Projects

Project Pages

GAAP Hierarchy

Project Description: This project considers possible modifications to the GAAP hierarchy, as set forth in Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. It reexamines the hierarchy levels to assess whether the standards-setting process and the governmental financial reporting environment have sufficiently evolved since the establishment of the original hierarchy by the AICPA in 1992 to warrant reconsideration or reconfiguration of certain aspects of the structure.

Status:
Currently Being Deliberated
Added to Current Agenda: April 2012
Added to Research Agenda: April 2011

GAAP Hierarchy—Project Plan

Background: At the beginning of the project that resulted in Statement 55 and Statement No. 56, Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards, the Board evaluated two approaches. One approach considered was to adopt the GAAP hierarchy essentially as it currently exists in the AICPA’s auditing literature. The other approach considered was to reexamine the hierarchy levels to assess whether they should be reconsidered or reconfigured based on changes to the standards-setting process and the governmental financial reporting environment since the hierarchy was set forth. The Board recognized that taking the first approach would not significantly affect practice but the latter approach, involving redeliberation, could have resulted in changes in practice. The Board concluded that the transition from the audit literature to the accounting and financial reporting standards should be as undisruptive as possible; therefore, the first approach was taken. This project entails pursuing the latter course of action and could result in changes to the structure of the GAAP hierarchy.

Accounting and Financial Reporting Issues:

Should some categories be combined to provide for fewer levels?
Should Implementation Guides (Q&As) be elevated to a higher level (currently level D)? Should AICPA pronouncements be elevated to a higher level (currently in levels B and C)? Should GASB Technical Bulletins be elevated to a higher level (currently level B)?
Should the FASB Accounting Standards Codification be added to paragraph 6 as “other accounting literature?”

Project History: A proposal to add the project to the research agenda was discussed by the GASAC at its March 2011 meeting. The project was rated among the GASAC’s five highest priorities. The project was added to the research agenda in April 2011.

The project was discussed with the AICPA’s state and local government expert panel at the Board’s November 2011 liaison meeting. The general sentiment among the members of the panel was support for the Board to consider amending the hierarchy to elevate the status of the Implementation Guides to level A. Those guides are currently in level D. The most significant issues to be addressed are (1) the assessment of the issues in the Comprehensive Implementation Guide for incorporation into the Codification, and (2) how to subject the existing guidance to appropriate due process.

In March 2012, the GASAC reviewed a project prospectus that recommended addition to the current agenda, and the project was again rated among the top five priorities. In April 2012, the Board moved the project from the research to the current technical agenda. The project staff began researching the current hierarchy and considered (1) the evolution of the hierarchy for state and local governments, (2) the hierarchy of other standard-setting bodies, and (3) the impact to accounting and financial reporting and to due process of the many potential alternatives to revise the hierarchy. The Board began initial deliberations on proposed revisions to the GAAP hierarchy at the August 2012 meeting.

The Board began deliberations on proposed revisions to the GAAP hierarchy at the August 2012 meeting. The Board discussed the rigor of due process, intended purpose, and method of Board approval for GASB literature (Statements, Interpretations, Technical Bulletins, Implementation Guides, and Concepts Statements) and tentatively concluded that for guidance to be placed at the highest level of GAAP, the source should be (1) formally approved by the Board for the purpose of creating, amending, superseding, interpreting, clarifying, explaining, or elaborating on standards, and (2) exposed for a period of public comment. Based on the use of GASB literature in practice and respondent comments to the Exposure Draft that led to Statement 55, the Board tentatively decided to reduce the GAAP hierarchy to two levels: authoritative and nonauthoritative. This would place all GASB literature at the highest level of GAAP with the exception of Concepts Statements. Because Concepts Statements are not issued with the intended purpose of setting standards, but rather to create a conceptual framework for standards setting, the Board tentatively decided that Concepts Statements should remain nonauthoritative.

The Board tentatively concluded to revise the due process for Implementation Guides and the Comprehensive Implementation Guide to include public exposure and Board approval, which would elevate it to the highest level of GAAP. The Board also discussed AICPA literature that is authoritative under the existing hierarchy and plans to continue deliberations on placement of AICPA literature in the proposed GAAP hierarchy at future meetings.

The Board considered whether practices that are widely recognized and prevalent in state and local government should remain authoritative and tentatively concluded that prevalent practice should be nonauthoritative because it is not subject to due process or approved by the Board. Also, the Board tentatively decided to remove the placeholder in the existing GAAP hierarchy for consensus positions of a group of accountants organized by the GASB that attempts to reach consensus positions on accounting issues applicable to state and local governmental entities until such a group is created. The Board also tentatively decided to add the FASB Accounting Standards Codification as nonauthoritative literature.

