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The Simplification of Accounting

kid understanding [1]To quote Russell G. Golden, FASB Chairman in his column addressing the real need to simplify Generally Accepted Accounting Principles…… “If you can’t explain it to a six year old, you don’t understand it yourself.”

The FASB is listening to investors, other users, and preparers of financial statements that the complexities of GAAP have caused financial reports to become unclear, obscure and complicated. The FASB also acknowledges certain GAAP accounting treatment is difficult and expensive to apply.

According to Russell Gorden’s column the FASB, and in what we have already seen in the standards setting arena, accounting simplification has begun and will continue. Reducing complexity and simplifying accounting is being addressed for both private and public companies. As discussed in my May 20, 2014 post the FASB has already issued three GAAP alternatives to simplify accounting for private company accounting and still be GAAP compliant.

In June the FASB launched an initiative to simplify GAAP which includes various projects which are narrow in scope. The projects address simplifying accounting for inventory measurement and for extraordinary and unusual items. There are numerous other projects, beyond the scope of this post, on which the FASB is working to bring about real change in financial reporting.

The FASB is actively soliciting comments, suggestions and solutions for simplifying GAAP for public companies, private companies, not-for-profit organizations, and employee benefit plans. You can email them at fasbcomments@fasb.org.

Hopefully all of the FASB’s initiatives will make for less complex, more understandable, user friendly financial statements.