What Does SOP Stand for in Accounting?

Accounting rules are key tools that regulators and financial market players use to evaluate the economic soundness of companies. Without appropriate and uniform rules, investors may be unable to assess the operating performance of corporations. A statement of position, or SOP, is an important accounting opinion that organizations take into consideration when running their businesses.

Identification

• An SOP is a report in which the American Institute of Certified Public Accountants takes a stand on an accounting or financial reporting issue. The AICPA issues SOPs through its Accounting Standards Executive Committee, which is the senior technical body of the institute. Accounting topics featured in SOPs include recording rules concerning financial accounts, such as assets, liabilities, expenses, revenues and equity items. Financial reporting issues relate to accounting procedures concerning balance sheets, statements of profit and loss, statements of cash flow and retained earnings reports.

Significance

• In the United States, the AICPA remains an influential organization in the areas of accounting and financial reporting, and provides authoritative analyses on key accounting topics. Key areas in which the institute contributes substantially include the formulation of U.S. generally accepted accounting principles and international financial reporting standards. U.S. GAAP, IFRS and SOPs generally provide the conceptual framework from which accountants record transactions and prepare operating reports.

Issuance Process

• The AICPA issues a statement of position if its senior technical committee believes that an accounting area lacks proper rules with respect to bookkeeping and financial reporting. The committee drafts an SOP and circulates it to various accounting industry participants, including businesses, financial managers, regulators and academia. After summarizing the various feedback, the committee rewrites the SOP.

  Financial Accounting Standards Board members pay particular attention to SOPs, and regularly meet with the AICPA to coordinate regulatory initiatives. For example, the AICPA believes current accounting rules for stock options are unclear or not adapted to existing financial regulations. The technical committee drafts a statement of position on the topic and submits it to the business community for review. The committee may also submit the SOP to the U.S. Securities and Exchange Commission, FASB and accounting lecturers. The AICPA will then review any feedback received and rewrite a new, final SOP.

Time Frame

• No specific deadline exists by which the AICPA must issue an SOP after its technical committee identifies a topic of interest and decides to provide an opinion of the issue. Depending on the issue and the interest it generates in the business community, publishing time frames may range from a few months to a few years.

Misconceptions

• Although SOPs constitute important opinions to which organizations pay attention when preparing financial reports, these statements are not formal accounting rules. Companies still need to conform to GAAP and IFRS when recording and reporting operating data.