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

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 specific 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.  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. The project is considering the following 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 conducted regarding Preliminary Views: 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 tentatively decided that a Preliminary Views on recognition for both the economic resources and short-term financial resources measurement focuses will be issued in conjunction with the Financial Reporting Model reexamination Preliminary Views.

Work Plan:
 
Board Meetings Topics to Be Considered
July 2018: Review first draft of a Preliminary Views on recognition concepts
August 2018: Discuss preballot draft of Preliminary Views on recognition concepts
September 2018 (T/C): Discuss ballot draft and consider issuing a Preliminary Views on recognition concepts for approval
October 2018-January 2019: Comment period
February 2019: Public hearings.
June 2019-January 2020: Redeliberate issues related to recognition concepts
February 2020: Discuss first draft of the concepts section of an Exposure Draft of proposed recognition concepts.
May 2020: Discuss preballot draft of an Exposure Draft of proposed recognition concepts.
June 2020: Discuss ballot draft and consider Exposure Draft of proposed recognition concepts for approval.
July–September 2020: Comment period.
October 2020: Public hearings.
December  2020–September 2021: Redeliberate issues related to recognition concepts.
November 2021: Discuss draft of a final Concepts Statement.
December 2021: Discuss preballot draft of a final Concepts Statement.
February 2022: Discuss ballot draft and consider a final Concepts Statement for approval.

Conceptual Framework: Recognition—Recent Minutes


Minutes of Meetings, May 29–31, 2018

The Board reviewed draft sections of the Preliminary Views, Recognition of Elements of Financial Statements, tentatively deciding that it was no longer necessary to include the additional elaboration on recognition of deferred outflows of resources and deferred inflows of resources for financial statements prepared using the economic resources measurement focus. The Board also provided clarifying edits.

Minutes of Meetings, March 6–8, 2018
 
The Board reconsidered tentative Board decisions reached in 2012 on recognition using the economic resources measurement focus. Those tentative decisions relate to (a) the definition of economic resources measurement focus, (b) recognition concepts for the economic resources measurement focus, (c) recognition of deferred outflows of resources and deferred inflows of resources, and (d) the three-step hierarchy for recognition of elements. The Board tentatively decided to reaffirm those decisions. The Board then tentatively decided that those proposals should be included in the upcoming Preliminary Views on recognition concepts.

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.

In developing a revised Preliminary Views, the Board tentatively decided to propose 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 four-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. If the item does not meet the definition of an outflow of resources or an inflow of resources, the item should not be recognized in the financial statements.
  • The Preliminary Views on recognition concepts for governmental funds should be issued in a separate document from the Preliminary Views of the financial reporting model reexamination project.
  • The decisions related to (1) the definition of economic resources measurement focus, (2) recognition concepts for the economic resources measurement focus, and (3) the four-step hierarchy for recognition of elements should be reaffirmed, and these proposals should be included in the upcoming Preliminary Views on recognition concepts.
  • Financial statements for governmental funds be prepared using the short-term financial resources measurement focus.