nongovernmental entities in the U.S. that are operated on a not-for- profit basis

c. IFRS

d. Authoritative accounting guidance that has been issued by the SEC.

Q2: In which Area of the Codification is Topic 860 located? What do the identifying numbers of the Topics in that Area have in common?

Q3: What is the title of Topic 860?

Q4: How many Subtopics does Topic 860 contain?

Q5: In Topic 860, there is a Subtopic titled Secured Borrowing and Collateral. What is that Subtopic’s identifying number?

Exercise

E1: In the System, navigate to the Expenses Area, then within that Area to Topic 720, Other Expenses, then within that Topic to Subtopic 25, Contributions Made, and finally within that Subtopic to Section 30, Initial Measurement. Read the guidance on the Section’s page. What happens when you position your mouse pointer (i.e., point without clicking) over the phrase “Unconditional promises to give”?

Problem

P1: In the System, navigate to the Assets Area, then within that Area to Topic 310, Receivables, then within that Topic to Subtopic 40, Troubled Debt Restructurings by Creditors, and finally within that Subtopic to Section 25, Recognition. Read the guidance on the Section’s page. How should a creditor recognize legal fees and other direct costs incurred to effect a troubled debt restructuring?

Lesson 2: Navigating the Codification 11

Navigating the Codification LESSON

2 Lesson Scenario

Charlie is a partner in a CPA firm that provides auditing and other professional services to businesses. His clients think of him as the “go to” person whenever they have questions about accounting. Charlie’s clients are especially impressed by how quickly he is able to answer their questions. As a result of being able to find answers faster, Charlie spends less time at the office and has more satisfied clients.

Most of the time Charlie cannot answer his clients’ questions from memory, but he is very efficient at using the System. For example, Charlie knows how to quickly browse the Codification’s “outline” of Areas, Topics, and Subtopics without clicking or typing. Once he identifies a Subtopic of interest, it takes him only two clicks to navigate to that Subtopic and display all of its Section-level content on a single page.

Learning Outcomes

In the business world, there is a big difference between being able to answer questions eventually and being able to answer them quickly. In the scenario above, Charlie can find the answers to his clients’ questions quickly because he is very familiar with the System. This lesson will help you become more familiar with the System’s content and features so that you can find answers to your research questions faster, as Charlie is able to do. Specifically, this lesson will help you learn to:

 Identify the Areas, Topics, and Subtopics that are relevant to your research questions

 Assemble, on a single page, all Sections within a Subtopic.

IDENTIFYING RELEVANT AREAS, TOPICS, AND SUBTOPICS

As explained in Lesson 1, a simple and direct way to find the provisions of U.S. GAAP related to a particular aspect of financial accounting or reporting is to systematically browse the Codification content. The more familiar you are with the Codification’s specific Areas, Topics, and Subtopics, the faster you will be at finding answers to your research questions.

Lesson 2: Navigating the Codification 12

Fortunately, the organizational structure of the Codification content and the features of the System make it easy to familiarize yourself with the Codification’s Areas, Topics, and Subtopics. In fact, the best way to familiarize yourself with the Codification is learning by doing: as you systematically browse through the Codification’s Areas, Topics, and Subtopics, pay attention to what content is available each step of the way.

Identifying Relevant Areas

Recall from Lesson 1 that systematic browsing to find the answer to a research question begins with identifying the relevant Area(s) of the Codification content. This is straightforward because there are only nine Areas to choose from. Here are some time-saving tips for identifying Areas that are relevant to your research questions:

 The General Principles Area relates to broad conceptual matters.  The Presentation Area addresses how information is presented in the financial

statements. It does not address other aspects of financial accounting such as recognition, measurement, or derecognition for individual financial statement accounts.

 The Assets, Liabilities, and Equity Areas contain guidance about specific individual balance sheet accounts (e.g., cash, accounts payable, additional paid- in capital).

 The Revenue and Expenses Areas contain guidance about specific individual income statement accounts (e.g., sales revenue, employee compensation).

 The Broad Transactions Area contains guidance about to multiple financial statement accounts.

 The Industry Area contains guidance about to a specific industry or type of activity.

Identifying Relevant Topics

Once you have identified an Area that is relevant to your research question, the next step in systematic browsing is to identify the relevant Topic(s) within that Area.

Each Area contains one or more Topics. Each Topic is identified by a unique three- digit number and a title. The first digit of a Topic’s numerical identifier signifies the Area to which the Topic belongs (i.e., Topic numbers beginning with “1” are in the General Principles Area, Topic numbers beginning with “2” are in the Presentation Area, etc.). Also notice in the list of Topics below that there are several groups of closely related Topics; for example, Topics 710 through 718 each address a different kind of compensation expense.

 Look Now You do not have to memorize the nine Areas, and you do not have to click or type anything in the System to be reminded of them. The Areas are listed on the left-hand side of every page, near the top of the page: • General Principles • Presentation • Assets • Liabilities • Equity • Revenue • Expenses • Broad Transactions • Industry

Topics In total at the time of printing, there are 92 topics in the Codification.

Lesson 2: Navigating the Codification 13

The preceding list of Topics is a useful reference, but not a necessary one. In the System, it is possible to view the Topics in any Area without navigating to the Area’s landing page. All you need to do is position your mouse pointer (i.e., point without clicking) over an Area link (remember that the Area links appear on the left-hand side of every page in the System, near the top of the page).

Codification Topics, by Area

General Principles 105 Generally Accepted Accounting Principles Presentation 205 Presentation of Financial Statements 210 Balance Sheet 215 Statement of Shareholder Equity 220 Comprehensive Income 225 Income Statement 230 Statement of Cash Flows 235 Notes to Financial Statements 250 Accounting Changes and Error Corrections 255 Changing Prices 260 Earnings Per Share 270 Interim Reporting 272 Limited Liability Entities 274 Personal Financial Statements 275 Risks and Uncertainties 280 Segment Reporting Assets 305 Cash and Cash Equivalents 310 Receivables 320 Investments—Debt and Equity Securities 323 Investments—Equity Method and Joint Ventures 325 Investments—Other 330 Inventory 340 Other Assets and Deferred Costs 350 Intangibles—Goodwill and Other 360 Property, Plant, and Equipment Liabilities 405 Liabilities 410 Asset Retirement and Environmental Obligations 420 Exit or Disposal Cost Obligations 430 Deferred Revenue 440 Commitments 450 Contingencies 460 Guarantees 470 Debt 480 Distinguishing Liabilities from Equity Equity 505 Equity Revenue 605 Revenue Recognition 606 Revenue from Contracts with Customers 610 Other Income Expenses 705 Cost of Sales and Services 710 Compensation—General 712 Compensation—Nonretirement Postemployment Benefits 715 Compensation—Retirement Benefits 718 Compensation—Stock Compensation 720 Other Expenses 730 Research and Development 740 Income Taxes

