The Governmental Accounting Standards Board issued a “preliminary views” document Monday on the recognition and measurement of elements of financial statements.

The document, known as “Recognition of Elements of Financial Statements and Measurement Approaches,” is intended to set forth and seek comments on the board’s early views on how and when an item should be recognized and reported on state and local government financial statements and the measurement approach for how the amount of the item reported on those statements should be determined.

“The purpose of developing accounting concepts is to promote consistency in standard setting,” said GASB Chairman Robert H. Attmore in a statement. “Along with our concepts on financial reporting objectives, communication methods, and definitions of financial statement elements, these preliminary views create a comprehensive foundation for establishing effective standards for traditional financial statements.”

Recognition concepts encompass two aspects of financial statements—measurement focus and basis of accounting. The measurement focus of a specific financial statement determines what items should be reported as assets, liabilities, and other elements of that financial statement. The related basis of accounting determines when those items should be reported.

The preliminary views document proposes a recognition framework for financial statements prepared using either the “economic resources” measurement focus or the “near-term financial resources” measurement focus. The latter would, from a conceptual standpoint, replace the existing “current financial resources” measurement focus that is used in governmental fund financial reporting. The proposed recognition framework also includes proposed concepts related to recognition of deferred outflows of resources and deferred inflows of resources that would assist GASB in determining when those elements should be used in the standard-setting process.

A measurement approach is a broad concept focusing on whether an asset or liability presented in a financial statement should be (1) reported at an amount that reflects the value when the asset was acquired or the liability incurred or (2) re-measured and reported at an amount that reflects the value at the date of the financial statements. The preliminary views document identifies characteristics of assets or liabilities that would indicate from a conceptual viewpoint when each measurement approach would be appropriately applied in future standard setting.

Constituents are urged to review the preliminary views document and provide comments by Sept. 30, 2011. Copies of the document may be downloaded free of charge from www.gasb.org.

GASB is planning a series of public hearings to elicit feedback on its Preliminary Views. Hearings are planned for October 4 in New York City, October 14 in San Francisco, and October 21 in Chicago. Complete details, including how to participate in the hearings, can be found in the preliminary views document.

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