The Complete CPA Reference

CHAPTER 4

Accounting and Disclosures

Hierarchy of GAAP

Financial Accounting Standards Board (FASB) Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles, identifies the sources of accounting principles and the framework to select them in preparing financial statements in conformity with U.S. generally accepted accounting principles (GAAP). The GAAP hierarchy should be directed to the company.

The hierarchy of GAAP applies to the following levels:

Level 1 (highest level): FASB statements and interpretations, Accounting Principles Board (APB) opinions, and American Institute of CPAs (AICPA) accounting research bulletins.

Level 2: FASB technical bulletins and AICPA industry audit and accounting guides and statements of position.

Level 3: AICPA accounting standards executive committee practice bulletins, and consensus positions of the FASB Emerging Issues Task Force (EITF).

Level 4 (lowest level): Implementation guides (questions and answers) published by the FASB staff, and practices widely recognized and prevalent either generally or in the industry.

An accounting entity should follow the accounting treatment specified by the accounting principle from the source in the highest category available. A company should not follow the accounting treatment specified in accounting principles for similar transactions or events in cases in which those accounting principles either prohibit the application of the accounting treatment to the particular transaction or ...