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:
Preliminary Views issued June 2011
Added to Current Agenda: December 2005
Added to Research Agenda: August 2005

Conceptual Framework: Recognition—Project Plan

Background: The Board frequently must decide whether an item of information should be recognized in the financial statements and when such an item 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 is needed to provide the GASB with conceptual guidance as to when elements of financial statements should be reported in particular financial statements. 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 on measurement of elements of financial statements in 2014, and a conceptual framework project on recognition 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 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, but replaced by the task force appointed for the reexamination of the financial reporting model
  • 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
  • Deliberations recommenced in conjunction with the Financial Reporting Model project: October 2015.
Current Developments: The Board continued to refine the near-term financial resources, working capital, and total financial resources recognition approaches for use in governmental fund financial statements. The Board received feedback on the recognition alternatives at a meeting of the project task force.

Work Plan:


Board meetings Topics to be considered
November  2016–March 2018: Financial reporting model project proceeds with issuance of Invitation to Comment/due process period/redeliberations.
January–March 2018: Finalize views on proposed concepts.
April 2018: Review first draft of a Preliminary Views on recognition concepts, if necessary.
May 2018: Discuss preballot draft of Preliminary Views on recognition concepts, if necessary.
July 2018: Discuss ballot draft and consider a Preliminary Views on recognition concepts for approval, if necessary.
August–November 2018: Comment period, if necessary.
January 2019: Public hearings, if necessary.
March–November 2019: Redeliberate issues related to recognition concepts, if necessary.
January 2020: Discuss draft of an Exposure Draft of proposed recognition concepts.
March 2020: Discuss preballot draft of an Exposure Draft of proposed recognition concepts
April 2020 (T/C): Discuss ballot draft and consider Exposure Draft of proposed recognition concepts for approval.
May–July 2020: Comment period.
August 2020: Public hearings.
September 2020–July 2021: Redeliberate issues related to recognition concepts.
August 2021: Discuss draft of a final Concepts Statement.
September 2021: Discuss preballot draft of a final Concepts Statement.
November 2021: Discuss ballot draft and consider a final Concepts Statement for approval.

Conceptual Framework: Recognition—Recent Minutes


Minutes of Meetings, May 10-11, 2016

The Board discussed three general approaches to the recognition of elements of financial statements and presentation for governmental fund financial statements: near-term financial resources, working capital, and total financial resources. For each approach, the Board discussed messages conveyed by financial statements, recognition concepts, potential benefits and challenges, and illustrative financial statements.

Minutes of Meetings, March 20-31, 2016

The Board discussed three general approaches to the recognition of elements of financial statements and presentation for governmental fund financial statements: near-term financial resources, working capital, and total financial resources. For each approach, the Board discussed the relationship with the objectives of financial reporting, messages conveyed by financial statements, recognition concepts, potential benefits and challenges, recognition of specific transactions, and pre-agenda research. After the discussion, the Board tentatively decided to further develop all three approaches.

Minutes of Meetings, February 16-18, 2016

The Board continued discussion of two general approaches to the recognition of elements of financial statements and presentation for governmental fund financial statements. The two approaches discussed by the Board include: near-term financial resources and working capital. The working capital approach included two different versions: working capital with past-due compensation liabilities and working capital with current shortfall in compensation liabilities. For each approach, the Board discussed the relationship with the objectives of financial reporting, messages conveyed by financial statements, recognition concepts, potential benefits and challenges, recognition of specific transactions, and pre-agenda research. After the discussion, the Board tentatively decided to further develop the near-term financial resources approach and the version of the working capital approach with past-due compensation liabilities. In addition, the Board tentatively agreed to develop a total financial resources approach.

Minutes of Meetings, January 5-7, 2016

The Board continued discussion of three general approaches to the recognition of elements of statements for governmental fund financial statements. The three approaches discussed by the Board include near-term financial resources, near-term financial resources with current-period operating liabilities, and working capital (formerly referred to as short-term accrual). For each approach, the Board discussed the relationship with the objectives of financial reporting, messages conveyed by financial statements, recognition concepts, potential benefits and challenges, recognition of specific transactions, and pre-agenda research. After the discussion, the Board tentatively decided to further develop the near-term financial resources approach, working capital approach, and a working capital approach with a variation to recognition of post-employment benefits and compensated absences.

Minutes of Meetings, November 18-20, 2015

The Board considered five general approaches to the recognition of elements of financial statements and presentation for governmental fund financial statements. The five potential approaches discussed by the Board include near-term financial resources, near-term financial resources with current-period operating liabilities, working capital (formerly referred to as short-term accrual), cash basis, and multiple measurement focuses/bases of accounting. The Board discussed the general features of each approach as well as the potential benefits and challenges that are associated with each approach. After the discussion, the Board tentatively decided to further develop the near-term financial resources, near-term financial resources with current-period operating liabilities, and working capital approaches.

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 decided that:
  • The economic resources measurement focus should 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 should 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 should 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 resources measurement focus should 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 should be evaluated to determine whether it meets the definition of an outflow of resources or inflow of resources.
  • The near-term financial resources approach, short-term financial resources approach, and long-term financial resources approach will be presented in the Invitation to Comment in conjunction with the Financial Reporting Model Reexamination project.