Broad Transactions 805 Business Combinations 808 Collaborative Arrangements 810 Consolidation 815 Derivatives and Hedging 820 Fair Value Measurement 825 Financial Instruments 830 Foreign Currency Matters 835 Interest 840 Leases 845 Nonmonetary Transactions 850 Related Party Disclosures 852 Reorganizations 855 Subsequent Events 860 Transfers and Servicing Industry 905 Agriculture 908 Airlines 910 Contractors—Construction 912 Contractors—Federal Government 915 Development Stage Entities 920 Entertainment—Broadcasters 922 Entertainment—Cable Television 924 Entertainment—Casinos 926 Entertainment—Films 928 Entertainment—Music 930 Extractive Activities—Mining 932 Extractive Activities—Oil and Gas 940 Financial Services—Broker and Dealers 942 Financial Services—Depository and Lending 944 Financial Services—Insurance 946 Financial Services—Investment Companies 948 Financial Services—Mortgage Banking 950 Financial Services—Title Plant 952 Franchisors 954 Health Care Entities 958 Not-for-Profit Entities 960 Plan Accounting—Defined Benefit Pension Plans 962 Plan Accounting—Defined Contribution Pension Plans 965 Plan Accounting—Health and Welfare Benefit Plans 970 Real Estate—General 972 Real Estate—Common Interest Realty Associations 974 Real Estate—Real Estate Investment Trusts 976 Real Estate—Retail Land 978 Real Estate—Time-Sharing Activities 980 Regulated Operations 985 Software 995 U.S. Steamship Entities

Lesson 2: Navigating the Codification 14

When you hover over an Area link, a pop-up menu will be displayed listing the Area’s Topics. The pop-up menu will also display any Topic groups (as described below) that the Area contains. For example, hovering over the Expenses Area link on any page of the System displays the following pop-up menu:

Notice that the Topics contained within the Expenses Area are listed in the pop-up menu, and, in the case of the “71X - Compensation” Topic group (i.e., Topics 710 through 718), there is a single item in the pop-up menu for the group, not for each individual Topic within the group. However, you can position your mouse pointer over the Topic group in the pop-up menu to display a submenu that lists the individual Topics within the group. For example, hovering over the Expenses Area link and then hovering over the “71X - Compensation” Topic group displays:

Watch Where You Position Your Mouse Pointer An Area’s pop-up menu will remain displayed only as long as you keep the mouse pointer positioned over the menu.

Lesson 2: Navigating the Codification 15

When a pop-up menu of Topics is displayed for a particular Area, you can navigate directly to the landing page of any Topic listed on the menu by clicking the Topic. This saves time by skipping over the Area page and going directly to the Topic page—you arrive at the Topic of your choice in one click rather than two. The following screen image shows the landing page for the Research and Development Topic within the Expenses Area:

 Try It Now Using the pop-up menu, go directly to the landing page for the Research and Development Topic within the Expenses Area.

Lesson 2: Navigating the Codification 16

You can save even more time by using the pop-up menus to navigate directly to the

landing page of any Subtopic within any Topic, skipping over both the Area page and the Topic page.

Identifying Relevant Subtopics

After you have identified a Topic that is relevant to your research question, the next step in systematic browsing is to identify the relevant Subtopic(s) within that Topic.

Each Topic contains one or more Subtopics. There are two types of Subtopics: exclusive and shared (or intersecting). An exclusive Subtopic contains unique content that is not found in any other Topic. A shared Subtopic contains content that is common to two Topics; its content represents the overlap or intersection of two different Topics. Intersecting Subtopics are within industry Topics.

Each Subtopic is identified by a title and either a two-digit number (for exclusive Subtopics) or a three-digit number (for shared Subtopics). Within a Topic, each Subtopic has a unique numerical identifier, but the same numeric identifiers are frequently reused for Subtopics in other Topics. The three-digit numeric identifier of a shared Subtopic corresponds to the three-digit numeric identifier of the other Topic with which the Subtopic is shared.

For example, a user can access the System from the perspective of the agriculture industry looking for inventory content. Alternatively, the user could access inventory and find the agriculture industry content. In this case, Topic 330 represents Inventory and Topic 905 represents the Agriculture Industry. Industry content resides in the Industry Topic.

Shared Subtopics Shared Subtopic ”XXX” of Topic ”YYY” contains the same content as Subtopic ”YYY” of Topic ”XXX”.

Lesson 2: Navigating the Codification 17

Therefore, Subtopic 905-330 represents the Inventory Subtopic of the Agriculture Industry. When browsing Topic 330, users will see Subtopic 905—Agriculture. That represents an intersection link to the content in Subtopic 905-330.

Most Topics contain a Subtopic titled Overall as the first of several Subtopics. That is where you will find the most broadly applicable guidance for a Topic. Beyond the Overall Subtopic, other Subtopics within a Topic are more narrowly focused and differ significantly from the Topic to Topic. If you are completely unfamiliar with the guidance in a particular Topic, the best place to start is the Topic’s Overall Subtopic.

In the System, it is possible to view the Subtopics within any Topic without navigating to the Topic’s landing page. Simply position your mouse pointer over an Area link. When the pop-up menu of the Area’s Topics is displayed, position your mouse pointer over the Topic in the pop-up menu to display a submenu that lists the individual Subtopics within the Topic. For example, hovering over the Assets Area and then hovering over Topic 305 - Cash and Cash Equivalents displays:

When the pop-up menu of Subtopics is displayed for a Topic, you can navigate directly to the landing page of any Subtopic listed on the menu by clicking the Subtopic. This saves time by skipping over both the Area and Topic pages and going directly to the Subtopic page—you arrive at the Subtopic of your choice in one click rather than three.

 Try It Now Using the pop-up menus, go directly to the landing page for the Overall Subtopic within the Cash and Cash Equivalents Topic within the Assets Area.

Lesson 2: Navigating the Codification 18

Identifying relevant Topics and Subtopics can sometimes be a challenge when the titles of the Topics/Subtopics do not contain the exact words or terms you are looking for. When systematically browsing Topics and Subtopics, you should be alert for words or terms that are synonymous with the words or terms that you are thinking of. For example, if you are looking to answer a research question about accounting for “sales,” you should realize that the answer will most likely be found in the Topic titled Revenue Recognition (located in the Revenue Area). Similarly, if you are looking to answer a question about accounting for “cost of goods sold” expense, you should realize that the answer will most likely be found in the Topic titled Cost of Sales and Services (located in the Expenses Area).

