Project Pages

Codification of Pre-November 30, 1989, FASB Pronouncements—Project Plan

Project Description: This research project will specifically identify provisions in Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board Opinions, and Accounting Research Bulletins of the AICPA Committee on Accounting Procedure, issued on or before November 30, 1989 (collectively, the "FASB pronouncements") as referenced in paragraph 17 of GASB Statement No. 34, Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments, that do not conflict with or contradict GASB pronouncements.

This research project will review these FASB pronouncements to determine whether those provisions that do not conflict with or contradict GASB pronouncements warrant modification for the purpose of applying them to the accounting and financial reporting of governmental and business-type activities in the governmental environment. This objective will enable the Board to consider if it is necessary to make a definitive determination of whether modifying specific provisions of these FASB pronouncements is necessary.

The project will involve:

1. Identifying the provisions of the FASB pronouncements, as amended as of November 30, 1989, that are applicable to state and local governments
2. Reviewing the applicable provisions to determine whether they conflict with or contradict GASB pronouncements (those that conflict or contradict would not be incorporated)
3. Determining which of the applicable provisions (that do not conflict with or contradict GASB pronouncements) should be:
1. Adopted and incorporated into GASB pronouncements as is
2. Modified and incorporated into GASB pronouncements
3. Omitted from GASB pronouncements (for example, FASB Statement No. 31, Accounting for Tax Benefits Related to U.K. Tax Legislation concerning Stock Relief).

Background: The significance of the FASB pronouncements originated in the hierarchy originally adopted by the Financial Accounting Foundation's (FAF) Board of Trustees in the jurisdictional arrangement between the GASB and the FASB in 1984. Under this hierarchy, if the GASB did not provide guidance on a specific issue, the FASB pronouncements were considered to be the appropriate source of authoritative literature. This hierarchy continued in place until November 30, 1989, when the FAF's Board of Trustees reaffirmed the jurisdictional agreement. The FAF was aware of the fact that a significant portion of the GASB's time during its first five years had been devoted to what some considered "negative" standards setting (establishing a standard so that the application of a FASB standard would not be required). The FAF was concerned that the continuation of the original hierarchy could result in either the continuation of this practice or the need for state and local governments to adopt a FASB pronouncement with the knowledge that a project on the GASB's technical agenda would result in the need to again change the accounting for that transaction in the near future. Because of these concerns, the FAF proposed a change in the hierarchy that would reclassify FASB pronouncements not made applicable by the GASB to the "other accounting literature" category. This change was formally adopted by the AICPA in its Statement on Auditing Standards No. 69, The Meaning of "Present Fairly in Conformity with Generally Accepted Accounting Principles" in the Independent Auditor's Report.

To address the status of FASB pronouncements issued before the jurisdictional agreement was reaffirmed, the GASB issued Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, in 1993 as interim guidance on business-type accounting and financial reporting for proprietary activities. GASB Statement 20 required that proprietary activities apply all applicable GASB pronouncements as well as FASB pronouncements issued on or before November 30, 1989, unless those FASB pronouncements conflict with or contradict GASB pronouncements. In 1999, GASB Statement 34, paragraph 17, reaffirmed this requirement and made these FASB pronouncements applicable to governmental and business-type activities reported in the government-wide financial statements, as well.

Financial statement preparers currently are required to identify which provisions within the FASB pronouncements are applicable to them. Furthermore, GASB Statement 34, paragraph 17, for the most part, is open to interpretation by financial statement preparers regarding what provisions in the FASB pronouncements are considered conflicting and contradictory. Over the years, the GASB staff has answered numerous technical inquiries regarding the application of FASB pronouncements issued before November 30, 1989. However, staff responses are fact and circumstance-specific and, therefore, have not been disseminated to the GASB's constituents. The project will benefit preparers and auditors by clearly identifying which FASB pronouncement provisions to apply to state and local governments. It also will benefit financial statement users because the resulting financial statements will reflect a more consistent application of these FASB pronouncements.

The need for this research project is made more urgent by the fact that the FASB's recent codification project is expected to result in FASB original pronouncements becoming non-authoritative literature after the codification's approval by the FASB, currently expected in April 2009. If this project ultimately results in the issuance of a final standard, then applicable FASB provisions would continue to be accessible in the GASB's authoritative literature.

Project History: A draft project proposal was considered by the Governmental Accounting Standards Advisory Council (GASAC) at its March 2008 meeting and positive feedback was provided by the members. The GASAC members rated the project a high priority.

Major Research Issues: Because of the volume of FASB pronouncements that will be analyzed and considered by the Board during the project, the structure of due process to be followed and the timing of delivering issues to the Board will be considered during the research stage in order to develop the most efficient and effective process for deliberation.

The methodology used by the staff to identify the potential conflicts in the FASB pronouncements and provisions that may warrant modification by the Board also will be considered during the research stage of the project.

Research Work Plan: The significant majority of the research efforts associated with these issues will involve reviewing and analyzing the FASB pronouncements to determine their appropriate application to state and local governments. The staff will present to the Board the results of research and initial recommendations regarding the direction of the project in December 2008.

The research project timetable is as follows: