Project Pages

Conceptual Framework—Recognition

Project Description: The objective of this project is to develop recognition criteria for whether information should be reported in state and local governmental financial statements and when that information should be reported. This project ultimately will lead to a Concepts Statement on recognition of elements of financial statements.

Status:
On Hold Pending Reexamination of the Financial Reporting Model
Preliminary Views issued June 2011
Added to Research Agenda: August 2005
Added to Current Agenda: December 2005

Conceptual Framework: Recognition—Project Plan


Background
: The Board frequently must decide whether an item of information should be recognized in the financial statements, when such an item should be recognized, and at what amount it should be recognized. In the past, the Board has relied on the conceptual framework of other standards setters and analogous examples from practice or previous standards to make such decisions. This method of making decisions tends to lead to certain inconsistencies in financial reporting standards and could result in too much reliance being placed on accounting concepts that were not developed for a governmental environment.

Thus, the project on recognition and measurement is needed to provide the GASB with conceptual guidance as to when elements of financial statements should be reported in particular financial statements and at what amount. This will entail developing recognition criteria and will include a discussion of when elements of financial statements are recognized using different measurement focuses. For the GASB to make consistent financial reporting decisions, it is necessary to have (1) definitions of the elements of financial statements, (2) a basis for determining when elements of financial statements should be recognized in the financial statements, and (3) a basis for determining which measurement approach (for example, initial amounts or remeasured amounts) is appropriate for reporting the elements. The GASB issued a Concepts Statement on the definitions for the elements of financial statements in 2007, and a conceptual framework project on recognition and measurement is necessary to complete the conceptual basis for reporting items in traditional financial statements.

Accounting and Financial Reporting Issues:

  1. What messages are financial statements conceptually attempting to convey? (In other words, what is the story that the financial statements attempt to communicate, or what questions should be answered by reading different financial statements and financial statements prepared using different measurement focuses? For example, the statement of cash flows answers the question, “What happened to cash during the year?”)
  2. What is the relationship among objectives of financial reporting (user needs), financial statements, measurement focuses, and measurement approaches at the conceptual level?
  3. How does when an element is recognized affect the meaning that is to be conveyed by a particular financial statement?
  4. What are the fundamental recognition criteria necessary to report an element in a financial statement?
Project History:
  • Pre-agenda research approved: August 2005
  • Combined with measurement project on current technical agenda: December 2005
  • Task force established? Yes
  • Deliberations began: December 2007
  • Preliminary Views approved: June 2011
  • Comment period: July–September 2011
  • Public hearings held: October 2011
  • User interviews regarding Preliminary Views conducted: October–November 2011
  • Separated from measurement project: December 2011
  • Project placed on hold pending financial reporting model reexamination: January 2012

Work Plan—Recognition:


Board meetings Topics to be considered

To be coordinated with the pre-agenda research on the reexamination of the financial reporting model

 

Conceptual Framework: Recognition—Recent Minutes


Minutes Archive

 

Conceptual Framework: Recognition—Tentative Board Decisions to Date


The Preliminary Views, Recognition of Elements of Financial Statements and Measurement Approaches was approved in June 2011.

The Board tentatively proposed that:
  • The economic resources measurement focus be defined as follows:
    The economic resources measurement focus incorporates all outflows of resources and inflows of resources and all assets, liabilities, deferred outflows of resources, and deferred inflows of resources.
  • The recognition criteria for financial statements prepared using the economic resources measurement focus continue to include the first criterion proposed in the Preliminary Views—that of meeting the definition of an element of the financial statements—and the second criterion be modified to indicate that measurement of the item sufficiently reflects the qualitative characteristics described in Concepts Statement No. 1, Objectives of Financial Statements. 
  • Recognition concepts for financial statements prepared using the economic resource measurement focus include a three-step hierarchy, in which an item is first evaluated to determine whether it meets the definition of an asset or liability. If the item does not meet the definition of an asset or liability, the item is evaluated to determine whether it meets the definition of a deferred outflow of resources or deferred inflow of resources. If the item does not meet the definition of a deferred outflow of resources or deferred inflow of resources, the item would be evaluated to determine whether it meets the definition of an outflow of resources or inflow of resources.
    • The continued development of recognition concepts for the current financial resources measurement focus be placed on hold pending future coordination with the proposed reexamination of the financial reporting model.