By Jason Bramwell
Citing stakeholder concerns that trustees of the Financial Accounting Foundation (FAF) were "stepping into the standard-setting role" of the Governmental Accounting Standards Board (GASB), the FAF on August 20 issued for comment a revised proposal to clarify the characteristics of information that the GASB may incorporate into the financial accounting and reporting concepts, standards, and guidance that it issues for state and local governments.
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.
The proposal, GASB Scope of Authority: Consultation Process - Revised Proposal, outlines a revised process through which the GASB would consult with the FAF trustees' Standard-Setting Process Oversight Committee to determine whether certain information that the GASB might consider for standard-setting activity is "financial accounting and reporting information" within the scope of GASB's standard-setting mission.
"In comments we received on the original proposal, many stakeholders expressed concern that the trustees were stepping into the GASB's standard-setting role," FAF Chairman Jeffrey Diermeier said in a written statement. "The new proposal would maintain the GASB's independence by moving the Oversight Committee's involvement from the agenda-setting process to a pre-agenda consultation. It also would clarify the FAF trustees' role in advising and counseling the GASB as it determines whether information to be used in standard setting constitutes financial accounting and reporting information."
GASB Chairman David Vaudt said the board was pleased that FAF proposed a revised process based upon the GASB's concepts statements and focused on pre-agenda consultation.
"The revised proposal strikes a balance that should maintain the GASB's independence while affording the FAF trustees the appropriate oversight to ensure that the GASB is operating within its scope of authority," he said.
This past May, the FAF formed a working group that included the GASB and the FASB chairs to review the original proposal on GASB's scope of authority and analyze the relationship between the FAF and the GASB.
"The working group and the trustees developed a revised proposal that all of us believe would maintain the independence of the GASB and ensure appropriate oversight authority by the trustees," FAF President and CEO Teresa Polley said.
What Changes are Being Proposed?
Under the revised proposal, the GASB would classify governmental financial information as the following:
- Group 1: Information that GASB assesses as clearly within its standard-setting authority, such as items recognized in basic financial statements and notes to basic financial statements
- Group 3: Information clearly recognized as being outside GASB's standard-setting authority, such as information that has no relationship to information presented in general-purpose external financial reporting
- 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 set forth in the GASB's existing concepts statements
When the GASB believes that certain Group 2 information it is considering for standard-setting activities is within its scope, the proposal provides for the GASB and the Oversight Committee to 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 contained in the GASB concepts statements.
Under the original proposal, the GASB – when considering a project containing Group 2 information – would have provided the Oversight Committee with an expanded project proposal during the GASB's agenda-setting (project-selection) process. The Oversight Committee would have made recommendations to the trustees on whether the project was within the GASB's scope of authority.
The revised proposal changes the Oversight Committee's involvement from the GASB's agenda-setting process to a pre-agenda consultation, as follows:
- The GASB and the Oversight Committee would consult only to discuss whether the Group 2 information appropriately constitutes financial accounting and reporting information in the context of the GASB's mission. The FAF trustees would not vote on specific projects for GASB agenda consideration and would not be involved in the GASB's agenda-setting process.
- If the GASB and the Oversight Committee agree that the Group 2 information is financial accounting and reporting information, the GASB would be free to include it in a standard-setting project.
- If the Oversight Committee is not satisfied that the GASB has demonstrated the Group 2 information is financial accounting and reporting information, it may ask the GASB to engage in further research and stakeholder outreach, or the Oversight Committee may refer the matter for FAF trustees' discussion.
- If the trustees are satisfied that the GASB has demonstrated that the Group 2 information is financial accounting and reporting information, the GASB would be free to include the information in its standard-setting activities. If the trustees are not satisfied, the GASB would exclude the Group 2 information from its standard-setting activities.
- The GASB's existing concepts, standards, and guidance would not be subject to the consultation process unless the GASB expects to expand the scope of existing concepts, or expects to expand or reclassify the information covered by existing standards and guidance.
Stakeholders are encouraged to provide comments on the proposal by September 30.