The board of trustees of the Financial Accounting Foundation, which oversees the Governmental Accounting Standards Board, issued a proposal Tuesday to alter GASB's consultation process with the trustees on what kind of “financial accounting and reporting information” is within the scope of GASB’s standard-setting mission, and released the results of its latest post-implementation review of GASB standards.
The proposal, “GASB Scope of Authority: Consultation Process–Revised Proposal,” outlines a revised process under which GASB would consult with the FAF trustees’ Standard-Setting Process Oversight Committee to determine whether certain information that the GASB might consider for standard-setting activity is “financial accounting and reporting information” within the scope of GASB’s standard-setting mission. The proposal would clarify the characteristics of the information that GASB could incorporate into the financial accounting and reporting concepts, standards, and guidance that it issues for state and local governments.
The new proposal aims to maintain GASB’s independence by moving the FAF Oversight Committee’s involvement from the agenda-setting process to a pre-agenda consultation. It also would clarify the FAF trustees’ role in advising and counseling GASB as it determines whether information to be used in standard setting constitutes “financial accounting and reporting information.”
“In comments we received on the original proposal, many stakeholders expressed concern that the Trustees were stepping into the GASB‟s standard-setting role,” said FAF chairman Jeffrey J. Diermeier in a statement. “The new proposal would maintain the GASB’s independence by moving the Oversight Committee’s involvement from the agenda-setting process to a pre-agenda consultation. It also would clarify the FAF Trustees’ role in advising and counseling the GASB as it determines whether information to be used in standard setting constitutes ‘financial accounting and reporting information.’”
GASB’s recently appointed chairman David A. Vaudt said the board was pleased with the proposed change. “The GASB is pleased that the trustees have proposed a revised process based upon the GASB’s concept statements and focused on pre-agenda consultation,” Vaudt said. “The revised proposal strikes a balance that should maintain the GASB’s independence while affording the FAF Trustees the appropriate oversight to ensure that the GASB is operating within its scope of authority.”
FAF President and CEO Teresa S. Polley noted that in May, the FAF formed a working group that included the GASB and the FASB chairs to review the original proposal and analyze the relationship between the FAF and the GASB. “The working group and the trustees developed a revised proposal that all of us believe would maintain the independence of the GASB and ensure appropriate oversight authority by the trustees,” she said.
Under the revised proposal, GASB would classify governmental financial information as:
• Group 1: Information that GASB assesses as clearly within its standard-setting authority (such as items recognized in basic financial statements and notes to basic financial statements);
• Group 3: Information clearly recognized as being outside GASB’s standard-setting authority (such as information that has no relationship to information presented in general purpose external financial reporting); and,
• Group 2: Information that does not clearly possess the characteristics of Groups 1 or 3, but meets at least one of the objectives of governmental financial accounting set forth in GASB’s existing Concept Statements.
When GASB believes that certain Group 2 information it is considering for standard-setting activities is within its scope, the proposal provides for GASB and the Oversight Committee to 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 contained in the GASB’s Concepts Statements.
Under the original proposal, GASB, when considering a project containing Group 2 information, would have provided the Oversight Committee with an expanded project proposal during GASB’s agenda-setting and project selection process. The Oversight Committee would have made recommendations to the trustees on whether the project was within the GASB’s scope of authority.
The revised proposal changes the Oversight Committee’s involvement from GASB’s agenda-setting process to a pre-agenda consultation, as follows:
• GASB and the Oversight Committee would consult only to discuss whether the Group 2 information appropriately constitutes “financial accounting and reporting information” in the context of GASB’s mission. The FAF trustees would not vote on specific projects for GASB agenda consideration and would not be involved in GASB’s agenda-setting process.
• If GASB and the Oversight Committee agree that the Group 2 information is financial accounting and reporting information, GASB would be free to include it in a standard-setting project.
• If the Oversight Committee is not satisfied that GASB has demonstrated the Group 2 information is financial accounting and reporting information, it may ask GASB to engage in further research and stakeholder outreach, or the Oversight Committee may refer the matter for FAF Trustees‟ discussion.
• If the trustees are satisfied that GASB has demonstrated that the Group 2 information is financial accounting and reporting information, the GASB would be free to include the information in its standard-setting activities. If the Trustees are not satisfied, the GASB would exclude the Group 2 information from its standard-setting activities.
• GASB’s existing concepts, standards and guidance would not be subject to the consultation process unless GASB expects to expand the scope of existing concepts, or expects to expand or reclassify the information covered by existing standards and guidance.
The proposal is available on the FAF's Web site. Stakeholders can email comments to GASBscope@f-a-f.org or mail them to the following address by September 30, 2013: GASB Scope, Financial Accounting Foundation, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856.
Separately, the FAF said Tuesday that two GASB standards it had reviewed as part of its post-implementation review process had achieved their purpose of improving the consistency and comparability in reporting U.S. state and local governments’ insurance activities.
That was the overall conclusion of the post-implementation review of GASB Statements No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues, and No. 30, Risk Financing Omnibus, an amendment to GASB Statement No. 10. The statements establish accounting and financial reporting standards for risk financing and insurance-related activities of state and local governments, including public risk pools.
The review of Statements 10 and 30 was undertaken by an independent team of the FAF, the parent organization of both GASB and the Financial Accounting Standards Board. The team’s formal report is available at www.accountingfoundation.org.
“On behalf of the FAF and the GASB, I’d like to thank the stakeholders who helped the PIR team assess the real-world application, usefulness, and effectiveness of the insurance and risk financing standards for state and local governments,” said Polley.
Vaudt pointed out that the post-implementation review report on Statements 10 and 30 identified many positive aspects of the insurance and risk financing standards, including their decision-usefulness to users. “We are considering the reported findings and will provide our initial response in the coming weeks,” he added. “Additionally, the FASB is working on a project to amend its guidance for insurance activities. The GASB is actively monitoring that project and, when complete, will determine whether action by the GASB is appropriate.”
The post-implementation review team received input from analysts and other financial statement users, as well as from preparers and auditors. Based on its research, the review team concluded that, overall, Statements 10 and 30 are accomplishing their stated purpose. In particular, their research indicates:
• Statements 10 and 30 resolve the issues underlying their need.
• Preparers and experienced practitioners are able to understand and apply the standards as intended.
• The standards have increased consistency and comparability across governments’ insurance activities.
• The resulting information is reliable and decision useful for those who use it.
• The standards did not result in significant unexpected changes to financial reporting or operating practices, nor did they have any significant unanticipated consequences.
• The implementation and continuing application costs appear to be consistent with the costs that the GASB considered and stakeholders expected, and the benefits appear to be consistent with what the GASB intended.
The PIR team for Statements 10 and 30 also concluded that the standard-setting process worked well overall and contributed to successful standards. The PIR team had no significant standard-setting process recommendations as a result of the review.
The PIR team is currently reviewing FASB Statement 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. In September, the team will survey stakeholders about the application and effectiveness of Statement 157.
Later this year, the PIR team will begin a review of FASB Statement 123(R), Share-Based Payment. Statement 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. It establishes standards for the accounting for transactions in which an organization exchanges its equity instruments for goods or services. It also addresses transactions in which an organization incurs liabilities in exchange for goods or services that are based on the fair value of the organization’s equity instruments or that may be settled by the issuance of those equity instruments.
Stakeholders who would like the opportunity to participate in upcoming PIR surveys, conducted by an independent survey firm on behalf of the Financial Accounting Foundation, should register online.
For more information on the PIR process, visit the FAF’s Web site.
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