SUMMARY: To Identify Relevant Areas, Topics, and Subtopics:

 Identify the Codification Area(s) relevant to your research question by examining the list of nine Areas that is displayed on the left-hand side of every page in the System, near the top of the page.

 Within a relevant Area, identify the relevant Topic(s) by examining the pop-up menu of Topics that is displayed when you position your mouse pointer over the relevant Area in the list of Areas.

 Identify the relevant Subtopic(s) within a relevant Topic by examining the pop- up menu of Subtopics that is displayed when you position your mouse pointer over the relevant Topic in the pop-up menu.

 Click the relevant Subtopic in the pop-up menu to navigate directly to that Subtopic’s landing page.

ASSEMBLING ALL SECTIONS WITHIN A SUBTOPIC

When systematically browsing the Codification content to find answers to your research questions, after you identify a relevant Subtopic your next step will be to identify the relevant Section or Sections within that Subtopic. Recall from Lesson 1 of this Learning Guide that if the answers to your research questions are in the Codification, you will ultimately find them at the Section level.

 TIP FOR SUCCESS: When All Else Fails, Look in Broad Transactions As a general rule, if you are having trouble finding what you are looking for, be sure to check the Broad Transactions Area. For example, you may be trying to find the answer to a research question about interest expense. If you look in the Expenses Area, you will see that there is no Interest Topic. Even if you look within the Other Expenses Topic of the Expenses Area, you will not find anything about interest expense. However, if you look in the Broad Transactions Area, there is an Interest Topic that addresses both interest income and interest expense.

Lesson 2: Navigating the Codification 19

In the System, each Section has its own page. You can navigate to the page of any individual Section in a Subtopic by clicking the link to the Section in the “Table of Contents” outline that appears near the top of the Subtopic’s landing page. The following screen image shows the Section 730-10-05 page:

But many times it would be convenient to be able to see the content of all of the Subtopic’s Sections assembled on a single page. This is especially true if you have broad questions that are addressed in multiple Sections of a Subtopic. Fortunately, the System has a feature designed specifically for such situations.

The “JOIN ALL SECTIONS” feature of the System will save you time if you know you are going to want to review more than one Section within a Subtopic. Using the “JOIN ALL SECTIONS” feature, you can assemble all of the Section-level content of a Subtopic on one page for ease of reading. Otherwise, you would have to navigate to each Section’s page individually, which would take more time.

An additional advantage of the “JOIN ALL SECTIONS” feature is that it presents the content of each Section within the context of the other Sections in the same Subtopic, which can help you understand the guidance in each Section better. The Sections are presented in the same order as they appear in the Subtopic’s “Table of Contents” outline, and a heading at the beginning of each Section identifies the Sections by title and number.

“JOIN ALL SECTIONS” and Outline Navigation After joining all Sections of a Subtopic, using the “Table of Contents” outline at the top of the Subtopic’s page to navigate to a Section within the Subtopic will cause the page to scroll down to the start of the Section rather than taking you to the Section’s individual landing page.

Lesson 2: Navigating the Codification 20

To Assemble, on a Single Page, All Sections within a Subtopic:

 Navigate to the landing page for a Subtopic (you can use either the technique you learned in Lesson 1 or the technique learned in this lesson).

 Click the JOIN ALL SECTIONS button located just above the “Table of Contents” outline on the Subtopic’s page.

 When the page finishes loading (which may take several seconds because the assembled content can be quite lengthy), scroll down to review the assembled content.

LESSON SUMMARY

 The more familiar you are with the Codification’s specific Areas, Topics, and Subtopics, the faster you will be able to find answers to your research questions.

 You can use pop-up menus to browse the Codification’s specific Areas, Topics, and Subtopics and to navigate directly to any Subtopic.

 You can use the “JOIN ALL SECTIONS” feature of the System to assemble, on a single page, all of the Section-level content of a Subtopic for ease of reading.

 Try It Now Go to the page for the Extraordinary and Unusual Items Subtopic within the Income Statement Topic within the Presentation Area. Scroll down to see that there is no Section-level content on the Subtopic’s page. Then scroll back to the top of the page and click the JOIN ALL SECTIONS button near the top of the page. When the page finishes loading, scroll down to see the content of all of the Subtopic’s Sections.

Lesson 2: Navigating the Codification 21

REINFORCE YOUR LEARNING

Questions

You are not expected to answer these questions from memory. Use the System to determine the correct answers.

Q1: How many Topics are associated with the “92X - Entertainment” Topic group within the Industry Area?

Q2: With regard to Topic 323, Investments—Equity Method and Joint Ventures:

a. How many exclusive Subtopics does the Topic contain?

b. How many shared Subtopics does the Topic contain?

Exercises

E1: From any page within the System, navigate directly to the page for Subtopic 60, Troubled Debt Restructurings by Debtors, within Topic 470, Debt, with just one mouse click. Use the pop-up menus to do this.

E2: Use the System’s “JOIN ALL SECTIONS” feature to assemble, on a single page, all Sections of Subtopic 60 within Topic 470.

Problem

P1: A reporting entity in the magazine publishing industry owns real estate consisting of a printing plant and the land on which the plant is located. The entity is planning to sell the real estate for cash. Identify the specific Codification Subtopic that contains accounting guidance on such sales of real estate, also identifying the Topic in which the Subtopic is located and the Area in which the Topic is located.

Lesson 3: Working with Section-Level Content 22

Working with Section-Level Content LESSON

3 Lesson Scenario

Daria is the director of financial reporting for a commercial bank. As a publicly held corporation, the bank is required to file its financial statements with the SEC.

In recent months, many individuals and businesses to whom the bank has lent money have failed to make their loan payments. As a result, the bank has experienced losses on its loans. Daria wants to verify that the bank’s policies on accounting for loan losses are consistent with FASB and SEC guidance as documented in the Codification.

From experience, Daria knows that the Overall Subtopic of the Receivables Topic in the Assets Area is the relevant Subtopic to review. Furthermore, because she knows that the Sections within every Subtopic are titled and numbered in a standardized way, she correctly assumes that accounting for loan losses is addressed in Section 35, Subsequent Measurement, of the relevant Subtopic. Daria navigates to the relevant Subtopic in the System and quickly accesses relevant FASB and SEC guidance at the Section level.

Learning Outcomes

You will find the answers to your research questions within one or more of the Codification’s Sections. In the scenario above, Daria used the System to identify and access specific content at the Section level. This lesson will help you learn to work effectively and efficiently with Section-level content like Daria does. In particular, this lesson will help you learn to:

 Identify specific Codification Sections that are relevant to your research questions

 Find both FASB and SEC guidance at the Section level and distinguish each kind of guidance from the other

 Systematically browse the content within Codification Sections.

