Journal Entries

This recurring website feature highlights articles from The GASB Report, the GASB’s monthly newsletter. The current article appeared in the April 2012 issue.

GAAP Hierarchy Project Added to Current Technical Agenda

In April, after consultation with the Governmental Accounting Standards Advisory Council (GASAC) members and other GASB members, GASB Chairman Robert Attmore added a project to the current technical agenda that will consider possible modifications to the hierarchy of generally accepted accounting principles. The “GAAP hierarchy” project was elevated to the current technical agenda from the GASB research agenda. Projects on the current technical agenda are those for which active deliberations by the Board are expected to take place during the coming year.

The GAAP hierarchy is set forth in Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The hierarchy consists of the sources of accounting principles used in the preparation of financial statements of state and local governments that are presented in conformity with GAAP and the framework for selecting those principles. It lists the order of priority of pronouncements that a governmental entity should look to for accounting and financial reporting guidance.

This project will reexamine 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 American Institute of Certified Public Accountants (AICPA) in 1992 to warrant reconsideration or reconfiguration of certain aspects of the structure.

Specifically, the GAAP hierarchy project will address a number of key issues, including the possible combination of some categories to provide for fewer levels or a single level of GAAP, potential elevation of AICPA pronouncements and GASB Technical Bulletins within the hierarchy, and addition of a specific reference to the FASB Accounting Standards Codification® as “other accounting literature.”

In March, the GASAC reviewed a project prospectus associated with this project. The GASAC members rated the project among its top five priorities for inclusion on the GASB’s agenda.

Board deliberations on the project are due to begin in August with consideration of proposed modifications to the hierarchy and approach to due process. Issuance of an Exposure Draft is scheduled for January 2013.