The Codification and SEC requirements

What about the Codification and SEC requirements?

Public companies have separately authoritative requirements from the SEC (U.S. Securities and Exchange Commission) that pertain to environmental disclosure. Those requirements were not made part of FASB’s (Financial Accounting Standards Board) Codification instructions, per se.

Instead, relevant portions of authoritative content issued by the SEC and selected SEC staff interpretations and administrative guidance are shown in the Codification as a convenience to users, for reference purposes only, according to FASB. FASB attempts to make it clear that the Codification does not replace or affect requirements or guidance issued by the SEC or its staff for public companies in their filings with the SEC.

The Codification’s SEC content is held in separate Sections, with headings that begin with the letter S. For example, FASB ASC Subtopic 450-20 (for loss contingencies) has SEC content in:

• S00 Status
• S25 Recognition
• S30 Initial Measurement
• S50 Disclosure
• S75 XBRL Elements
• S99 SEC Materials

Meanwhile, there is no SEC content in FASB ASC Subtopic 410-20 (for asset retirement obligations) or in FASB ASC Subtopic 820-10 (for fair value measurement), as indicated by no Section headings beginning with the letter S.

FASB reminds users that SEC content being in the Codification does not affect the SEC’s normal update procedures for the information. Users may find delays between SEC changes and FASB’s incorporation of the modified text in the Codification.

The Codification does not contain all SEC guidance. It excludes content outside the scope of basic financial statements. Notably, and potentially pertaining to an entity’s environmental liabilities, it does not include SEC content from SEC Regulation S-K, Item 303, about Management’s Discussion and Analysis.

So, where are Codification instructions for environmental liabilities?

Effective now for public companies is a new source of instructions for recognizing, measuring, and disclosing liabilities under U.S. generally accepted accounting principles (US GAAP). Released by the Financial Accounting Standards Board (FASB) and called the Codification, it replaces and supersedes all other non-SEC (U.S. Securities and Exchange Commission) instructions, e.g., all preceding FASB standards and guidance.

Where are instructions in the Codification for recognition, measurement, and disclosure of environmental liabilities?

Locating those instructions requires users to adjust from the standards-based model for information that FASB formerly used to the Codification’s topics-based organization. Recall that information in the standards-based model had the topics loss contingencies and asset retirement obligations for environmental liabilities.

The Codification has roughly 90 formal Topics, subdivided further into Subtopics, Sections, paragraphs, and subparagraphs. Codification Topics are identified by 3-digit numbers, and Subtopics and Sections by 2-digit numbers.

Instructions for loss contingencies and asset retirement obligations in the Codification are found at the Subtopic level, in these five Subtopics:

• FASB ASC Subtopic 410-20, Asset Retirement and Environmental Obligations – Asset Retirement Obligations.
• FASB ASC Subtopic 410-30, Asset Retirement Obligations and Environmental Obligations – Environmental Obligations.
• FASB ASC Subtopic 450-20, Contingencies – Loss Contingencies
  FASB ASC Subtopic 805-20, Business Combinations – Identifiable Assets and Liabilities, and Any Noncontrolling Liabilities.
• FASB ASC Subtopic 820-10, Fair Value Measurements and Disclosures – Overall.

It will take some initial effort for users to adjust to new locations for information formerly associated with other sources. The Codification does provide users with assistance in that effort, however. With the Codification’s Cross Reference feature, users can select a former source name, e.g., FAS 5 or FAS 143, and be directed to its content in the Codification.

Still news--the Codification and environmental liabilities

In July this year, the Financial Accounting Standards Board (FASB) changed things by releasing a new source of instructions for recognizing, measuring, and disclosing liabilities, including environmental liabilities, for compliance with U.S. generally accepted accounting principles (US GAAP). That new source of instructions is the Accounting Standards Codification, or the Codification (FASB, 2009a). Its release capped a 5-year project effort by FASB.

The Codification replaced and supersedes all other non-SEC (U.S. Securities and Exchange Commission) instructions, e.g., all preceding FASB standards and guidance. It pertains for entities for interim and annual reporting periods ending after September 15, 2009, i.e., now.

This is still news because the Codification’s organization of information is substantially different than before, requiring entities to adjust. For application to environmental liabilities, is this new organization of instructions simpler for entities? Better?

First, why was the Codification created, i.e., why the change by FASB?

Before beginning the Codification project, FASB solicited and obtained feedback from entities about its project need and scope. It heard that the “then-current structure of US GAAP was unwieldy, difficult to understand, and difficult to use” to the “vast majority” of respondents (FASB, 2009b). Respondents “believed that they may have missed relevant literature when they performed research,” because of the dispersed nature of US GAAP (FASB, 2009b). The “volume, complexity, and lack of integration made it difficult” for professionals to stay current and train personnel (FASB, 2009b). It “increase[d] financial reporting risks and create[d] inefficiencies that [led] to increased costs,” respondents contended (FASB, 2009b).

For FASB, these responses confirmed the need to create for entities simpler access to US GAAP instructions, logically by locating “all the authoritative literature related to a particular Topic in one place.” (FASB, 2009b)

Next, where are the Codification’s instructions for environmental liabilities?

[Sources: FASB (Financial Accounting Standards Board), Accounting Standards Codification, http://asc.fasb.org (accessed December 4, 2009); and FASB, Accounting Standards Codification, Notice to Constituents (v. 3.0), About the Codification, October 2009.]