Lesson 3: Working with Section-Level Content 23

IDENTIFYING RELEVANT SECTIONS

The next step after you identify a relevant Subtopic through systematically browsing the Codification is to identify the relevant Section or Sections within that Subtopic. The more familiar you are with the Codification’s specific Sections, the faster you will be at finding answers to your research questions. Fortunately, it is easy to familiarize yourself with the Codification’s Sections because they are standardized across all of the Codification’s Subtopics.

In the System, each Subtopic’s landing page contains a “Table of Contents” outline near the top of the page. The outline shows the Topic to which the Subtopic belongs, the Subtopic itself, and the Sections within the Subtopic. Each Section is identified by a title and a two-digit number. The titles and numbers are standardized across all Subtopics, as shown below. Note, however, that not every Section is present in every Subtopic.

Standardized Codification Sections XXX-YY-ZZ where XXX = Topic, YY = Subtopic, ZZ = Section

XXX-YY-00 Status XXX-YY-05 Overview and Background XXX-YY-10 Objectives XXX-YY-15 Scope and Scope Exceptions XXX-YY-20 Glossary XXX-YY-25 Recognition XXX-YY-30 Initial Measurement XXX-YY-32 Measurement XXX-YY-35 Subsequent Measurement XXX-YY-40 Derecognition XXX-YY-45 Other Presentation Matters XXX-YY-50 Disclosure XXX-YY-55 Implementation Guidance and Illustrations XXX-YY-60 Relationships XXX-YY-65 Transition and Open Effective Date Information XXX-YY-70 Grandfathered Guidance XXX-YY-75 XBRL Elements

Lesson 3: Working with Section-Level Content 24

When browsing the Codification content, you may notice that some Subtopics contain Sections whose standardized two-digit Section number is preceded by the letter “S”. You may also see the special Section number “S99” in some Subtopics. In both cases, those Sections contain SEC guidance rather than FASB guidance. The distinction between the two is explained later in this lesson.

Within a given Subtopic, here is what you can expect to find in each Section:

 Section 00, Status, documents the history of substantive or non-maintenance changes to the Subtopic’s content. It is useful if you need to understand when and how the Subtopic content changed in the past. Details of working with Status Sections are provided in Lesson 14 of this Learning Guide.

 Section 05, Overview and Background, provides a general overview on the Subtopic. It does not provide historical background of the standard, due process, or similar items. It may contain certain material generally considered to be useful to a user to understand the typical situations required by the standard. It does not summarize the requirements of the Subtopic’s guidance. If you are completely unfamiliar with the Subtopic’s content, be sure to review this Section.

 Section 10, Objectives, states the high-level objectives of the guidance in the Subtopic but does not discuss the main principles of the Subtopic.

 Section 15, Scope and Scope Exceptions, describes the items (e.g., entities, transactions, instruments, events) to which guidance in the Subtopic does or does not apply. You should always review this Section. Details of working with Scope and Scope Exceptions Sections are provided in Lesson 4.

 Section 20, Glossary, contains all the glossary terms used in the Subtopic. Details of working with Glossary Sections are provided in Lesson 10.

 Section 25, Recognition, addresses the criteria, timing, and location (within the financial statements) for recognizing a particular item.

 Section 30, Initial Measurement, addresses the criteria and amounts used to measure a particular item at the date of initial recognition. In many cases, this Section may be empty because the initial standards did not include initial measurement.

 Section 32, Measurement, provides guidance on both the initial and subsequent measurement. Specifically, this Section provides the criteria and amounts used to measure a particular item at the date of initial recognition. In addition, this Section provides guidance on an entity’s subsequent measurement and subsequent recognition of an item. Situations that may result in subsequent changes to carrying amount include impairment, fair value adjustments, depreciation and amortization, and so forth.

 Section 35, Subsequent Measurement, addresses the criteria and amounts used to measure a particular asset, liability, or equity item after to the date of recognition.

Lesson 3: Working with Section-Level Content 25

 Section 40, Derecognition, addresses the criteria, the method to determine the amount of basis, and the timing to be used when derecognizing a particular asset, liability, or equity item for purposes of determining gain or loss, if any.

 Section 45, Other Presentation Matters, contains specific guidance on presenting items in the financial statements.

 Section 50, Disclosure, describes the specific disclosure requirements for items within the scope of the Subtopic.

 Section 55, Implementation Guidance and Illustrations, contains implementation guidance and illustrations, which are an integral part of the standards in the Subtopic.

 Section 60, Relationships, includes references to other Subtopics that may contain guidance related to the Subtopic.

 Section 65, Transition and Open Effective Date Information, contains paragraphs that have open transition guidance for the Subtopic. Details of working with pending content and Transition and Open Effective Date Information Sections are provided in Lesson 7.

 Section 70, Grandfathered Guidance, contains descriptions, references, and transition periods for content grandfathered after July 1, 2009, by an Accounting Standards Update (ASU).

 Section 75, XBRL Elements, contains the XBRL elements that are linked to the guidance in the Subtopic. Details of working with XBRL Elements Sections are provided in Lesson 17.

SUMMARY: To Identify Relevant Sections:

 In the System, navigate to the page of a relevant Subtopic (you can use either the technique you learned in Lesson 1 or the technique in Lesson 2).

 Review the Sections listed in the “Table of Contents” outline near the top of the Subtopic’s page, noting which Sections you think are relevant to your research.

 You can then navigate to an individual Section’s page (as explained in Lesson 1 and also later in this lesson) or you can use the “JOIN ALL SECTIONS” feature to assemble, on a single page, all of the Section-level content of the Subtopic (as explained in Lesson 2).

For example, the following screen image shows the page for the Overall Subtopic of the Receivables Topic within the Assets Area (the page has been scrolled down slightly to show more of the “Table of Contents” outline). Observe that the Sections listed in the “Table of Contents” outline include Section 35 and Section S35, both titled, Subsequent Measurement.

 Look Now Go to the landing page for the Overall Subtopic within the Receivables Topic within the Assets Area. Observe the Sections listed in the outline near the top of the page.

Lesson 3: Working with Section-Level Content 26

FINDING AND DISTINGUISHING BETWEEN FASB GUIDANCE AND SEC GUIDANCE

The Codification includes authoritative financial accounting and reporting guidance that has been issued by the FASB (“FASB guidance”) and relevant portions of financial accounting and reporting guidance that has been issued by the SEC and its staff (“SEC guidance”).

All authoritative guidance issued by the FASB is included in the Codification. The SEC and its staff issue many kinds of guidance that apply to its registrants; the Codification includes relevant portions of authoritative content issued by the SEC and selected SEC staff interpretations and administrative guidance that pertain to financial accounting and reporting, but it does not include other kinds of SEC guidance.

