GASB Discussion Memo: Rethinking the Structure of GAAP

Introduction

When it comes to navigating accounting principles, clarity and accessibility are essential for practitioners and stakeholders alike. In a recent development, the Governmental Accounting Standards Board (GASB) has issued a discussion memo focusing on the fundamental question: How should Generally Accepted Accounting Principles (GAAP) be structured to best serve the state and local government community?

Background

This is not a new conversation in the world of accounting standards. The Financial Accounting Standards Board (FASB) addressed a similar issue over a decade ago. In 2010, FASB introduced a codification approach—consolidating all authoritative GAAP guidance into a single, searchable resource. Updates are made via Accounting Standards Updates (ASUs), but the codification remains the authoritative source. Practitioners look to the codification, not individual ASUs, for the most up-to-date requirements.

In contrast, GASB has long maintained a dual authority structure: both the GASB Statements and the GASB Codification are considered authoritative. This can create confusion. If a statement is amended, relying solely on the original pronouncement may result in applying outdated information.

The Dual Authority Challenge

GASB recently embarked on a pre-agenda research project to assess how effective this dual authority approach is in practice. Their research included surveys and interviews aimed at understanding how stakeholders interact with GASB literature and the potential implications of moving to a single authority model.

Key Survey Insights

Out of 683 survey respondents:

• Most use some combination of individual published pronouncements (GASB Statements), the original codification collection, or the codification itself.

• Notably, about 40% rely exclusively on standalone pronouncements. This is cause for concern, as these may contain superseded guidance.

Stakeholder Preferences

Interviews highlighted the comprehensive nature and user-friendliness of the codification, mirroring the positive impact seen with FASB’s single-source approach. The AICPA and international standard setters have also gravitated toward consolidated codification models.

Analyzing Alternatives

In the next phase of research, GASB looked at how other standard setters organize their authoritative literature, seeking to identify the best components for a potential single-source model.

The Single Authority Vision

GASB’s discussion memo is now seeking feedback on a model where:

• The codification would become the sole authoritative GAAP source.

• All updates and changes would be reflected directly within the codification through amendments.

• New standards would be communicated via non-authoritative standalone documents (much like FASB’s ASUs), paired with pending content in the codification.

The codification, initially developed in 1984, already organizes guidance into parts and sections covering:

• General principles

• Financial reporting

• Measurement

• Specific balance sheet items

• Standalone reporting for specialized areas

Although comprehensive, practitioners often default to relying on the statements, not the codification itself.

What Would Change?

The move to a single authoritative codification would:

• Eliminate confusion from dual authority sources

• Streamline research

• Require changes in how practitioners cite standards and navigate guidance

Share Your Feedback

GASB is actively seeking stakeholder input before proceeding. Comments are due by August 31st. Questions to consider:

• Does a single authoritative source make sense for state and local government GAAP?

• Would this change improve your day-to-day research and application?

• Have you explored the current codification and can you distinguish between authoritative and non-authoritative content? (05:05, 05:13)

Visit the GASB website to access the codification and related materials.

Conclusion

A shift to a single, authoritative codification could be a significant advancement for governmental GAAP, improving usability, reliability, and compliance. Your input is crucial in shaping this direction. Take time to review the discussion memo, explore the codification, and provide your thoughts to GASB. This is an opportunity to help create a more robust and accessible GAAP framework.

For more updates and insights, stay tuned to the Genuine Learning Blog!