At the October 2012 meeting, the Board tentatively decided to discontinue Interpretations and Technical Bulletins due to their infrequency and the ability to communicate such guidance through Statements in the future. The Board tentatively concluded that existing Interpretations would be incorporated into authoritative literature by reference as they are given authority equal to Statements in the existing GAAP hierarchy. The Board also began discussions at the October 2012 meeting and continued those discussions in the November 2012 meeting regarding the proposed methods of analyzing the existing Implementation Guides in preparation for public exposure and elevation to the highest level of GAAP. The Board tentatively decided that analysis of the Implementation Guide on an individual question-and-answer basis was necessary prior to public exposure to determine whether existing guidance is appropriate for the highest level of GAAP. Because the existing Implementation Guides are authoritative under the existing hierarchy, the Board tentatively concluded that the analysis will follow an approach that considers a question-and-answer authoritative unless it only contains guidance that is directly stated in the related pronouncements or is illustrative. The Board also discussed the results of an analysis of Chapter 2 of the Comprehensive Implementation Guide performed under this approach and reached tentative decisions on the individual questions-and-answers within that chapter.

Current Developments: At the January 2013 meeting, the Board discussed the approach to nonauthoritative literature when a transaction or event is not specified within a source of authoritative GAAP or cannot be analogized to accounting principles for similar transactions or events within a source of authoritative GAAP. The Board tentatively decided to clarify that governments in this situation should not select an accounting policy from a nonauthoritative source that conflicts with or contradicts authoritative GAAP. The Board also discussed how the GASB Concepts Statements should influence the evaluation of the appropriateness of nonauthoritative literature and tentatively concluded that, in evaluating the appropriateness of nonauthoritative literature, a government should consider its consistency with the GASB Concepts Statements, its relevance to particular circumstances, the specificity of the guidance, and the general recognition of the issuer or author as an authority. The Board also discussed the previous tentative decisions regarding the discontinuation of Technical Bulletins and tentatively decided that existing Technical Bulletins would be incorporated into Statements through a reference. The Board plans to revisit tentative decisions regarding Technical Bulletins in its April 2013 meeting.

At the February 2013 meeting, the Board deliberated the appropriate placement in the GAAP hierarchy of the American Institute of Certified Public Accountants (AICPA) Industry Audit and Accounting Guides, AICPA Statements of Position, and AICPA Practice Bulletins that have been specifically made applicable to governments and cleared by the GASB. The Board tentatively decided that the AICPA should continue to be recognized as an organization that promulgates authoritative accounting and financial reporting guidance; however, this status would be dependent on the authoritative pronouncements being subject to a mutually agreed-upon due process and continuing to be cleared by the GASB. In addition, the Board tentatively agreed to add a second level of authoritative literature and place the authoritative AICPA pronouncements in that second level.

The Board also continued the analysis of the Comprehensive Implementation Guide and discussed Chapters 3 and 4. The Board tentatively decided that the analysis should be improved to separate illustrative material from the answers and place that information in an appendix, to include any answers that link concepts between Statements, to combine answers that would be more effectively presented in combination, and to remove answers that only present guidance that would be similar to the Basis for Conclusions of a Statement.

Work Plan:

Board meetings	Topics to be considered
May 2013:	Review Chapters 1 and 6 of the Comprehensive Implementation Guide.
June 2013:	Review Chapter 10 of the Comprehensive Implementation Guide.
August 2013:	Review Chapter 7—Part 1 of the Comprehensive Implementation Guide.
September 2013:	Review Chapter 7—Part 2 of the Comprehensive Implementation Guide.
October 2013:	Review Chapters 5 and 8 of the Comprehensive Implementation Guide and draft standards section of a proposed Statement.
December 2013:	Review preballot draft of Exposure Draft of a proposed Statement and the Comprehensive Implementation Guide.
February 2014:	Review ballot draft and issue Exposure Draft of a proposed Statement and the Comprehensive Implementation Guide.
February–December 2014:	Comment period.
January–March 2015:	Redeliberation of issues raised in response to the Exposure Drafts.
April 2015:	Review preballot draft of final Statement and Comprehensive Implementation Guide.
June 2015:	Review ballot draft and issue final Statement and Comprehensive Implementation Guide.

