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GASB Simplifies GAAP Hierarchy for State and Local Governments

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Jul 6th 2015
Staff Writer and Editor AccountingWEB
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The Governmental Accounting Standards Board (GASB) issued guidance on June 29 that is intended to make the hierarchy of Generally Accepted Accounting Principles (GAAP) less complex for users of state and local government financial statements.

Under GASB Statement No. 76, TheHierarchy of Generally Accepted Accounting Principles for State and Local Governments, the standard-setting board reduced the GAAP hierarchy from four categories to two.Those two categories of authoritative GAAP 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 that is specifically cleared by the GASB.

The GAAP hierarchy identifies the sources of guidance that state and local governments follow when preparing financial statements in conformity with GAAP and lists the order of priority for pronouncements to which a government should look for guidance.

GASB officials said the changes to the GAAP hierarchy will improve financial reporting for governments by clearly identifying the appropriate accounting guidance to apply. The changes will 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 be straightforward,” GASB Chairman David Vaudt said in a written statement. “Statement 76 goes a long way toward making that a reality.”

The guidance also addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP.

The GASB also recently cleared Implementation Guide No. 2015-1, which incorporates changes resulting from feedback received during the public exposure of all the implementation guidance previously issued.

The requirements take effect for reporting periods beginning after June 15, 2015.

Related article:

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

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