“Codification” means the FASB Accounting Standards Codification electronic research system developed and released by the FASB which houses, reorganizes and indexes United States financial accounting standards and related literature (FASB Accounting Standards Codification®). The codification can basically be referred to as a one stop complete authorized source of reference for GAAP framework in order to adhere to the requirements of fair financial reporting by non-governmental entities. The codification comprises of authoritative standards from FASB, AIPCA and others and it does not involve any changes to the actual standards and is applicable to both public and private companies.
The FASB had three primary goals in developing the Codification: first to simplify user access by codifying all authoritative US GAAP in one spot; second to ensure that the codified content accurately represented authoritative US GAAP as of July 1, 2009, and third to create a codification research system that is up to date for the released results of standard-setting activity.
Basically the reasons behind the codification was to gather all US GAAP standards and make it easier for any individual to search for guidance in one place by using keywords or by narrowing the search by categories. Additionally, it eliminated the redundancy of statements among different standards and with just one source it allows the user to cite the relevant code with up to date standards.
For instance, to find out the disclosure requirements with regards to initial indirect costs not included in an operating lease by the lessor, a researcher would type “initial direct cost operating lease” in the search box and the results are instantaneously displayed in different contexts where applicable with relevant citation being ASC 840-20-25-22. Moreover, the research portal is updated accordingly adhering to the implementation of any new standards or amendments reducing the possibility of outdated information being cited.
The codification also includes “relevant portions of authoritative content issued by the SEC and selected SEC staff interpretations and administrative guidance” (The American Institute of Certified Public Accountants) that is useful to the public companies to provide reference pertaining to the preparation of basic financial statements. Unlike the codification being one authoritative source of standards, the inclusion of relevant SEC content in the codification is not a substitute or replacement of the applicable rules and regulation issued by the SEC.
After the codification went into effect, PCAOB did not object to it by releasing a staff Q&A document titled “References to authoritative accounting guidance in PCAOB standards.” PCAOB, being an oversight for the independent auditors of public companies specifically drafted the document with role of auditors in mind. The release recognized FASB codification as one authoritative source of GAAP. It also elaborated on the inclusion of GAAP (prior to the codification) within the standards issued by the PCAOB and the effect of implementation of the codification. The release first clarified that prior to the codification, any references to GAAP in PCAOB standards were not actual representations of “authoritative sources of U.S. GAAP” and informed that prior references to GAAP might be outdated and may not be consistent with implementation of codification. (Public Company Accounting Oversight Board) Above all, the document cited section 108 of Sarbanes Oxley Act which recognizes GAAP standards issued by FASB; therefore, the release clarified the authority of the codification. Secondly, PCAOB emphasized on the interpretation and change in wording in the codification that might force a reader to understand a specific treatment differently than what it actually says and advised the user of the codification that FASB accepts feedbacks to improve the content of the codification. Finally, the board advised that auditors are required to become knowledgeable about using the codification and required that the reference and or citation be used for financial statements for periods ending after September 15, 2009.
The underlying focus of the codification is concerned with the effective usage of one source (codification) eliminating the complexity of usage of standards that existed previously. Basically, the codification includes necessary guidance and standards required to confirm with the GAAP requirement and excludes standards relevant to governmental accounting and reporting. It also excludes “nonessential material such as redundant summaries of existing standards, historical content, discussions of previous practice, summaries of constituent feedback, and similar content.” (The American Institute of Certified Public Accountants). Also, the codification excludes outdated standards and non-GAAP matters such as Other Comprehensive Basis of Accounting- OCBOA (including cash basis, income tax basis, or regulatory accounting principles).” Finally, before the implementation of the codification, many standards emphasized on the applicability of the standards based on the materiality of certain items. However, the codification excludes such emphasis in order to maintain the consistency of the codification.
The codification is arranged by area followed by topic, subtopic, section and paragraph and the codification citation is in the format of XXX-YY-ZZ-PP. The codification contains ninety individual topics divided unequally among nine areas, where for instance, topic 705 refers to cost of sales and services within the “expense”area. It is to be noted that area is not a part of the citation and the first three numbers of the citation refers to the topic number. (PricewaterhouseCoopers LLP) Each topic contains at least one subtopic and a varied number of sections depending on the specific topic (categorization). Subtopics are generally distinguished by type or by scope. In the above example about cost of sales and services (topic) includes six subtopics: overall, agriculture, contractor and so on providing guidance on each. Each section represents the content of a subtopic and each paragraph under a section represents the treatment of a specific transaction. Finally, there are two features known as “join sections and “combine sections” which allows the user to combing similar type to content rather than browse each individual section.
In conclusion, the codification is broad step from FASB which makes the GAAP available in one place and is user friendly.

Works Cited
“FASB Accounting Standards Codification®” Notice to Constituents (v 4.8) About the Codification
"Accounting Standards Codification." Notice to Constituents (v 4.7). Norwalk: Financial Accounting Foundation, 2012. Document.
PricewaterhouseCoopers LLP. "FASB Accounting Standards Codification Quick Reference Guide." 2009. Document.
Public Company Accounting Oversight Board. References to authoritative accounting guidance in PCAOB standards. Release. Washington DC: Public Company Accounting Oversight Board, 2009. Online.