Nov 20th 2013
By Jason Bramwell
The board of trustees of the Financial Accounting Foundation (FAF) finalized a new policy on November 19 that provides the Governmental Accounting Standards Board (GASB) with direction on what information it may incorporate into the financial accounting and reporting concepts, standards, and guidance that it issues for state and local governments.
The new policy, described in GASB Scope of Authority: Consultation Process Policy, is effective immediately. Key elements of the new policy will be included in the GASB's Rules of Procedure.
The FAF is responsible for the oversight, administration, and finances of both the GASB and the Financial Accounting Standards Board (FASB). The foundation is also responsible for selecting the members of both boards and their respective advisory councils.
Under the new policy, the GASB and the FAF Standard-Setting Process Oversight Committee now have a pre-agenda consultation process to follow in determining whether information the GASB might consider for standard-setting activity is "financial accounting and reporting information."
The GASB's and the Oversight Committee's scope considerations will be based on accounting and reporting characteristics currently in GASB concepts statements. The consultation process will not focus on a specific standard-setting project, according to the FAF.
Under the final policy, the GASB would classify governmental financial information as follows:
Group 1: Information that GASB assesses is clearly within its standard-setting authority that meets the objectives and has the characteristics of governmental financial reporting currently described in GASB Concepts Statement No. 1, Objectives of Financial Reporting, and GASB Concepts Statement No. 3, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements.
Group 3: Information that the GASB assesses as clearly outside the GASB's standard-setting authority (such as information that has no relationship to information presented in general purpose external financial reporting, or does not meet at least one of the objectives of governmental financial reporting as defined in GASB concepts statements 1 and 3.
Group 2: Information that does not clearly possess the characteristics of groups 1 or 3, but that meets at least one of the objectives of governmental financial accounting currently set forth in GASB concepts statements 1 and 3.
When the GASB believes that certain Group 2 information it is considering for standard-setting activities is within its scope, the policy dictates that the GASB and the Oversight Committee will consult on whether the information constitutes financial accounting and reporting information. The GASB and the Oversight Committee will consider the classification of Group 2 information based on characteristics currently contained in GASB concepts statements.
Citing stakeholder concerns that FAF trustees were interfering with the GASB's standard-setting process and independence, the FAF on August 20 issued for public comment a revised proposal on GASB's scope of authority.
"The consultation policy clarifies that the trustees' authority lies in their oversight responsibility and in their authority to determine whether information constitutes financial accounting and reporting information," FAF Chairman Jeffrey Diermeier said in a written statement. "Consultation in the pre-agenda phase limits the trustees' involvement to advising and counseling the GASB about whether information it is considering for standard-setting activity is within the context of financial accounting and reporting."
The final policy trustees approved on Tuesday revised the original proposal so that the GASB would consult with the Oversight Committee in the pre-agenda phase. The policy clarifies that the trustees' authority lies in their oversight responsibility as well as their authority to determine whether information constitutes financial accounting and reporting information. Under the policy, trustees will have no involvement in setting the GASB's agenda or otherwise being involved in its standard-setting process.
"The GASB is pleased that the trustees addressed stakeholder concerns and established a consultation process based on the GASB's concepts statements," GASB Chairman David Vaudt said in a written statement. "The final policy strikes the right balance by maintaining the independence of the GASB while ensuring appropriate oversight by the trustees."
The FAF noted that previously issued GASB concepts, standards, and guidance are not subject to the additional consultation process unless the GASB expands the scope of existing concepts, or expands or reclassifies the information covered by existing standards or guidance.