What is 'Accounting Interpretation'

Accounting interpretation is a statement clarifying how accounting standards should be applied. Accounting interpretations are issued by accounting standards groups, such as the Financial Accounting Standards Board (FASB), American Institute of CPAs (AICPA) or International Accounting Standards Board (IASB). Interpretations are generally not requirements, but rather outline best practices and give further explanation.

BREAKING DOWN 'Accounting Interpretation'

As financial transactions continue to evolve, new situations develop that may not have been foreseen by the existing accounting standards. In this case, accounting boards may choose to issue an interpretation outlining the recommended practices for accounting as questions arise. In other cases, an entirely new standard may be issued for a class of financial transactions that did not previously exist, or a standard could be updated ("ASU," or Accounting Standard Update, in the parlance of the FASB) if the nature of a change in a transaction is significant enough to warrant an adjustment.

Example of Accounting Interpretation

In December 2006, the FASB issued Interpretation No. 48 for FASB Statement No. 109 regarding Accounting for Income Taxes. In the interpretation, the accounting board "prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return." The interpretation describes the two-step process of recognition and measurement and the resultant impact on financial statements with respect to income taxes payable or receivable, as well as deferred tax assets and liabilities.

When the FASB releases an interpretation, it will also cite the reason for it and explain how the interpretation will improve financial reporting. In the case of No. 48, FASB states that "this Interpretation will result in increased relevance and comparability in financial reporting of income taxes because all tax positions accounted for in accordance with Statement 109 will be evaluated for recognition, derecognition and measurement using consistent criteria."

RELATED TERMS
  1. Statement of Financial Accounting ...

    The Statement of Financial Accounting Concepts is issued by the ...
  2. Accounting Changes And Error Correction

    Requirements for the accounting for and reporting of a change ...
  3. Accounting Standard

    An accounting standard is a common set of principles, standards ...
  4. Statement of Financial Accounting ...

    Statements of Financial Accounting Standards were published by ...
  5. APB Opinion

    An APB opinion is an authoritative pronouncement issued by the ...
  6. Accounting Standards Committee ...

    The Accounting Standards Committee (ASC) develops standards for ...
Related Articles
  1. Investing

    GAAP And The IFRS Standards Convergence Efforts In 3 Substantial Areas

    Understand the specific steps that have been taken in hopes of converging the GAAP and the IFRS accounting standards, despite the philosophically and culturally based methodological differences ...
  2. Investing

    Gauging the Impact of Combining GAAP and IFRS

    The convergence of accounting standards is changing the attitudes of CPAs and CFOs toward harmonization of international accounting.
  3. Personal Finance

    Accountant: Job Description & Average Salary

    Discover what the job description of an accountant entails, along with education and training, salary and skills necessary for success.
  4. Trading

    Forex Basics: Setting Up An Account

    The line between profitable forex trading and ending up in the red may be as simple as choosing the right account.
  5. Investing

    International Reporting Standards Gain Global Recognition

    Comparing financial numbers from corporations in different countries is possible with the adoption of IFRS.
  6. Investing

    What are Financial Statements?

    Financial statements are a picture of a company’s financial health for a given period of time at a given point in time. The statements provide a collection of data about a company’s financial ...
  7. Personal Finance

    Career advice: Accountant versus controller

    Learn about the differences between controllers and accountants, how the two are related and which is the best career choice for aspiring bookkeepers.
RELATED FAQS
  1. When and why were GAAP first established?

    Take a deeper look into the development and purpose of the generally accepted accounting principles, also known as GAAP, ... Read Answer >>
  2. How does financial accounting help decision making?

    Read a brief overview of some areas where financial accounting helps in decision making for investors, lending institutions ... Read Answer >>
  3. How is accounting in the United States different from international accounting?

    Learn how accounting standards differ between the International Financial Reporting Standards, or IFRS, and generally accepted ... Read Answer >>
  4. What is the difference between principles-based accounting and rules-based accounting?

    Almost all companies are required to prepare their financial statements as set out by the Financial Accounting Standards ... Read Answer >>
  5. What is cost accounting?

    Learn about the main benefits of cost accounting systems, how they are different from financial accounting and why they are ... Read Answer >>
Trading Center