GAAP Hierarchy—Recent Minutes

Minutes of Meeting, April 2-4, 2013

After adding a second level to the authoritative section of the hierarchy of generally accepted accounting principles (GAAP hierarchy) at the February 2013 meeting, the Board tentatively agreed to propose retaining GASB Technical Bulletins in this level. The Board also addressed the placement of the Comprehensive Implementation Guide (CIG), and tentatively decided to propose the promotion of the CIG to the second level of authoritative literature, below GASB Statements in the GAAP hierarchy. The Board also tentatively agreed to propose that Technical Bulletins and the CIG would remain staff documents subject to clearance by the Board, which means they would be issued if four or more GASB members do not object to their issuance.

Based on the revised methodology for analyzing the CIG on an individual question-and-answer (Q&A) basis identified at the February 2013 meeting, the Board reconsidered specific questions in Chapters 2, 3, and 4 of the CIG. The Board concluded discussions by providing comments and suggestions regarding the staff analysis of Chapters 9 and Z of the CIG on an individual Q&A basis.

Minutes of Teleconference, March 11, 2013

The Board discussed the analysis of Chapter 4 of the Comprehensive Implementation Guide on a question-and-answer basis and tentatively agreed with the staff recommendations contained in the issues papers with the understanding that certain questions marked for removal would be reviewed further by staff and presented for reconsideration at the April meeting.

Minutes of Meeting, February 19-21, 2013

The Board considered revisions to the method used when conducting the analysis of the Comprehensive Implementation Guide (CIG) on an individual question-and-answer (Q&A) basis. The Board tentatively elected to modify the current criteria to include the ability to improve the guidance provided in a Q&A, separate an illustration from authoritative guidance, combine Q&As, and remove Q&As that only provide the basis for conclusions or the applicability of nonauthoritative literature. The Board furthered discussions by reviewing the analysis of Chapter 3 of the CIG within the context of the revised methodology.

The Board deliberated the current role of the AICPA in the standards-setting process and governmental financial reporting environment and evaluated alternatives for placement of GASB-cleared AICPA Pronouncements within the GAAP hierarchy. The Board tentatively agreed to propose that the AICPA continue to be recognized as an organization that promulgates authoritative accounting and financial reporting guidance; however, this status would be dependent on the authoritative pronouncements being subject to a mutually agreed-upon due process and continuing to be cleared by the GASB.

The Board concluded its discussion by addressing the creation of a second authoritative level, below authoritative GASB pronouncements, in the GAAP hierarchy. The Board tentatively agreed to propose that AICPA pronouncements cleared by the GASB be placed within the second authoritative level.

Minutes of Meeting, January 8-9, 2013

The Board examined alternatives for the presentation of nonauthoritative literature and discussed whether specific nonauthoritative sources should be more influential or be given preference over others. The Board tentatively agreed that compliance with GASB Concepts Statements prior to all other nonauthoritative literature should not be mandatory as this requirement would create a definitive hierarchy within the nonauthoritative literature.

The Board also discussed and tentatively agreed to eliminate the example that states that GASB Concepts Statements are normally more influential than other nonauthoritative sources as it did not add clarity to the evaluation of appropriateness of nonauthoritative literature. The Board further discussed if consistency with the GASB Concepts Statements should be considered along with relevance to particular circumstances, specificity of the guidance, and the general recognition of the issuer or author as an authority when evaluating the appropriateness of nonauthoritative literature. The Board tentatively decided to propose a modified paragraph that would provide that governments should consider consistency with the GASB Concepts Statements when evaluating the appropriateness of a nonauthoritative source.

The Board also considered and tentatively decided that the qualitative characteristics and substance over form should not be specifically mentioned in the evaluation of nonauthoritative literature because to do so would be redundant with the consideration of the GASB Concepts Statements.

The Board continued its discussion by addressing the existing wording in paragraph 5 of GASB Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, and tentatively decided to propose amending paragraph 5 to clarify that nonauthoritative guidance should not conflict with or contradict authoritative GAAP for governments.

The Board concluded its discussion by considering the appropriate method of incorporating existing GASB Technical Bulletins into authoritative literature. The Board tentatively decided to propose incorporating existing GASB Technical Bulletins by reference, in a manner similar to that used to incorporate NCGA Statements and Interpretations into authoritative literature.

