Statement No. 162, "The Hierarchy of Generally Accepted Accounting Principles," was issued last Thursday. It's not a standard that will drive investment decisions - but if you're an investor who's in a conversation with a CFO and the subject comes up, it might help to understand what the of "GAAP hierarchy" comes up, it might help to know a little bit about it.

Here's the background. The American Institute of CPAs had long decided what constituted the strength in various "levels" of generally accepted accounting principles because their constituents - auditors - needed a consistent policy on how to handle conflicts in accounting literature when more than one standard might be found on a single topic. Hence, there were "levels" with in the "house of GAAP," as it's frequently called. When the AICPA dictated auditing standards, it mattered that they be the ones to establish the hierarchy - but that right was removed with the establishment of the Public Company Accounting Oversight Board in 2003. The right to set accounting principles was also removed from the AICPA by the Sarbanes-Oxley Act: it required the SEC to appoint a single accounting standard setter for the establishment of accounting standards. And it picked the FASB, not the AICPA.

The FASB has now revised the standards hierarchy; it's absorbed many AICPA standards into its own domain. They didn't simply vanish along with the AICPA's authority. Here's how the new hierarchy of generally accepted accounting principles shapes up, in descending order of authority:

♦ FASB Statements of Financial Accounting Standards and Interpretations, FASB Statement 133 Implementation Issues, FASB Staff Positions, and American Institute of Certified Public Accountants (AICPA) Accounting Research Bulletins and Accounting Principles Board Opinions that are not superseded by actions of the FASB

♦ FASB Technical Bulletins and, if cleared2 by the FASB, AICPA Industry Audit and Accounting Guides and Statements of Position

♦ AICPA Accounting Standards Executive Committee Practice Bulletins that have been cleared by the FASB, consensus positions of the FASB Emerging Issues Task Force (EITF), and the Topics discussed in Appendix D of EITF Abstracts
(EITF D-Topics)

♦ Implementation guides (Q&As) published by the FASB staff, AICPA Accounting Interpretations, AICPA Industry Audit and Accounting Guides and Statements of Position not cleared by the FASB, and practices that are widely recognized and
prevalent either generally or in the industry.

The hierarchy still needs to be approved by the PCAOB to be completely effective on the auditing community. When you look at how many sources of accounting principles still exist after the clean-up, you can appreciate the calls for simplicity and the arguments made in favor of International Financial Reporting Standards. Make no mistake however: the more popular they become, the more interpretation and guidance they'll require. It wouldn't be surprising to IFRS principles grow at a rapid clip over the next few years.