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:
- GASB statements of governmental accounting standards.
- 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 [email protected] or mailed to: Governmental Accounting Standards Board, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116.