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AICPA Omnibus—Project Plan

Project Description: This project will consider incorporating accounting and financial reporting standards that are included in current and recently modified Statements on Auditing Standards (SASs) to more effectively present those standards so that these requirements become the responsibility of the financial statement preparers. Incorporation of the GAAP hierarchy would identify, in the GASB's authoritative literature, the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of state and local governments that are presented in conformity with GAAP.

Background: Representatives of the American Institute of Certified Public Accountants (AICPA) have stated that they would like the standard setters to consider adopting standards for accounting and financial reporting issues that now only reside in the SASs. The responsibility for complying with financial reporting standards resides with the preparers of financial statements; however, the requirements do not reside in established accounting principles. Similarly, because the GAAP hierarchy currently resides in the professional auditing literature it is directed to the auditor rather than the governmental entities themselves. The selection of principles used in the preparation of financial statements would more appropriately be addressed in accounting and financial reporting standards rather than the auditing literature.

Recent changes to the SASs, addressing materiality, have again drawn attention to these issues. The U.S. Securities and Exchange Commission (SEC) issued a staff bulletin that provides authoritative guidance on materiality for publicly traded companies. This action highlights the fact that these issues have not been addressed in a governmental environment (for example, restatement issues for reporting units).

Accounting and Financial Reporting Issues: The primary issue is identifying, in the SASs, the various accounting and financial reporting requirements that should be incorporated into the accounting and financial reporting level "a" literature. Based on a review of the audit literature, the significant areas that would be included in the omnibus project are related party considerations, going concern considerations, subsequent events, and materiality issues. The project's scope also includes an analysis of the contents of the existing hierarchy levels to determine (a) if the structure should be incorporated into the GASB's literature essentially "as is," or (b) whether the standards-setting process and the governmental financial reporting environment have sufficiently evolved in the sixteen years since the establishment of the hierarchy to warrant reconsideration or reconfiguration of certain aspects of the structure.

With regard to the GAAP hierarchy component of the project, the level of additional research depends on the scope direction that the Board would choose to take. If the scope is limited to transferring the existing hierarchy (with minor modifications or clarifications) from the audit literature to GASB standards, there would be little or no additional research needed. That approach would have the least effect on current practice. If the Board decides to expand the project's scope to include reexamination of the various levels to consider elevation of certain sources (Implementation Guides, for example), or combinations to provide for fewer levels, additional research would likely be in order.

Current Developments: The staff presented the results of research and initial recommendations regarding the proposed direction of the project in December 2007. The project prospectus was discussed by GASAC at the March 2008 meeting (highly rated by the GASAC). A revised prospectus was presented to the Board for consideration, and the project was added to the active agenda at the April 2008 meeting.

Work Plan:

AICPA Omnibus—Recent Developments

Minutes of Meeting, May 21-23, 2008

The Board began the session with a discussion about the related party transactions section of the issues paper. The Board members generally agreed with the staff’s approach; however, it was suggested that some additional language be added to recognize the difficulty often faced in determining the substance versus form of transactions between related parties. The project staff will incorporate the suggested content into the draft for the next meeting. The Board also tentatively agreed that the Exposure Draft should refer to the disclosure requirements in FASB Statement No. 57, Related Party Disclosures.

With regard to the going concern considerations issue, the Board tentatively agreed with a Board member suggestion that the Exposure Draft address the absence of specific guidance in situations in which a governmental entity’s ability to continue as a going concern is beyond a reasonable doubt. The Board generally supported the staff’s recommendations regarding the carrying forward of the GAAP Hierarchy and the accounting guidance for subsequent events from the AICPA Statements of Auditing Standards (SASs).

The Board also discussed the issue of “Considering the Effects of Prior-Year Misstatements When Quantifying Misstatements in Current-Year Financial Statements,” as established in the Securities and Exchange Commission’s Staff Accounting Bulletin 108, of the same title. A board member suggested that the issue be dropped from the project primarily for two reasons. First, it is dissimilar to the other issues in the sense that it does not represent accounting guidance in the SASs, and second, because governments have traditionally corrected prior-year misstatements by restating beginning net assets/fund balances, rather than correcting previously issued financial statements. Following the discussion, the Board agreed to eliminate that issue from the project scope.

AICPA Omnibus—Relevant Links