ASC 720 is Topic 720, Other Expenses, of the FASB Accounting Standards Codification (FASB Accounting Standards Update 2010-27, Other Expenses (Topic 720)). The Codification is the source of authoritative generally accepted accounting principles recognized by the FASB to be applied by nongovernmental entities, and rules and interpretive releases of the Securities and Exchange Commission under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants (FASB Statement No. 168).
A bare reference to ASC 720 is therefore an address rather than a rule. The Topic is the outermost level of the Codification’s classification code, and the requirement a preparer needs sits further down, at Subtopic, Section and paragraph, in the order set out in ASC accounting.
Why the Subtopic Is the Level That Matters
The gap between a Topic number and a rule is wider here than in a Topic built around a single subject. Compare ASC 740, where the Topic name, Income Taxes, tells a reader what the guidance is about. Other Expenses names a residual, so the Topic number narrows the search and settles nothing.
What that looks like in practice is visible in the one Subtopic whose text can be read outside the Codification itself. Accounting Standards Update 2010-27, issued in December 2010, added Subtopic 720-50 with a link to transition paragraph 720-50-65-1. As that Update wrote it, the Subtopic provides guidance on the annual fee paid by pharmaceutical manufacturers to the US Treasury in accordance with the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act (FASB Accounting Standards Update 2010-27, paragraph 720-50-05-1). Nothing about the phrase “other expenses” would lead a preparer to that guidance. The number is what leads there.
What Update 2010-27 Put Into the Topic
The Update’s added paragraphs run through the Subtopic’s standard Sections in order, and each one is a distinct kind of instruction.
The recognition paragraph is the operative rule. The liability related to the annual fee shall be estimated and recorded in full upon the first qualifying sale, with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable (FASB Accounting Standards Update 2010-27, paragraph 720-50-25-1).
The presentation paragraph is one sentence. The annual fee described in paragraph 720-50-05-1 shall be presented as an operating expense (FASB Accounting Standards Update 2010-27, paragraph 720-50-45-1).
The scope paragraph carries the part practitioners misread. As the Update wrote it, the guidance in the Subtopic applies to all pharmaceutical manufacturers subject to the annual fee imposed by those Acts, and it is based on the unique facts and circumstances of that fee, so an entity should apply judgment when evaluating the facts and circumstances of other fee arrangements before analogizing to the guidance in the Subtopic (FASB Accounting Standards Update 2010-27, paragraph 720-50-15-1). That is an instruction not to treat one Subtopic of Topic 720 as a general answer for anything that looks similar.
The Update Is Not the Rule
A citation habit is worth getting right here, because Topic 720’s Subtopics arrive through Updates and it is tempting to cite the Update.
The Board does not consider Accounting Standards Updates authoritative in their own right. They serve only to update the Codification, to provide background information about the guidance, and to provide the bases for conclusions on the changes in the Codification (FASB Statement No. 168). So the rule is the Codification paragraph, and the Update is where a firm looks to see what changed and why.
The same Update records its own changes in a table inside the Subtopic. Paragraph 720-50-00-1 identifies the changes made to the Subtopic, listing each paragraph, the action taken, the Update number and the date (FASB Accounting Standards Update 2010-27, paragraph 720-50-00-1). That table is how a preparer establishes which version of a paragraph applied in a given year.
What ASC 720 Is Not
An income statement line item. Other Expenses is the name of a Topic in a classification scheme, not a caption a company is directed to present. Where captions and subtotals actually come from is covered in the income statement.
A default for costs that fit nowhere else. A Topic number is not an authority to place a cost by elimination. Where guidance for a transaction or event is not specified within a source of authoritative GAAP for an entity, the entity shall first consider accounting principles for similar transactions or events within a source of authoritative GAAP for that entity and then consider nonauthoritative guidance from other sources, and it shall not follow the treatment specified for similar transactions or events where those accounting principles either prohibit applying that treatment to the particular transaction or event or indicate that the treatment should not be applied by analogy (FASB Statement No. 168, paragraph 105-10-05-2). The scope paragraph quoted above is one place where a Subtopic says so itself (FASB Accounting Standards Update 2010-27, paragraph 720-50-15-1).
Topic 740. Similar-looking numbers, unrelated subjects. Topic 740 is Income Taxes (FASB Accounting Standards Update 2023-09, Income Taxes (Topic 740)), and what it requires is in ASC 740.
Common Questions
Not for a rule. It identifies a Topic, and the Codification’s classification code runs Topic, then Subtopic, then Section, then paragraph. Statement No. 168 shows the shape when it inserts Topic 105 and Subtopic 10, with Section 105-10-05 headed Overview and Background and paragraph 05-1 sitting inside it (FASB Statement No. 168). A working citation therefore reaches at least the paragraph, in the form 720-50-25-1 (FASB Accounting Standards Update 2010-27, paragraph 720-50-25-1). A reviewer who is handed a bare Topic number has been given a place to look rather than an answer.
In a client’s accounting policy notes, in a workpaper memo justifying how a cost was recognized, and in the transition tables that record which paragraph applied in which period. In each case the question to ask is the same one: which Subtopic, and which paragraph inside it.
Only if that Subtopic’s scope says so. The Subtopic quoted above states its guidance is based on the unique facts and circumstances of the fee it addresses, and directs an entity to apply judgment when evaluating other fee arrangements before analogizing to it (FASB Accounting Standards Update 2010-27, paragraph 720-50-15-1). Whether a cost is charged as it is incurred or carried forward is a separate question, worked through in expensed as incurred.
Accountably places trained offshore accountants and tax preparers inside US CPA and EA firms, and a firm can run a real block of its own workpaper and policy-note preparation through a trial task before anything client facing depends on it.