Examples of included SEC content are:

1. Regulation S-X (SX)

2. Financial Reporting Releases (FRR)/Accounting Series Releases (ASR)

3. Interpretive Releases (IR)

Lesson 3: Working with Section-Level Content 27

4. SEC Staff guidance in:

a. Staff Accounting Bulletins (SAB)

b. EITF Topic D and SEC Staff Observer comments.

The SEC guidance that is included in the Codification does not originate with the FASB—it is provided on a “pass through” basis merely as a convenience to Codification users. The SEC Sections do not contain the entire population of SEC rules, regulations, interpretive releases, and staff guidance. For example, the Codification does not include all content related to matters outside the basic financial statements, such as Management’s Discussion and Analysis (MD&A), or to auditing or independence matters.

Content in the SEC Sections is expected to change over time in accordance with the SEC’s normal procedures for making changes to SEC rules, regulations, interpretive releases, and staff guidance. The SEC’s normal update procedures are not changed by the inclusion of SEC content in the Codification, and, accordingly, there may be delays between the release of the SEC’s changes and updates to the Codification.

The Codification does not replace or affect guidance issued by the SEC or its staff for public companies in their filings with the SEC. Furthermore, the content labeled as SEC staff guidance does not constitute rules or interpretations of the SEC, nor does such guidance bear official Commission approval.

Which Guidance Applies to Which Entities?

Most nongovernmental entities that prepare financial statements are not regulated by the SEC. Some nongovernmental entities, however, are regulated by the SEC, usually because those entities previously issued securities (such as bonds or shares of stock) directly to the general public, or because the entities’ securities currently trade among the general public.

In the United States, entities that are not regulated by the SEC are generally not subject to statutory financial-reporting requirements and generally have no obligation, unless required by lenders or others, to use financial accounting and reporting standards set by the FASB. Even so, many such entities choose to use the FASB’s standards as documented in the Codification.

For nongovernmental U.S. entities that are not SEC registrants, the FASB is currently the sole setter of U.S. authoritative financial accounting and reporting standards, but nonpublic entities are not bound to follow those standards if they think IFRS or IFRS for SMEs is better GAAP. The AICPA has recognized the IASB as an authorized standard setter.

In contrast, federal securities laws in the United States require entities that are regulated by the SEC, known as SEC registrants, to file their financial statements with the SEC on a regular basis. In doing so, the SEC’s U.S. registrants must use the FASB’s standards, subject to additional standards that the SEC has the statutory authority to set and that apply only to SEC registrants.

Lesson 3: Working with Section-Level Content 28

In general, FASB guidance applies to all nongovernmental U.S. entities, including entities that are SEC registrants as well as entities that are not SEC registrants, with two exceptions:

 If the scope of the FASB guidance explicitly excludes certain kinds of entities, it applies only to those entities within its scope.

 If an entity is an SEC registrant and a conflict exists between FASB guidance and SEC guidance, SEC guidance takes precedence over FASB guidance for that entity.

Again, the SEC guidance that is included in the Codification applies only to entities that are SEC registrants. It does not apply to other entities.

FASB versus SEC Sections

In the Codification, SEC guidance is organized in the same manner as—but separate from—FASB guidance. The distinction between FASB and SEC guidance is made at the Section level of the Codification content’s hierarchy.

The distinction between FASB guidance Sections and SEC guidance Sections can be readily seen in the “Table of Contents” outline that appears at the top of each Subtopic’s page. SEC Sections are identified with the same standardized two-digit Section numbers and titles as FASB Sections, except that the Section number is preceded by the letter “S.” Section S99, SEC Materials, is also an SEC Section; there is no FASB Section that corresponds to it.

SYSTEMATICALLY BROWSING CONTENT WITHIN SECTIONS

In the System, after you navigate to the landing page of a Subtopic, navigating to the page of an individual Section within that Subtopic is easy. You can click on any Section number or title in the Subtopic’s “Table of Contents” outline to navigate to the corresponding Section page.

Alternatively, you can use the System’s “JOIN ALL SECTIONS” feature to assemble, on a single page, all of the Section-level content of a Subtopic. While there are advantages to using the “JOIN ALL SECTIONS” feature (as explained in Lesson 2), you may sometimes need to navigate to a Section’s individual page to take advantage of certain System features that are available only at individual Section pages. Those features, which are not available on pages where you have joined all Sections, are explained later in this lesson.

 Look Now Go to the landing page for the Overall Subtopic of the Receivables Topic in the Assets Area. In the outline near the top of the page, notice that all of the SEC Sections in that Subtopic are listed after all of the FASB Sections.

Lesson 3: Working with Section-Level Content 29

How Content Is Organized within Each Section

The way in which content is organized within each Codification Section is consistent, with the exception of Sections 20, Glossary, and 75, XBRL Elements. The Codification’s content hierarchy continues with additional lower levels, which may include:

 Subsections  Paragraph Groups  Paragraphs  Subparagraphs.

Subsections: Each Section (other than Sections 20 and 75) contains one or more Subsections. Each Subsection is identified by a title, but unlike Sections, Subsections are not numbered. Most Sections have at least one General Subsection. A Section may contain additional Subsections as a means of filtering content related to multiple Sections of the same Subtopic. A Subsection differs from a paragraph heading because the System provides a feature to combine all Subsection content for a Topic. (The organization of content within Glossary Sections is explained in Lesson 10; the organization of content within XBRL Elements Sections is explained in Lesson 17.)

Paragraph Groups: Paragraph groups represent a series of related paragraphs under the same paragraph heading. A Subsection may contain zero, one, or many paragraph groups. Each paragraph group is identified by a title. The Topic structure allows paragraph groups to be subordinated to other paragraph groups because of dependencies. Paragraph groups may be nested hierarchically (i.e., in outline fashion) among themselves. A paragraph group’s hierarchical level is indicated by one or more “>” symbols appearing in front of the paragraph group’s title; the number of “>” symbols indicates the level within a paragraph group hierarchy. For example, consider the following three paragraph-group titles:

> Statement of Financial Position Classification of Income Tax Accounts > > Deferred Tax Accounts > > > Deferred Tax Accounts Related to an Asset or Liability

Paragraphs: Each Section (other than Sections 20 and 75) contains one or more paragraphs within its Subsection(s) and, where present, paragraph group(s). Within each Section, paragraphs are numbered sequentially, starting with “1.” Occasionally, one or more uppercase letters appear at the end of the paragraph number—this indicates an “inserted” paragraph. For example, a new paragraph inserted between paragraphs 5 and 6 within a Section would be numbered “5A.”

