Rule Atlas
FASB ASC 606: FASB, GASB, and the Standard-Setting Process
Under FASB ASC 606 (AICPA / FASB / IRS), fASB, GASB, and the Standard-Setting Process establishes the authoritative rules tested on the CPA Exam. A deep dive into the U. VoraPrep verifies every threshold, worked table, and practice question below against the current CPA Exam blueprint.
Current Statutory Thresholds & Limits in Effect
The Authoritative Source: The FASB Accounting Standards Codification (ASC)
| Level | Example | Description |
|---|---|---|
| Topic | ASC 606 | A broad area of accounting (e.g., Revenue from Contracts with Customers) |
| Subtopic | ASC 606-10 | A more specific subset of the topic (e.g., Overall) |
| Section | ASC 606-10-25 | Relates to the type of content (e.g., -25 for Recognition) |
| Paragraph | ASC 606-10-25-1 | The specific, authoritative guidance |
The City of Meadowbrook, a local governmental entity, is preparing its annual comprehensive financial report (ACFR). The city's controller needs to ensure the financial statements are prepared in accordance with the appropriate standards. Which organization's pronouncements are the primary source of generally accepted accounting principles (GAAP) for the City of Meadowbrook?
Worked Example: Creating a Standard for Digital Assets
Scenario: Companies are increasingly holding cryptocurrencies like Bitcoin. Existing GAAP for intangible assets (historical cost less impairment) often fails to reflect the economic reality of these highly volatile assets, leading to inconsistent accounting practices.
- Step 1 (Identification): Investors and preparers write to FASB, highlighting that reporting Bitcoin at its historical cost from years ago isn't useful information when its market value has changed dramatically.
- Step 2 (Agenda): After extensive research confirming the problem's pervasiveness, the Board votes to add a project on the "Accounting for and Disclosure of Crypto Assets" to its agenda.
- Step 3 (Deliberation & ED): The Board deliberates whether these assets should be measured at historical cost, fair value through net income, or fair value through other comprehensive income. They tentatively decide on a fair value model with changes reported in net income and issue an Exposure Draft proposing this change, with a 75-day comment period.
- Step 4 (Feedback): FASB receives over 300 comment letters. Many investors strongly support the fair value model. Some companies, however, argue that reporting unrealized gains and losses in net income will create excessive earnings volatility for non-financial entities.
Common CPA Exam Distractors on FASB ASC 606
- 1Use this framework to dissect questions about the standard-setting bodies and their processes:
- 2Step 1. Identify the Entity. Is the company in the scenario a business/NFP or a state/local government? This is the first branch in the decision tree and determines whether FASB or GASB has jurisdiction.
- 3Step 2. Pinpoint the Authority Source. Is the question about the process of making rules (due process), the source of the rules (ASC), or the oversight body (FAF/SEC)? The question's wording will point you to the right organization or document.
- 4Step 3. Distinguish ASU from ASC. Remember an ASU amends the ASC; the ASC is the authoritative GAAP itself. The exam loves to test this distinction. An ASU is the update instruction, not the final rulebook.
- 5Step 4. Recall the Hierarchy. FAF oversees and funds both FASB and GASB. The SEC has statutory authority over public companies but delegates standard-setting to FASB. Don't confuse their specific roles.
Frequently Asked Questions: FASB ASC 606
What is the core rule under FASB ASC 606 (FASB, GASB, and the Standard-Setting Process)?
Under FASB ASC 606 (AICPA / FASB / IRS), fASB, GASB, and the Standard-Setting Process establishes the authoritative rules tested on the CPA Exam. A deep dive into the U. VoraPrep verifies every threshold, worked table, and practice question below against the current CPA Exam blueprint.
How is FASB ASC 606 tested on the CPA Exam?
Use this framework to dissect questions about the standard-setting bodies and their processes: Step 1. Identify the Entity. Is the company in the scenario a business/NFP or a state/local government? This is the first branch in the decision tree and determines whether FASB or GASB has jurisdiction.
Where can I practice CPA Exam questions on FASB, GASB, and the Standard-Setting Process?
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.