New GAAP Hierarchy for State and Local Governments Urged by the GASB

A proposal made by the Governmental Accounting Standards Board (GASB) last week would give state and local governments new guidance to follow under US Generally Accepted Accounting Principles (GAAP) when preparing financial statements.

The GASB on February 27 released an exposure draft, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, that would supersede guidance contained in GASB Statement No. 55, which was issued in March 2009.

The GAAP hierarchy lists the order of priority for pronouncements that a government should follow, according to the GASB.

Under the proposal, the GASB plans to reduce the GAAP hierarchy for state and local governments from four categories to two. Those two categories of authoritative GAAP would include:

  1. GASB statements of governmental accounting standards.
  2. GASB technical bulletins and implementation guides, as well as guidance from the American Institute of CPAs (AICPA) that is specifically cleared by the GASB.

GASB officials said the proposed changes to the GAAP hierarchy would improve financial reporting for governments by clearly identifying the appropriate accounting guidance to apply. It would also improve implementation guidance by elevating its authoritative status and, therefore, requiring that all implementation guidance be exposed for public comment.

“Applying accounting standards can sometimes be complex, but identifying the right standards to apply should not be,” GASB Chairman David Vaudt said in a written statement. “The GAAP hierarchy proposal will help stakeholders be more efficient by bringing all authoritative accounting and financial reporting literature together in one place.”

The GASB also issued a proposed implementation guide, Implementation Guide No. 20xx-1, to accompany the new hierarchy proposal. The guide is a culmination of all implementation guidance to date and would elevate the level of the implementation guidance in the GAAP hierarchy.

The change in the authoritativeness level of implementation guidance necessitated certain changes to the existing guidance, GASB officials said. A list and description of changes can be found in Appendix C of the proposed implementation guide.

The proposed guidance would go into effect for financial statements for periods beginning after June 15, 2015, according to Vaudt.

Stakeholders have until December 31, 2014, to review and provide comments to the GASB on the hierarchy and implementation guide proposals.

“Providing stakeholders with a greater opportunity to submit their input on the GASB’s implementation guidance will undoubtedly improve its usefulness,” Vaudt said.

Comments should be addressed to the Director of Research and Technical Activities, Project No. 33-1ED, and e-mailed to director@gasb.org or mailed to: Governmental Accounting Standards Board, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116.

You may like these other stories...

The Financial Accounting Standards Board (FASB) has relaunched its technical agenda web page, which Chairman Russell Golden said will inform visitors at a glance on where any given FASB project stands, the steps it took to...
Tax accounting to be simplified for money-market fundsThe US Securities and Exchange Commission (SEC) voted 3-2 on Wednesday for sweeping changes to institutional money-market funds, Emily Chasan, senior editor of...
Read more from Larry Perry here and in the Today's World of Audits archive.AU-C Section 800, Special Considerations—Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks, paragraph ....

Upcoming CPE Webinars

Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.