Subparagraphs: The paragraph level is usually the lowest level in the Codification’s hierarchy; in other words, paragraphs are usually the smallest individually identified units of content. Some paragraphs, however, have subparagraphs. When present within a paragraph, subparagraphs are typically identified by lowercase letters starting with “a”, as in subparagraph “9(a).”

 Look Now Go to the landing page for Section 35, Subsequent Measurement, of the Overall Subtopic of the Receivables Topic in the Assets Area. Observe the two Subsections General and Acquisition, Development, and Construction Arrangements listed in the Section’s “Table of Contents” outline. Click the “Expand” link above the outline to reveal the paragraph-group structure within each Subsection. Then scroll down to observe how Subsection titles, paragraph-group titles, paragraphs, and subparagraphs are presented within the body of the Section.

Lesson 3: Working with Section-Level Content 30

FASB versus SEC Content within Sections

As explained previously, Subtopics may contain both FASB guidance Sections and SEC guidance Sections. If within a Subtopic there is a FASB Section and a corresponding SEC Section (e.g., Sections 35 and S35, Subsequent Measurement), navigating to either Section will take you to a page that contains the content of both Sections. On that page, the SEC Section content will be shown in its entirety below all the FASB Section content, in a box having a black “Securities and Exchange Commission (SEC)” header as shown in this example:

Unless explicitly stated otherwise, all material in this Learning Guide that pertains to specific FASB Sections pertains equally to the corresponding SEC Sections. For example, you should assume that material that pertains to Section 20 also pertains to Section S20.

System Features Available Only at Individual Section Pages

The design of the System assumes that individual Section pages will be the focal point of your research activity. Two key functions of the System are available only at individual Section pages:

 Section Tabs  Section Links.

FASB versus SEC Sections Corresponding FASB and SEC Sections within the same Subtopic are not necessarily organized the same way internally. For example, a Subtopic’s Section 35 might contain a specific Subsection that the Subtopic’s Section S35 does not, and vice-versa.

 Look Now Go to the landing page for Section 35, Subsequent Measurement, of the Overall Subtopic of the Receivables Topic within the Assets Area. Scroll down to the very bottom of the page, where you will see the content of SEC Section S35.

Lesson 3: Working with Section-Level Content 31

Section Tabs: Most individual Section pages contain three tabs: a DOCUMENT tab, an ARCHIVE tab, and a WHAT LINKS HERE tab. Pages for Section 20 contain a GLOSSARY tab and an ARCHIVE tab, while pages for Section 75 contain no tabs.

 The DOCUMENT and GLOSSARY tabs contain the Section’s current content

and pending content. Pending content is content that has been approved (by the FASB or SEC) but is not yet fully effective. Pending content is explained in more detail in Lesson 7.

 The ARCHIVE tab provides links to superseded versions of the Section’s content. Archived content is explained in more detail in Lesson 9.

 The WHAT LINKS HERE tab contains references and links to other Codification content that refers/links to content in the Section you are working with.

When you first navigate to an individual Section landing page, the DOCUMENT tab (or in the case of Section 20, the GLOSSARY tab) will be displayed. To display the content of any other tab, simply click the tab’s name.

Section Links: A time-saving navigation feature available only at individual Section pages is the “Section Links” feature. If you are viewing a specific Section page in the System and wish to navigate to another Section within the same Subtopic, you can use the “Section Links” feature located on the bottom toolbar of the Section page’s DOCUMENT tab. This keeps you from having to navigate up to the Subtopic level, then down to a different Section. (Note that this feature is unnecessary, and therefore unavailable, if you use the “JOIN ALL SECTIONS” feature to assemble, on a single page, all of the Section-level content of the Subtopic.)

 Look Now Go to the landing page for Section 35, Subsequent Measurement, of the Overall Subtopic of the Receivables Topic in the Assets Area. Observe the tabs and the Section Links feature.

Lesson 3: Working with Section-Level Content 32

The following screen image shows the page for Section 35, Subsequent Measurement, of the Overall Subtopic of the Receivables Topic in the Assets Area (the page has been scrolled down slightly). Observe the tabs and the “Section Links” feature.

LESSON SUMMARY  The more familiar you are with the Codification’s standardized Sections, the

faster you will be able to find answers to your research questions.

 The Codification includes all authoritative FASB guidance on financial accounting and reporting.

 The Codification includes relevant portions of SEC guidance on financial accounting and reporting.

 The SEC guidance that is included in the Codification applies only to entities that are SEC registrants. It does not apply to other entities.

 The distinction between FASB and SEC guidance is made at the Section level of the Codification content’s hierarchy. SEC guidance is also distinguished visually within Section content.

 Within most Sections, Codification content is organized hierarchically into Subsections, paragraph groups, paragraphs, and subparagraphs.

 Several key features of the System are available only at individual Section pages. These features include the ARCHIVE and WHAT LINKS HERE tabs and the “Section Links” feature.

Lesson 3: Working with Section-Level Content 33

REINFORCE YOUR LEARNING

Questions

Use the System as needed to help you determine the correct answers to these questions.

Q1: With regard to Subtopic 10, Overall, of Topic 505, Equity:

a. How many FASB Sections does the Subtopic contain?

b. How many SEC Sections does the Subtopic contain?

Q2: What are the titles of the Subsections in Section 30 of Subtopic 10 of Topic 845?

Q3: In the Subsequent Measurement Section of the Defined Benefit Plans—Other Postretirement Subtopic of the Compensation—Retirement Benefits Topic:

a. What is the title of the paragraph group that contains the paragraph labeled “35- 129”?

b. What is the title of the paragraph group that is the “parent” of the paragraph group titled Prior Service Costs?

c. What is the title of the Subsection that contains the paragraph labeled “35-167”?

Exercise

E1: In the System, navigate to the landing page for Subtopic 10, Overall, of Topic 480, Distinguishing Liabilities from Equity. Then navigate to the landing page for Section 45, Other Presentation Matters, of that Subtopic.

a. Observe that both Section 45 and Section S45 are shown in the “Table of Contents” outline near the top of the Section’s page and that each of those Sections contains a General Subsection as shown in the outline.

b. Expand the outline for the General Subsection of Section S45. Observe that the Subsection’s three first-level paragraph groups are displayed in the outline (i.e., Form and Content; Redeemable Preferred Stock; and Classification of Redeemable Securities).

c. Expand the outline for the Classification of Redeemable Securities paragraph group of the General Subsection of Section S45. Observe that the paragraph group’s three second-level paragraph groups are displayed in the outline (i.e., General; Classification of Certain Redeemable Financial Instruments Awarded in Conjunction with Share-Based Payment Arrangements; and Classification by a Sponsor of Puttable Securities Held by an Employee Stock Ownership Plan).