Minutes of Meeting, November 28-30, 2012

The Board discussed the potential methods to be used when conducting the analysis of the Comprehensive Implementation Guide (CIG) on an individual question-and-answer (Q&A) basis. The methods primarily differed in terms of overall approach: one method would result in Q&As being categorized as authoritative only if they possess characteristics of authoritative literature, while the other method would result in Q&As being categorized as authoritative unless they only contain guidance that is directly stated in the related pronouncements or is illustrative. The Board considered the fact that under the existing hierarchy of generally accepted accounting principles (GAAP), the CIG is considered authoritative. The Board tentatively decided to use the method that results in the Q&As being categorized as authoritative unless they only contain guidance that is directly stated in the related pronouncements or is illustrative. The Board also discussed the analysis conducted with this methodology within the context of Chapter 2 of the CIG.

Minutes of Meeting, October 2-4, 2012

The Board discussed the communication methods (that is, types of documents) of the GASB, specifically Statements, Interpretations, Technical Bulletins, and the Comprehensive Implementation Guide, and considered whether each communication method is necessary in a proposed two-level GAAP hierarchy.

The Board discussed the merits of GASB Statements being a communication method of the GASB, and tentatively decided to retain GASB Statements as a communication method.
The Board continued its discussion by considering the merits of GASB Interpretations being a communication method of the GASB, as well as the potential ramifications of discontinuing the use of GASB Interpretations. The Board tentatively decided to propose ceasing the use of Interpretations as a communication method of the GASB. The Board also tentatively decided to propose that the current purpose of GASB Interpretations can and will be accomplished and communicated most appropriately through GASB Statements.

The Board also discussed the merits of GASB Technical Bulletins being a communication method of the GASB, as well as the potential ramifications of discontinuing the use of GASB Technical Bulletins. The Board tentatively decided to propose ceasing the use of Technical Bulletins as a communication method of the GASB. The Board also tentatively decided to propose that the current purpose of GASB Technical Bulletins can and will be accomplished and communicated most appropriately through GASB Statements.

The Board furthered its discussion by considering the appropriate method of incorporating existing GASB Interpretations and GASB Technical Bulletins into authoritative literature. The Board tentatively decided to propose incorporating the existing GASB Interpretations by reference, in a manner similar to that used to incorporate NCGA Statements and Interpretations into authoritative literature. The incorporation of existing GASB Technical Bulletins into authoritative literature will be further discussed at a future date.

The Board also discussed the merits of the GASB Comprehensive Implementation Guide being a communication method of the GASB, as well as the potential ramifications of discontinuing the use of the Comprehensive Implementation Guide. The Board tentatively decided to retain the use of the GASB Comprehensive Implementation Guide as a method of communication of the GASB.

The Board concluded its discussion by considering the process of exposing the GASB Comprehensive Implementation Guide for public comment, including the determination of the authoritative status of the Q&As. The Board tentatively decided that Board analysis of the GASB Comprehensive Implementation Guide should be done on an individual Q&A basis, prior to public exposure, and that the entire Comprehensive Implementation Guide will be exposed for public comment. The Board also tentatively decided that each Q&A will be subjected to a formal set of criteria and that the Q&As may need to be modified prior to exposure for public comment.

Finally, the Board tentatively decided that the Q&As will be segregated by chapter, as currently presented, and then by level of authority (authoritative content first, followed by nonauthoritative illustrative content).

Minutes of Meeting, August 22-24, 2012

The Board reviewed and discussed the various characteristics of accounting guidance and tentatively agreed to propose that for a source of guidance to be categorized in the highest level of the GAAP hierarchy, the source should be (1) formally approved by the Board for the purpose of creating, amending, superseding, interpreting, clarifying, explaining, or elaborating on standards and (2) exposed for a period of public comment.

The Board also discussed the structure of the existing GAAP hierarchy, as presented in Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, and explored potential revisions to it. The Board tentatively agreed to propose to reduce the GAAP hierarchy to two levels: authoritative and nonauthoritative. While the Board tentatively agreed to propose the requirements for a source of accounting guidance to be categorized in the highest level of the GAAP hierarchy, the Board will explore the merits of classifying nonauthoritative sources of accounting guidance in order of preference at a later date.
After tentatively agreeing to propose a modified GAAP hierarchy, the Board discussed the characteristics of the following sources of guidance and where the guidance should be categorized in the GAAP hierarchy: GASB Concepts Statements, GASB Technical Bulletins, GASB Implementation Guides, AICPA Industry Audit and Accounting Guides, AICPA Statements of Position, AICPA Practice Bulletins, and the FASB Accounting Standards Codification.

The Board considered GASB Concepts Statements and their placement within the tentatively proposed GAAP hierarchy. Even though GASB Concepts Statements meet the tentative requirements to be considered the highest level of GAAP, the Board tentatively agreed to propose that GASB Concepts Statements remain nonauthoritative to avoid confusion when applying guidance. The Board will discuss potential revisions to the existing language in Statement 55 regarding the status of GASB Concepts Statements within nonauthoritative guidance at a later date.

