Back to School: A FASB ASC (Accounting Standards Codification) How-to
Back to school

Back to School: A FASB ASC (Accounting Standards Codification) How-to

As summer winds down, the back-to-school season is upon us! While you may not have a shiny new backpack or school supplies, that doesn’t mean you can’t learn something new too! Today we’ll discuss the “accounting rules” found in the Accounting Standards Codification – who makes them, how to locate and navigate them, and how new rules are created. Sharpen your pencils and find your seat – you won’t want to play hooky for this lesson!

Back to school

Overview of ASC

Who makes the “accounting rules”?

The Financial Accounting Foundation (FAF) has two standard-setting boards: the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB). These boards work together to develop U.S. Generally Accepted Accounting Principles, or U.S. GAAP. State and local governments use GASB established standards, while public and private entities and non-profits use FASB established standards (we’ll focus on the FASB standards in this post). The U.S. Securities and Exchange Commission has designated the FASB to be the standard setter for public companies and many other organizations have also recognized the FASB’s standards to be authoritative as well.

Why do we have these rules?

The goal of the FAF is to provide financial statements that investors and users can trust. By having consistently applied “accounting rules”, results and data can be compared across entities by users of the financial statements. The FAF’s website explains that “high quality financial accounting and reporting standards promote better information in the marketplace. Better information fosters greater transparency. Transparent, relevant information helps investors and lenders make better decisions about where to put their money with confidence.”

ASC: Access, organization, and usage

Where to find the rules?

The FASB standards are easy to find – simply go to, click on “Standards”, and then “Accounting Standards Codification.” You’ll then be presented with 3 options:

  • Professional view – an annual subscription that includes all of the searching, joining/combining of standards, cross referencing, and more functionality
  • Academic Institution access – Access to the Professional view for accounting program faculty and students
  • Basic view – this is the free access, but it is a little trickier to navigate as you are able to browse by topic only (it requires more “clicks” to drill down and find the information you need)

Once you have accessed the Accounting Standards Codification, the guidance is ready for your research! The organization of the guidance can be a bit overwhelming; however, once you understand the organizational system, it makes sense.

ASC Organization

The ASC, or Codification, is organized in a specific, standardized manner to allow for efficiency when researching a topic. Each topic begins with the pervasive guidance for the topic, and then additional subtopics are utilized, as needed. 

ASC Organization

Let’s use leases as an example…leases can be found in Topic 842. Subtopics within Leases include 10-Overall (pervasive guidance is located here), 20-Lessee, 30-Lessor, 40-Sale and leaseback transactions, and 50-Leveraged lease arrangements. These subtopics contain information and guidance not contained in the 10-Overall, pervasive guidance area.

Subtopics are divided further into sections. This is where the real detail is located! These sections are consistently numbered for all of U.S. GAAP. Below you will see an image depicting the standardized numbering used for all sections. If there isn’t content for a section it simply will not be listed.

Sections ASC

Continuing with our lease example, if we are looking for information on how to recognize a lease from a lessee perspective, we would navigate to ASC 842-Leases (Topic), then 20-Lessee (Subtopic), 25-Recognition (Section). No matter what topic, Recognition guidance will always be located in Section 25!

The content found within sections is then divided into non-numbered subsections and each paragraph is given a paragraph number.   

Perhaps we are searching for how to recognize a short-term lease in our example from above…if so, we would navigate to ASC 842-20-25-2 to view the guidance associated with short-term leases. (Helpful hint: If you know the reference number, you can always type it in the search box to get there faster!)

Industry specific guidance

Some industries have unique transactions that require specific guidance, so the FASB created industry focused topics. It’s important to note that the industry specific guidance in the Codification is incremental – entities must also follow the guidance in other Topics that do not conflict with the industry-specific guidance. There are currently 15 industry topics in the ASC, such as Agriculture, Airlines, Entertainment, Extractive Activities, Financial Services, Software, and U.S. Steamship Entities.

ASC and SEC guidance

You may have noticed the question on the slide above – “How is accounting guidance issued by the SEC or SEC staff incorporated into the ASC?" It’s a question we frequently receive from course participants!

Magnifying glass

Since the FASB is not responsible for issuing or maintaining SEC guidance, the SEC guidance is not the same as the other guidance found in the Codification. However, as a convenience to its users, the FASB acknowledged that this information is essential for the financial reporting of public companies and, as a result, has incorporated certain guidance from the SEC into the ASC. This guidance is in its own section – S99 SEC Materials Sections.

Be careful here! The information found within the Codification is not the authoritative source (the official SEC guidance is!), which means that it is the user’s responsibility to ensure the appropriate and most current SEC guidance is utilized.



U.S. GAAP is extensive; however, some transactions can occur where there is no guidance! So, what should you do if you experience this? Within the ASC, the General Principles Topic (105) notes that if there is no guidance for a transaction or event, then a specific hierarchy should be followed. First, consider accounting principles for similar transactions or events within a source of authoritative GAAP by analogy, except when the other guidance specifically prohibits the guidance to be applied by analogy. If that is not possible, then entities should consider non-authoritative guidance from other sources.

Examples of non-authoritative accounting guidance an entity may look to could include:

  • Widely recognized industry practice
  • FASB Concept Statements
  • American Institute of Certified Public Accountants (AICPA) Issue papers,
  • International Financial Reporting Standards (IFRS)
  • Pronouncements by professional associations or regulatory agencies

Standard setting process

The world of accounting is constantly changing, which means the “accounting rules” must change too! Typically, the FASB (Board) identifies a topic or issue via requests from users or other means. Research is conducted and conversations occur amongst the Board at public meetings regarding the issues identified and analyzed by the FASB staff. Exposure drafts are issued to obtain public input, and, in some cases, public meetings are conducted. The responses from the public are submitted on “Comment Letters.” The comment letters and public discussions are reviewed at a subsequent public meeting by the Board before an Accounting Standard Update (ASU) is drafted, voted upon by the Board, and issued. The ASUs issued describe what is changing and the logic behind the changes as well as the effective date of the changes.

ASUs are numbered based on the year issued and the update number in a sequential order (e.g., ASU 2021-01 would signify the first ASU issued in the year 2021). The ASU is the FASB’s means to inform the public of the change in guidance. If the change is effective immediately, the Codification is immediately updated upon issuance of the ASU. If the change is not yet effective, the new guidance is incorporated into the Codification and is shown as “pending content” alongside the current guidance until the new guidance is completely effective.

Do you have questions on navigating the ASC? Need help researching a specific topic? We’re here to help! Let’s talk!

About GAAP Dynamics  

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This post is published to spread the love of GAAP and provided for informational purposes only. Although we are CPAs and have made every effort to ensure the factual accuracy of the post as of the date it was published, we are not responsible for your ultimate compliance with accounting or auditing standards and you agree not to hold us responsible for such. In addition, we take no responsibility for updating old posts, but may do so from time to time.

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