Lesson 3: Working with Section-Level Content 34

d. Navigate to the General paragraph group within the Classification of Redeemable Securities paragraph group of the General Subsection of Section S45 by clicking the paragraph group’s title in the “Table of Contents” outline. Observe that the page has been scrolled down to the paragraph labeled “S45-3,” which is the first paragraph of the paragraph group.

e. Observe that the text of paragraph S45-3 is “See paragraph 480-10-S99-3A, SEC Staff Announcement: Classification and Measurement of Redeemable Securities, for SEC Staff views on classification of mandatorily redeemable securities.” Also observe that the citation “480-10-S99-3A” (i.e., paragraph 3A of Section S99 of Subtopic 10 of Topic 480) is a link to the cited paragraph. Click the link to navigate to the cited paragraph.

f. Observe that you have navigated to the page for Section S99 of Subtopic 10 of Topic 480 and that the page was automatically scrolled down to the paragraph labeled “S99-3A,” which provides SEC guidance on the classification of redeemable preferred stock.

Problems

P1: Identify the specific Codification Topic, Subtopic, and Section that contain guidance on the initial measurement of foreign currency transactions.

P2: A reporting entity that is an SEC registrant is planning to adopt, in a future reporting period, a recently issued accounting standard.

a. Does the SEC require the entity to disclose in the current reporting period the future effect that the accounting change is expected to have on the entity’s financial statements? (Hint: the relevant Codification Topic is located in the Presentation Area.)

b. Identify the specific Codification Topic, Subtopic, Section, and paragraph in which the SEC guidance that answers the above question is located.

Lesson 4: Understanding the Scope of Guidance 35

Understanding the Scope of Guidance LESSON

4 Lesson Scenario

Eric is auditing the financial statements of a not-for-profit entity. During the accounting period covered by the audit, the entity opened its first shelter to house the homeless and incurred advertising costs to increase awareness of the shelter throughout the local community.

One of Eric’s audit tasks is to determine whether the entity’s advertising costs have been accounted for and reported correctly in accordance with U.S. GAAP. He knows that much of the guidance within the Codification applies to certain entities, transactions, and events but not to others. Therefore, whenever Eric finds specific guidance in the Codification that appears to be relevant to his task, he verifies the scope of the guidance before relying on it.

In particular, Eric reviews Section 15, Scope and Scope Exceptions, within each Subtopic he examines. This is easy for him to do in the System because he knows how to navigate quickly among and within Subtopics.

Learning Outcomes

If you intend to rely on specific accounting guidance that you find in the Codification, it is essential that you understand exactly which items (entities, transactions, events, etc.) the guidance applies to and which items it does not apply to. Otherwise, you risk misapplying the guidance.

Like Eric in the scenario above, you will need certain knowledge and skills to quickly obtain an accurate understanding of the scope of guidance that you find in the Codification. This lesson will help you learn to:

 Recognize where scope information is located within the Codification  Navigate among Sections of a Subtopic that contain scope information  Comprehend the scope information that you find.

Lesson 4: Understanding the Scope of Guidance 36

RECOGNIZING WHERE SCOPE INFORMATION IS LOCATED

The scope of guidance in the Codification is defined by scope declarations. A scope declaration usually describes the items (entities, transactions, events) that are included in the scope of the guidance with which the declaration is associated. But a scope declaration may describe items that are excluded from the scope of the guidance, either instead of or in addition to describing which items are included in the scope.

Typically, a specific scope declaration is associated with all of the guidance in a specific Subtopic. For FASB guidance, such scope declarations are located in Section 15, Scope and Scope Exceptions, of the associated Subtopics. In the case of SEC guidance, such scope declarations are located in Section S15 of the associated Subtopics. Hereafter, you should assume that all references to Section 15 in this Learning Guide apply to Section S15 when SEC guidance is involved.

Any scope declaration that applies broadly to all guidance in a specific Subtopic is subject to overriding exceptions. For example, for a scope declaration that is associated with all of the guidance in a specific Subtopic, there may be exceptions to that scope declaration stated at the paragraph level in one or more Sections of the Subtopic. Such exceptions are associated with some, but not all, of the Subtopic’s guidance, and they identify excluded and/or included items beyond those that are identified in the Subtopic-level scope declaration.

As you learn more about scope information in the Codification, keep in mind that there are three locations where scope information associated with specific accounting guidance may be found:

 The Section in which the guidance is located  Section 15 of the Subtopic in which the guidance is located  Section 15 of a Subtopic other than the one in which the guidance is located.

Section 15/S15 Most Subtopics, but not all, contain a Section 15. Many Subtopics also contain a Section S15.

 Look Now Go to the Expenses Area, then within that Area to the Other Expenses Topic, then within that Topic to the Advertising Costs Subtopic, and finally within that Subtopic to the Scope and Scope Exceptions Section. Read the Section’s content, which consists of scope declarations that apply broadly to the whole Subtopic.

Lesson 4: Understanding the Scope of Guidance 37

NAVIGATING AMONG SECTIONS WITHIN A SUBTOPIC

If You Have Assembled All Sections on a Single Page

If you have assembled all Section-level content for a specific Subtopic on a single page using the System’s “JOIN ALL SECTIONS” feature, then you can always scroll up or down on that page to navigate to any other Section within that Subtopic. However, Subtopic pages on which all Sections have been joined can be very lengthy. That is why you should know about a shortcut that enables you to navigate directly to any Section of the Subtopic you are working with in just two clicks.

At the bottom of your browser window, a toolbar is displayed. By clicking the button on that toolbar labeled “TOP,” the page will instantly scroll up to its top. (The Ctrl-Home keyboard shortcut will also bring you to the top of the page.) Then in the “Table of Contents” outline near the top of the page, click on the Section you want to navigate to. The page will instantly scroll down to the start of that Section.

You can use this same technique to navigate back to the Section you started at or any other Section within the Subtopic.

If You are Working with Individual Section Pages

If you are viewing an individual Section page in the System and wish to navigate to the individual page of another Section within the same Subtopic, you can use the “Section Links” feature, located on the bottom toolbar of the Section page.

To navigate directly to a different Section within the same Subtopic, position your mouse pointer over the “Section Links” feature to display a pop-up menu of the Subtopic’s Sections, then click a Section number listed on the menu to navigate to it. Note that clicking on a Section title will not do anything.

You can use this same technique to navigate back to the Section you started at or any other Section within the Subtopic.

 Try It Now Go to any Subtopic and join all Sections on a single page. Navigate among the Subtopic’s Sections using the “Top” button and the “Table of Contents” outline.

 Try It Now Go to the individual page of any Section. Navigate among the Sections in the same Subtopic using the “Section Links” feature.

