The Importance of Industry-Specific Accounting

Generally Accepted Accounting Principles (GAAP). It’s in the name. U.S. GAAP (and the FASB codification) is full of general guidance that applies to standard business structures and general or generic business transactions. But not all companies are business entities that sell widgets – some companies are special! And the FASB has recognized the fact that they’re different by issuing specific industry accounting!

In today’s post, we’ll explore why the FASB issues industry-specific accounting guidance, what industries have industry-specific guidance, and how you can learn more about the guidance for the industry you’re most interested in.

Why does the FASB (U.S. GAAP) have specific guidance for certain industries?

According to the FASB’s website, the mission statement of the FASB is as follows:

To establish and improve financial accounting and reporting standards to provide useful information to investors and other users of financial reports and educate stakeholders on how to most effectively understand and implement those standards.

In other words, it is all about the users of the financial statements and making sure that what is ultimately disclosed in both the financial statements and the footnotes is relevant and accurately reflects the financial condition of the entity. For most entities that operate in a “traditional” business model sense (i.e., the entity sells widgets or provides services for a fee), this is a relatively straightforward application. The entity is able to use U.S. GAAP as issued by the FASB to achieve this objective.

What are some examples of industries with specific accounting standards?

However, not all industries follow a traditional business model. For example, Funds, like hedge funds or other investment funds, are in the business of investing in businesses or other assets for the purpose of earning a return for their investors. They don’t sell widgets. Meanwhile, U.S. GAAP would require that a traditional business entity measure some investments at amortized cost. This doesn’t really make sense for a company that is all about the return on the investment. Users of fund financial statements care much more about fair value!

Another example would be the airline industry. According to the FASB’s website, entities in the airline industry primarily provide carrier services for passengers and cargo, frequently as joint operations. Airline companies also have fixed assets that are constantly changing locations (i.e., planes).

But the thing that makes them unique is their revenue cycle. Sales may be made at numerous locations by either the carrier or third parties. Paper tickets and electronic tickets usually are sold in advance of the transportation date, and the ticket sales date usually does not coincide with the revenue recognition date (the date that service is provided). And the list goes on. The bottom line: recognizing revenue is complex. Because of the complexities of this industry, the FASB recognized that there may need to be specific rules for certain types of transactions to be able to better inform users of the financial statements.

Industry-specific accounting topics

There are over 30 industry-specific topics under U.S. GAAP! (Almost makes you wonder how general GAAP really is?!) These industry-specific topics reside in the 900 section of the guidance and include:

While some of these topics only include specific guidance for one particular area (e.g., U.S. Steamship Entities only includes specific guidance for the treatment of income taxes) other industries, such as Financial Services – Insurance, include specific guidance impacting almost all areas of the industry!

What about IFRS? Do they have industry-specific guidance too?

Nope, not really! IFRS may have standards, like IFRS 17, Insurance Contracts, which apply more closely to insurance companies than other types of companies. But IFRS recognizes that even non-insurance companies may issue contracts that meet the scope of IFRS 17. IFRS standards are less rules-based and more principles-based – allowing them to be applied to a variety of industries and transaction types. However, with more principles-based standards, you’ll certainly see more interpretation of the rules in practice!

How can I learn more about a specific industry?  

If you’re in any of the financial services industries, you’re in luck! We have a complete industry training for three of the most popular financial services industries. Let’s explore each below.

1. Investment Management Industry Fundamentals (ASC 946)

The investment management industry is unique. We’ve covered some of the unique accounting rules from ASC 946 in this blog post, but this post only scratches the surface of the differences between accounting for an investment company and accounting for a more traditionally structured entity! Those working in the investment management industry, or responsible for auditing companies operating in this space, know that finding high-quality, easy to understand accounting training on the requirements of ASC 946 is next to impossible!

