The Governmental Accounting Standards Board has drafted a proposed Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, listing the order of priority for the types of pronouncements that a state or local government should look to for guidance when preparing their financial statements.

The proposed statement would reduce the existing GAAP hierarchy to two categories of authoritative GAAP from the four categories under GASB Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments.

The first category of authoritative GAAP would consist of GASB Statements of Governmental Accounting Standards. The second category would include GASB Technical Bulletins and Implementation Guides, along with guidance from the American Institute of CPAs that is specifically cleared by the GASB.

GASB is hoping the proposed changes will improve financial reporting for governments by clearly identifying the appropriate accounting guidance to apply. The proposal also is intended to improve implementation guidance by elevating its authoritative status, while 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,” said GASB chairman David A. Vaudt in a statement. “The GAAP hierarchy proposal will help stakeholders be more efficient by bringing all authoritative accounting and financial reporting literature together in one place.”

GASB has also issued an accompanying proposed implementation guide, Implementation Guide No. 20xx-1, which takes into account all the implementation guidance to date. The board’s decision to elevate the level of the implementation guidance in the GAAP hierarchy would require that implementation guides be exposed for a period of broad public comment, as with other GASB pronouncements. The change in the authoritativeness level of implementation guidance required some changes to the existing guidance. A list of those and a description of the changes can be found in Appendix C of the proposed implementation guide.

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

The requirements of the proposed guidance would be effective for financial statements for periods beginning after June 15, 2015.

Both the exposure draft for the GAAP hierarchy and the proposed implementation guide are available for free on GASB’s Web site. GASB is encouraging stakeholders to review the proposals and provide their comments by Dec. 31, 2014.

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