Lesson 4: Understanding the Scope of Guidance 38

COMPREHENDING SCOPE INFORMATION

To correctly determine the scope of any specific accounting guidance that you find in the Codification, you will likely need to review Section 15, Scope and Scope Exceptions, in one or more of the Codification’s Subtopics. It is essential that you know how to comprehend the four fundamental kinds of scope declarations that you may find in a Subtopic’s Section 15:

 Pervasive  Conforming  Conforming with Exceptions  Independent. Pervasive Section 15 scope declarations are found only in Overall Subtopics. Keep in

mind, however, that not all Topics contain an Overall Subtopic, and not all Overall Subtopics contain pervasive scope declarations. If Section 15 of an Overall Subtopic contains a pervasive scope declaration, that means the declaration is associated with all Subtopics within the same Topic, not just the Overall Subtopic. For example, the scope declaration in Section 840-10-15 reads: “The Scope Section of the Overall Subtopic establishes the pervasive scope for all Subtopics for the Leases Topic . . .”

 TIP FOR SUCCESS: Help If You Get Lost As you review paragraph-level content in the Codification, it is easy to become “lost,” that is, unsure of the Section, Subtopic, or Topic that you are currently viewing. Fortunately, in the System, you can easily determine exactly where you are when browsing content at the paragraph level. Simply position your mouse pointer over any paragraph number (keeping in mind that it will be preceded by the standardized number of its Section) to display the paragraph’s hierarchical context in a pop-up box. For example, if you navigate to Subtopic 10, Overall, of Topic 705, Cost of Sales and Services, and join all Sections on a single page, you could become disoriented as you read through the large amount of content in the Subtopic. But if you hover over the paragraph number “25-7”, the following pop-up box will be displayed:

As the pop-up box shows, paragraph 25-7 is located in the Interim Financial Reporting paragraph group of the General Subsection of Section 25 of Subtopic 10 of Topic 705.

Lesson 4: Understanding the Scope of Guidance 39

Conforming Section 15 scope declarations are found in only in Subtopics other than Overall Subtopics. Keep in mind, however, that not all Topics contain Subtopics other than an Overall Subtopic, and not all non-Overall Subtopics contain conforming scope declarations. If Section 15 of a non-Overall Subtopic contains a conforming scope declaration, that means the declaration states explicitly that the scope of the guidance in the Subtopic is the same as the pervasive scope declared in Section 15 of the Overall Subtopic of the same Topic. For example, the scope declaration in Section 840-20-15 reads: “This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic . . .”

Alternatively, a conforming scope declaration may be “conforming with exceptions.” Such a declaration states explicitly that the scope of the guidance in the non-Overall Subtopic is the same as the pervasive scope declared in Section 15 of the Overall Subtopic of the same Topic, with specific exceptions that apply only to the non-Overall Subtopic. For example, the scope declaration in Section 840-40-15 reads: “This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic . . . with specific transaction qualifications noted below.”

If a Section 15 scope declaration is associated only with the Subtopic in which it is located, then it is considered an independent scope declaration for the Subtopic.

The following are examples of independent scope declarations:

 The Overall Subtopic of Topic 720, Other Expenses, does not have a Section 15. Each of the other Subtopics of Topic 720 does have a Section 15 that establishes the scope of each Subtopic independently of the scope of the other Subtopics.

 The Overall Subtopic of Topic 210, Balance Sheet, has a Section 15 that establishes the independent scope of that Subtopic. The only other Subtopic of Topic 210 also has a Section 15 that establishes the independent scope of that Subtopic.

All four kinds of Section 15 scope declarations are still subject to scope exceptions declared elsewhere within the same Subtopic.

COMPREHENSIVE EXAMPLE

The following comprehensive example is based on the Lesson Scenario that appears at the beginning of this lesson. Go back and review the scenario now. Then continue reading on to learn how Eric would verify the scope of guidance on accounting for advertising costs.

From past experience, Eric knows that Subtopic 35, Advertising Costs, of Topic 720, Other Expenses, might be relevant to his research question.

Eric navigates to paragraph 720-35-15-1 and reads “The guidance in this Subtopic applies to all entities, including not-for-profit entities (NFPs).” Eric therefore knows that the entity he is auditing falls within the scope of the guidance in Subtopic 720-35, subject to scope exceptions that might be stated elsewhere in the Subtopic.

 Look Now Go to Section 15 of each Subtopic in these examples. Observe how the wording of these Sections is significantly different from the preceding examples.

Lesson 4: Understanding the Scope of Guidance 40

Eric continues on to paragraph 720-35-15-2 where he reads, “The guidance in this Subtopic applies to all advertising transactions and activities, with specific exceptions noted below.” Eric is careful to review the exceptions noted in the third paragraph of the Section. One of the listed exceptions reads “Fundraising by NFPs (however, this Subtopic does apply to advertising activities of NFPs).” This signals to Eric that advertising costs incurred by the entity he is auditing do fall within the scope of the guidance in this Subtopic, again subject to scope exceptions that might be stated elsewhere in the Subtopic. Eric finishes reading the Section, finding no other scope information that is pertinent to his research. Eric also recognizes that the scope declarations he has just read indicate that the Subtopic is scoped independently. Because this is not a conforming or conforming-with-exceptions scope declaration, there is no need to review Section 15 of any other Subtopic.

Eric recalls that the entity he is auditing opened a homeless shelter having never done so before. He thinks that doing so may be considered a “start-up” activity for accounting purposes, and he knows that there is guidance on start-up costs in Subtopic 15, Start-Up Costs, of Topic 720. As always, there are many ways that Eric could navigate to that Subtopic, but again he chooses the fastest way, which is by using the pop-up menus. After arriving at the Subtopic’s landing page, he navigates to the page for Section 15 of the Subtopic by clicking the link to that Section within the “Table of Contents” outline near the top of the Subtopic’s page.

In the first paragraph of the Section, Eric reads, “The guidance in this Subtopic applies to all nongovernmental entities, including …. Not-for-profit entities (NFPs) …” He therefore knows that the entity he is auditing falls within the scope of the guidance in Subtopic 720-15, subject to scope exceptions that might be stated elsewhere in the Subtopic.

Eric continues on, where he reads in the fourth paragraph, “The guidance in this Subtopic does not apply to the following transactions and activities: …” He is careful to review the listed exclusions, which include “Costs of advertising.” Eric has learned that the guidance in the Subtopic does not apply to advertising costs. He finishes reading the Section to ensure that there is no other scope information that is pertinent to his research. Again, Eric recognizes that the scope declarations he has just read indicate that the Subtopic is scoped independently of other Subtopics within Topic 720.