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 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 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 no longer active
  • 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 considered several recognition approaches from a conceptual standpoint for use in governmental fund financial statements.

Work Plan—Recognition:


Board meetings Topics to be considered
January—March 2016: Financial reporting model project proceeds with consideration of improvements to government-wide, governmental fund, and fiduciary fund financial statements.
May 2016: Assess appropriateness of reporting model format/terminology changes to concepts.
June 2016—December 2017: 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: Discuss preballot draft of Preliminary Views on recognition concepts, if necessary.
May 2018: Discuss ballot draft of Preliminary Views on recognition concepts, if necessary.
June—September 2018: Comment period, if necessary.
October 2018: Public hearings, if necessary.
November 2018—September 2019: Redeliberate issues related to recognition concepts, if necessary.
October 2019: Discuss draft concepts section of an Exposure Draft..
November 2019: Discuss preballot draft of an Exposure Draft of proposed recognition concepts
December 2019 (T/C): Discuss ballot draft and issue Exposure Draft of proposed recognition concepts.
December 2019—April 2020: Comment period.
April 2020: Public hearings.
May 2020: Redeliberate issues related to recognition concepts.
April 2021: Discuss preballot draft of final Concepts Statement.
May 2021: Discuss ballot draft and issue final Concepts Statement.

Conceptual Framework: Recognition—Recent Minutes


Minutes of Meetings, October 6-8, 2015


The Board recommenced the project with a session on the history of the conceptual framework project on recognition of elements of financial statements. The discussion was primarily educational in nature and no decisions were reached.

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.
  • Recognition concepts for financial statements prepared using the economic resource 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 would be evaluated to determine whether it meets the definition of an outflow of resources or inflow of resources.
  • 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 will be developed further.