What is US GAAP? How the Codification works

Who sets US GAAP?

The Financial Accounting Standards Board (FASB), a private, independent body, sets US GAAP for companies and not-for-profit organisations. It is overseen by the Financial Accounting Foundation. The Securities and Exchange Commission (SEC) has legal authority over the financial reporting of public companies and recognises the FASB's standards as generally accepted.

Two other boards cover the public sector: the Governmental Accounting Standards Board (GASB) for state and local governments, and the Federal Accounting Standards Advisory Board (FASAB) for the federal government. When people say US GAAP, they normally mean the FASB's standards, and that is the meaning used in these guides.

What is the Codification?

Before 2009, US GAAP was spread across hundreds of documents from several bodies: FASB statements, interpretations, staff positions, consensus positions of the Emerging Issues Task Force and more. The FASB reorganised all of it, without changing the substance, into the Accounting Standards Codification, usually shortened to ASC. Since 2009 the Codification has been the single source of authoritative non-governmental US GAAP. Anything not in it is not authoritative, apart from SEC rules for public companies.

How is the Codification organised?

Every reference follows the same pattern, Topic-Subtopic-Section-Paragraph, so ASC 606-10-25-1 means Topic 606 (revenue), Subtopic 10 (overall), Section 25 (recognition), paragraph 1.

The section numbers are the same in every topic, which is what makes the Codification easy to navigate once you know them:

Sections starting with S, such as S99, contain SEC material for public companies.

How does US GAAP change?

The FASB changes the Codification by issuing an Accounting Standards Update (ASU). ASUs are numbered by year and sequence, so ASU 2024-03 was the third update issued in 2024. An ASU is not authoritative in its own right: it explains the change and its effective date, and then the Codification text is amended. Like the IASB, the FASB consults publicly, normally through an exposure draft, before finalising an update.

An example: finding the rule for a contract

For the revenue standard itself, see ASC 606 revenue recognition explained.

A company signs an agreement to deliver equipment and wants to know whether it has a contract for revenue purposes. It goes to Topic 606, Subtopic 10, Section 25 on recognition. Paragraph 606-10-25-1 lists the criteria a contract must meet, such as approval by both parties, identifiable rights and payment terms, and the probability of collection. If the agreement fails a criterion, the company looks at the following paragraphs to see how to account for it until it passes.

Who uses US GAAP?

US public companies must, because the SEC requires domestic issuers to apply it. Many private companies follow it too, because banks, investors and acquirers expect it. Private companies can also choose some simpler alternatives developed by the Private Company Council, such as amortising goodwill. Foreign companies listed in the United States may report under IFRS as issued by the IASB instead. See who uses IFRS and who uses US GAAP.

Is US GAAP rules-based?

More than IFRS, but less than its reputation suggests. Recent standards such as ASC 606 on revenue were written jointly with the IASB and rest on the same principles. The difference is that US GAAP still contains more detailed guidance, bright lines and industry-specific requirements. See IFRS vs US GAAP: the key differences and the main Codification topics.

This guide is general information. It is not tax or legal advice for your situation.