\"Accounting Standards for Government and Not-for-Profit Entities\" Participate
ID: 2459657 • Letter: #
Question
"Accounting Standards for Government and Not-for-Profit Entities" Participate in the following activities in order to complete the discussion: Go to the GASB Website, located at http://www.gasb.org. Under the “About Us” tab, review “Mission, Vision, & Core Values”, “Facts about GASB”, and “Strategic Plan”. Review the material on the GASB listening process, The Comment Letter, The Public Hearing, and the section on Task Forces and Advisory Committees, located at http://www.gasb.org/jsp/GASB/Page/GASBSectionPage&cid=1176156714545. Go to the Financial Accounting Standards Board (FASB) Website section for Not-For-Profit Entities, located at http://www.fasb.org/jsp/FASB/Page/BridgePage&cid=1351027226246, and review the role of the FASB in setting standards for Not-for-Profits.
Briefly analyze the role of GASB and summarize the due process procedures in place for developing governmental accounting standards. In your analysis and summary, consider the stakeholder groups that benefit from governmental standards and how they might engage in the GASB process.
Explanation / Answer
The Role Of GASB
The Governmental Accounting Standards Board (GASB) and the Federal
Accounting Standards Advisory Board (FASAB) set generally accepted accounting
principles applicable to state and local governments and to the Federal Government,
respectively. Their standards are used to design accounting systems, and regulate
accounting measurements and the form and content of financial statements. Auditors also
use them to judge the quality of financial statements in order to express audit opinions.
Following the previous description of the circumstances surrounding their establishment,
this chapter will discuss these boards’ missions, scope and authority, organizational
structure, standard setting process, and outputs.
According to its mission statement, the primary role of the Governmental Accounting Standards Boardis "to establish and improve standards of state and local governmental accounting and financial reporting that will…result in useful information for users of financial reports…"
The users of financial statements include legislators and their staff, municipal bond insurors, buy- and sell-side analysts, rating agencies, bond holders, citizen and taxpayer groups, community organizations, research institutes, professors and students, among others, and the general public.
Along with the preparers and auditors of financial statements, users are well represented before the GASB. The Governmental Accounting Standards Advisory Council (GASAC), consults with the GASB on technical issues on the Board's agenda, project priorities, and matters likely to require the attention of the GASB. Thirteen of the GASAC's 30 members are from organizations of users—representatives from the American Accounting Association, Association for Budgeting and Financial Management, Association of Financial Guaranty Insurors, the Bond Market Association, the bond rating agencies, Governmental Research Association, insurance industry investors, National Association of Bond Lawyers, National Conference of State Legislatures, National Federation of Municipal Analysts, and National League of Cities, and a member-at-large. In addition, users are well represented on the task forces that advise the GASB’s research projects.
The objectives of the strategic plan have promulgated several current efforts. The GASB has constructed a comprehensive database of users of financial statement information to support the GASB's outreach. This project has broadened to include the GASB's preparer and auditor constituencies as well. The GASB is currently conducting research to improve its knowledge of the information needs of users. Staff has greatly increased the publication of plain-language and other user-friendly documents, including supplements to proposed standards, a series of user guides to governmental financial reports, and articles about GASB activities.
Due process procedures
By the time the FASAB was established, the AICPA had already in 1973
designated the FASB as the promulgator of GAAP for private-sector entities, and in 1986
the GASB as the promulgator of GAAP for state and local governments. In order to
receive the designation of a GAAP promulgator, a standard-setting body has to meet the
following criteria: (1) Independence – the body should be independent from the undue
influence of its constituency. (2) Due Process – The body should follow a due process
that is documented and open… The body’s aim should be to produce standards that are
timely and that provide for full, fair, and comparable disclosure. (3) Domain and
Authority – The body should have a unique constituency not served by another existing
Rule 203 standard-setting body. Its standards should be generally accepted by its
constituencies. (4) Human and Financial Resources – The body should have sufficient
funds to support its work. Its members and staff should be knowledgeable in all relevant
areas. (5) Comprehensiveness and Consistency – The body should approach its processes
comprehensively and follow concepts consistent with those of existing Rule 203
standard-setting bodies for analogous circumstances. An AICPA task force assessed the
FASAB against these criteria, and recommended changes in FASAB’s Rules of
Procedures and its charter, the Memorandum of Understanding among its sponsors.
Following the completion of the changes, the AICPA recognized the FASAB as the
promulgator of GAAP applicable to Federal Government entities.
Benefits from the government standards
Separate accounting and financial reporting standards are essential because the needs of users of financial reports of governments and business enterprises differ. Due to their unique operating environment, governments have a responsibility to be accountable for the use of resources that differs significantly from that of business enterprises. Although businesses receive revenues from a voluntary exchange between a willing buyer and seller, most governments obtain resources primarily from the involuntary payment of taxes. Taxes paid by an individual taxpayer often bear little direct relationship to the services received by that taxpayer. Overall, taxpayers collectively
Consequently, measures of net income and earnings per share have no meaning to users of governmental financial reports. Instead, users need information to assess the government’s stewardship of public resources, including information to evaluate the manner and extent to which resources are devoted to specific services and the costs of providing those services. Users also need information to determine compliance with legally authorized spending authority. Creditors of both businesses and governments are interested in information on the ability to repay debt. However, government creditors focus more on information regarding the government’s ongoing ability to generate resources and the costs of activities that could compete for those resources, rather than on information about how earnings are generated.
The needs of the users of governmental financial reports are reflected in differences in the components of the conceptual framework for setting accounting and financial reporting standards and in specific accounting and financial reporting standards themselves. Although investors and creditors are important constituencies of every standards-setting organization, the Governmental Accounting Standards Board’s (GASB) conceptual framework also places priority on addressing the informational needs of citizens and elected representatives, two constituencies not identified as users of business enterprise financial statements by the Financial Accounting Standards Board
(FASB). Consequently, the GASB’s financial reporting objectives consider accountability to be the cornerstone on which all other financial reporting objectives should be built.
Some of the most significant examples of how GASB standards address differences between governmental and business financial reporting include (1) the view that capital assets are primarily used to provide services to citizens rather than to contribute to future cash flows; (2) the measurement and recognition of certain types of revenues (for example, taxes and grants); (3) the use of fund accounting and budgetary reporting to meet public accountability needs; (4) the use of accountability notions rather than equity control to define the financial reporting entity; and (5) the view that governments and their pension plans generally are ongoing entities with the ability to take a career-long view of the employment exchange.
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