The Board also considered the existing due process for GASB Technical Bulletins as well as the intended purpose of the Technical Bulletins. The Board tentatively agreed to propose that the due process for GASB Technical Bulletins be amended to include formal approval by the Board, rather than Board clearance. The Board also tentatively agreed to propose that GASB Technical Bulletins be categorized in the highest level of the GAAP hierarchy.

After discussion of the placement of GASB Implementation Guides, the Board tentatively agreed to propose that the due process be amended to include public exposure and formal approval by the Board pending discussions on the approach needed to operationalize this proposal at a later date. The Board also discussed various AICPA sources of accounting guidance within the proposed GAAP hierarchy and agreed to revisit these issues at a later date.

The Board also considered the placement of the FASB Accounting Standards Codification (ASC) within the proposed GAAP hierarchy, as the FASB ASC did not exist at the time of issuance of GASB Statement 55. The Board tentatively agreed to propose that the FASB ASC be categorized as nonauthoritative “other accounting literature” in the tentative GAAP hierarchy.

The Board discussed the existing placeholder in the existing GAAP hierarchy in Statement 55 for consensus positions of a group of accountants organized by the GASB that attempts to reach consensus positions on accounting issues applicable to state and local governmental entities. After determining that the standards-setting process has sufficiently evolved since the inclusion of the placeholder language, the Board tentatively agreed to propose that the tentative GAAP hierarchy exclude any reference to consensus positions of that group of accountants organized by the GASB.

Finally, the Board considered the inclusion of prevalent practice within the existing GAAP hierarchy as authoritative to be inappropriate as determining prevalent practice requires a significant amount of judgment. Accordingly, the Board tentatively agreed to propose that prevalent practice be categorized as nonauthoritative in the tentative GAAP hierarchy.

GAAP Hierarchy—Major Tentative Decisions to Date

The Board tentatively agreed to propose that:

The GAAP hierarchy be reduced to two levels of authoritative guidance and one level of nonauthoritative guidance.
For a source of accounting guidance to be considered the highest level of authoritative GAAP, the guidance be formally approved by the Board for the purpose of creating, amending, superseding, or interpreting standards, and be publicly exposed for comment without limitations on who is permitted to respond.
For a source of accounting guidance to be included in the second level of authoritative GAAP, the guidance be cleared by the Board for the purpose of clarifying, explaining, or elaborating on standards, and be publicly exposed for comment without limitations on who is permitted to respond.
GASB Concepts Statements continue to be categorized as nonauthoritative.
GASB Technical Bulletins continue to be a communication method of the GASB.
The GASB Comprehensive Implementation Guide (CIG) continue to be a communication method of the GASB.
GASB Technical Bulletins and GASB Implementation Guides, including the CIG, be included in the second level of authoritative GAAP.
The due process for GASB Implementation Guides be amended to include a public exposure period.
The FASB Accounting Standards Codification be included as a source of nonauthoritative “other accounting literature.”
The placeholder in the existing GAAP hierarchy for consensus positions of a group of accountants organized by the GASB that attempts to reach consensus positions on accounting issues applicable to state and local governmental entities be removed.
Practices that are widely recognized and prevalent in state and local government be categorized as nonauthoritative.
GASB Statements continue to be a communication method of the GASB.
GASB Interpretations not continue to be a communication method of the GASB.
The current purpose of GASB Interpretations be accomplished and communicated through future GASB Statements.
The incorporation of existing GASB Interpretations into authoritative literature be accomplished through a reference similar to that of NCGA Statements and Interpretations.
If the guidance for a transaction or event is not specified within a source of authoritative GAAP or the transaction or event cannot be analogized to accounting principles for similar transactions or events within a source of authoritative GAAP, governments not select an accounting policy from a nonauthoritative source that conflicts with or contradicts authoritative GAAP.
In evaluating the appropriateness of nonauthoritative literature, a government consider its consistency with the GASB Concepts Statements, its relevance to particular circumstances, the specificity of the guidance, and the general recognition of the issuer or author as an authority.
The AICPA continue to be recognized as an organization that promulgates authoritative accounting and financial reporting guidance; however, this status would be dependent on the authoritative pronouncements being subject to a mutually agreed-upon due process and continuing to be cleared by the GASB.
AICPA pronouncements cleared by the GASB be placed in the second level of authoritative GAAP.

Section Pages