Which is why we created the Investment Management Industry Fundamentals (IMIF) course collection – a collection of nine courses, which include:

1. Investment Management: Industry Overview (1.0 CPE)
2. Investment Management: Investments (2.0 CPE)
3. Fair Value: Overview of ASC 820 (1.5 CPE)
4. Fair Value: Advanced Issues (1.5 CPE)
5. Fair Value: Hierarchy Issues (0.2 CPE)
6. Fair Value: Restrictions on the Sale of Assets (0.2 CPE)
7. Investment Management: Transactions with Service Providers (1.5 CPE)
8. Investment Management: Transactions with Unit Holders (1.5 CPE)
9. Investment Management: Financial Reporting (1.5 CPE)

You can find more details about each of these courses in this blog post, or check out our Investment Management topic page for other important considerations!

2. Banking Industry Fundamentals (ASC 942)

Are you new to the banking industry or maybe you need a refresher of the industry-specific accounting rules applicable to financial institutions? If so, we’ve got the collection for you! We’ve bundled together ten courses, including:

1. Banking: Industry Overview (1.5 CPE)
2. Fair Value: Overview of ASC 820 (1.5 CPE)
3. Interest Method and Effective Interest Rates (0.5 CPE)
4. Banking: Loans (2.0 CPE)
5. Credit Losses: Introduction to the CECL Model (1.5 CPE)
6. Banking: Deposits and Other Sources of Funding (1.0 CPE)
7. Investments: Equity Securities (1.0 CPE)
8. Investments: Debt Securities (1.5 CPE)
9. Other Real Estate Owned: The Basics (0.2 CPE)
10. Derivatives: Characteristics and Scope Exceptions (1.0 CPE)

You can learn more about each of these courses in this blog post!

3. Advanced Banking Industry Fundamentals (ASC 942)

In our Advanced Banking Industry Fundamentals course collection, we dive deeper into the industry-specific accounting rules applicable to financial institutions under ASC 942. If so, we’ve got the collection for you! This collection includes the following 12 courses:

1. Contingencies and Guarantees (1.0 CPE)
2. Fair Value: Hierarchy Issues (0.2 CPE)
3. Fair Value: Advanced Issues (1.5 CPE)
4. Consolidation Accounting: The Consolidation Analysis (1.0 CPE)
5. Consolidation Accounting: The Consolidation Models (1.0 CPE)
6. Transfers of Financial Assets (1.0 CPE)
7. Hedge Accounting: Hedge Accounting Qualification (1.0 CPE)
8. Hedge Accounting: Introduction to Hedge Accounting (1.0 CPE)
9. Derivatives: Embedded Derivatives (1.0 CPE)
10. Foreign Currency: Overview of ASC 830 (1.0 CPE)
11. Fair Value: Restrictions on the Sale of Assets (0.2 CPE)
12. Overview of Securitizations (0.2 CPE)

4. Insurance Industry Fundamentals (ASC 944)

Of all the industry-specific accounting requirements within U.S. GAAP, accounting for insurance companies is arguably one of the most difficult because of its different accounting models for different types of contracts under ASC 944, Financial Services. We’ve compiled a collection of the following nine courses to help you understand the fundamentals of the insurance industry:

1. Insurance: Industry Overview (1.0 CPE)
2. ASU 2018-12, Long-Duration Insurance Contracts (0.5 CPE)
3. Insurance: Property and Casualty (P&C) Insurance (2.0 CPE)
4. Insurance: Reinsurance Contracts
5. Fair Value: Overview of ASC 820 (1.5 CPE)
6. Fair Value: Advanced Issues (1.5 CPE)
7. Investments: Debt Securities (1.5. CPE)
8. Credit Losses: Introduction to the CECL Model (1.5 CPE)
9. Derivatives: Characteristics and Scope Exceptions (1.0 CPE)

You can read more about each of the courses in this collection in this blog post!

About GAAP Dynamics
We’re a DIFFERENT type of accounting training firm. We view training as an opportunity to empower professionals to make informed decisions at the right time. Whether it’s U.S. GAAP, IFRS, or audit training, we’ve trained thousands of professionals since 2001, including at some of the world’s largest firms. Our promise: Accurate, relevant, engaging, and fun training. Want to know how GAAP Dynamics can help you? Let’s talk!

Disclaimer
This post is for informational purposes only and should not be relied upon as official accounting guidance. While we’ve ensured accuracy as of the publishing date, standards evolve. Please consult a professional for specific advice.