Did the FASB Codification Reduce the Complexity of Applying US GAAP?

Abstract

We examine whether the Financial Accounting Standards Board (FASB) can reduce financial reporting complexity without changing the underlying accounting guidance. We test whether the launch of the FASB Codification made it easier for preparers to locate the relevant accounting guidance. We find that areas of U.S. GAAP with more dispersed and voluminous guidance before the Codification experience a larger post-Codification reduction in restatements. We find a similar decline in SEC comment letter questions referencing areas of U.S. GAAP with more difficult-to-locate guidance. Our results suggest that, prior to the Codification, preparers had difficulty in locating the appropriate accounting guidance and that the Codification mitigated this difficulty.