Rule Atlas
FASB ASC 105: Master the GAAP Hierarchy & FASB Codification
Under FASB ASC 105 (AICPA / FASB / IRS), master the GAAP Hierarchy & FASB Codification establishes the authoritative rules tested on the CPA Exam. Learn to navigate the sole source of authoritative U. VoraPrep verifies every threshold, worked table, and practice question below against the current CPA Exam blueprint.
Current Statutory Thresholds & Limits in Effect
Both finance and operating leases (>12 months) record a Right-of-Use (ROU) asset and lease liability on the balance sheet.
The GAAP Hierarchy: Authoritative vs. Non-Authoritative
| Level | Source | Status for Nongovernmental Entities |
|---|---|---|
| Authoritative | FASB Accounting Standards Codification (ASC) | The single source of U.S. GAAP. |
| Authoritative | SEC Rules and Interpretive Releases (Reg S-X, SABs) | Also authoritative, but only for public companies (issuers). |
| Non-Authoritative | FASB Concepts Statements (CONs) | Foundational theory, but not GAAP. Useful for understanding the 'why' behind a standard. |
| Non-Authoritative | AICPA Issues Papers, Technical Practice Aids | Persuasive guidance, but not binding. |
| Non-Authoritative | IFRS, Industry Practice, Textbooks, Articles | May be helpful for understanding, but cannot be cited as justification for an accounting treatment. |
University Health System is a large hospital that operates as a component unit of a state-funded public university. The hospital's controller is evaluating the proper accounting treatment for a new, complex equipment leasing arrangement. Which standard-setting body's pronouncements provide the primary source of authoritative U.S. GAAP for University Health System's financial reporting?
Worked Example: Identifying the Correct Standard
Scenario: You are an auditor for Nexus Corp., a publicly-traded technology company. The CFO approaches you with a question about a newly signed, complex 10-year lease for their corporate headquarters. The CFO presents an analysis based on an old internal policy document that references SFAS 13, arguing for a specific, favorable accounting treatment. Which source of guidance should you direct the CFO to for the correct accounting?
- Step 1: Identify the Entity Type. Nexus Corp. is a publicly-traded company, making it an 'issuer'.
- Step 2: Determine the Governing Body. As an issuer, Nexus is subject to the rules of both the FASB and the SEC. The primary source for accounting standards is the FASB.
- Step 3: Pinpoint the Authoritative Source. The transaction is a lease. The current authoritative guidance for leases is found in the FASB Codification under ASC 842, Leases*. The old standard, SFAS 13, was superseded and is no longer authoritative.
- Step 4: Formulate the Conclusion. The CFO's reliance on an old, non-authoritative internal policy referencing a superseded standard is incorrect. The controlling guidance is ASC 842.
Common CPA Exam Distractors on FASB ASC 105
- 1Use this framework to systematically solve any question about authoritative guidance.
- 2Step 1: Identify the Entity Type. Is the company in the scenario a public issuer, a private nonissuer, a not-for-profit, or a state or local government? This is the most critical first step.
- 3Step 2: Determine the Governing Body. If it's a state or local government, the GASB is the authority. For all others (public, private, NFP), the FASB is the primary authority. If it's a public company (issuer), remember the SEC has overriding authority.
- 4Step 3: Pinpoint the Authoritative Source. For a non-governmental entity, the answer will always be the FASB Codification. For an issuer, it's the Codification plus SEC guidance. For a government, it's GASB pronouncements.
- 5Step 4: Discard Non-Authoritative Noise. Exam questions will often include distractors like FASB Concept Statements, IFRS, or AICPA practice aids. Immediately identify these as non-authoritative and eliminate them as options.
Frequently Asked Questions: FASB ASC 105
What is the core rule under FASB ASC 105 (Master the GAAP Hierarchy & FASB Codification)?
Under FASB ASC 105 (AICPA / FASB / IRS), master the GAAP Hierarchy & FASB Codification establishes the authoritative rules tested on the CPA Exam. Learn to navigate the sole source of authoritative U. VoraPrep verifies every threshold, worked table, and practice question below against the current CPA Exam blueprint.
How is FASB ASC 105 tested on the CPA Exam?
Use this framework to systematically solve any question about authoritative guidance. Step 1: Identify the Entity Type. Is the company in the scenario a public issuer, a private nonissuer, a not-for-profit, or a state or local government? This is the most critical first step.
Where can I practice CPA Exam questions on Master the GAAP Hierarchy & FASB Codification?
Test yourself instantly with the free playable CPA Exam question on this page, or launch VoraPrep's full CPA Exam adaptive question bank, interactive lessons, and 1:1 exam simulator at voraprep.com/cpa.