The Financial Accounting Foundation’s Board of Trustees, who oversee the Governmental Accounting Standards Board and the Financial Accounting Standards Board, has adopted a new policy clarifying the characteristics of the information that GASB can 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, which was issued Tuesday, is effective immediately, and key elements of the new policy will be included in the GASB’s Rules of Procedure.
The policy outlines a pre-agenda consultation process for GASB and the FAF’s Standard-Setting Process Oversight Committee to follow in determining whether information the GASB might consider for standard-setting activity is “financial accounting and reporting information” within the scope of the GASB’s standard-setting mission.
GASB’s and the Oversight Committee’s scope considerations will be based on accounting and reporting characteristics currently in the GASB’s Concepts Statements. The consultation will not focus on a specific standard-setting project.
Also announced today at the FAF Board of Trustees meeting was that the post-implementation review team that has been reviewing the effectiveness of various GASB and FASB standards, will next initiate a review of GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, and related GASB Statement No. 36, Recipient Reporting for Certain Shared Nonexchange Revenues, after completing their review of GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries, next year.
“In our initial proposal, stakeholders were concerned that the proposed process could involve the Trustees inappropriately in the GASB’s agenda setting and interfere with the GASB’s standard-setting process and independence,” said FAF chairman Jeffrey J. Diermeier in a statement. “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. 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.”
Under the final policy, the GASB will classify governmental financial information as follows:
Group 1: Information that the 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 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 Statement 1 and GASB Concepts Statement 3); and
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 the GASB’s existing Concepts Statements 1 and 3.
When GASB believes that certain Group 2 information it is considering for standard-setting activities is within its scope, the policy provides that GASB and the Oversight Committee will consult on whether the information constitutes “financial accounting and reporting information.” GASB and the Oversight Committee will consider the classification of Group 2 information based on characteristics currently contained in the GASB’s Concepts Statements.
The final, approved policy revised the original proposal so that GASB would consult with the Oversight Committee in the pre-agenda phase. The policy clarifies that the trustees’ authority lies in their oversight responsibility, and their authority to determine whether information constitutes “financial accounting and reporting information.” It also reiterates that the trustees will have no involvement in setting the GASB’s agenda or otherwise being involved in the GASB’s independent standard-setting process.
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.
“The GASB is pleased that the trustees addressed stakeholder concerns and established a consultation process based on the GASB’s Concepts Statements,” said GASB chairman David A. Vaudt. “The final policy strikes the right balance by maintaining the independence of the GASB, while ensuring appropriate oversight by the trustees.”