Definition: An accounting interpretation is a clarifying statement promulgated (issued) by an accounting standards group. These statements are leveraged by various users of the financial accounting standard to ensure consistent application of the standard within financial statements.
What Does Interpretation Mean?
What is the definition of interpretation? There are several accounting standards groups that provide accounting interpretations to the public for use in clarifying and elaborating on the various accounting standards. Organizations such as the International Accounting Standards Board (IASB) , the Financial Accounting Standards Board (FASB) , and the American Institute of Certified Public Accountants (AICPA), all provide accounting interpretations.
Who uses the accounting interpretations? The primary users of accounting interpretations are public and private accountants, as well as key users of any organizations financial statements. Anyone who relies on the accuracy, completeness, and comparability of the organizations financial statements in accordance with all applicable accounting standards may leverage an accounting interpretation to better understand the financial statements.
Let’s take a look at an example.
A good example of an accounting interpretation is FASB Interpretation No. 48, which provides clarifying remarks regarding the accounting standards outlined in FASB Statement No. 109, Accounting for Income Taxes. While on the surface, the accounting for income taxes may sound like a rather simple accounting standard to follow, the FASB found that the interpretations of the standard were inconsistent, and many uncertainties surrounded the application of the standard.
Given that accounting for income taxes is structured by tax law, it’s possible that different accountants apply different methodologies when applying the law. The differences when applying the standard generated concern within the FASB, and therefore they determined there was a need for a formal accounting interpretation of FASB Statement No. 109. The accounting interpretation issued by the FASB (FASB Interpretation No. 48) was intended to improve the financial reporting of income taxes, and ensure comparability of the accounting for income taxes within financial statements.
Define Accounting Interpretations: An accounting interpretation is a clarifying document provided by an accounting standards group that elaborates on the applicable accounting standard.