Project Pages

GAAP Hierarchy

Project Description: This project considers possible modifications to the hierarchy ofgenerally accepted accounting principles (GAAP hierarchy), as set forth in Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. It reexamines 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.

Status:
Exposure Draft approved December 2013
Added to Current Agenda: April 2012
Added to Research Agenda: April 2011

GAAP Hierarchy—Project Plan


Background
: At the beginning of the project that resulted in Statement 55 and Statement No. 56, Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards, the Board evaluated two approaches. One approach considered was to adopt the GAAP hierarchy essentially as it currently exists in the AICPA’s auditing literature. The other approach considered was to reexamine the hierarchy levels to assess whether they should be reconsidered or reconfigured based on changes to the standards-setting process and the governmental financial reporting environment since the hierarchy was set forth. The Board recognized that taking the first approach would not significantly affect practice but the latter approach, involving redeliberation, could have resulted in changes in practice. The Board concluded that the transition from the audit literature to the accounting and financial reporting standards should be as undisruptive as possible; therefore, the first approach was taken.

This project entails pursuing the latter course of action and could result in changes to the structure of the GAAP hierarchy.

Accounting and Financial Reporting Issues:
  1. Should some categories be combined to provide for fewer levels?
  2. Should Implementation Guides (Q&As) be elevated to a higher level (currently level D)? Should AICPA pronouncements be elevated to a higher level (currently in levels B and C)? Should GASB Technical Bulletins be elevated to a higher level (currently level B)?
  3. Should the FASB Accounting Standards Codification be added to paragraph 6 as “other accounting literature?”
Project History: A proposal to add the project to the research agenda was discussed by the GASAC at its March 2011 meeting. The project was rated among the GASAC’s five highest priorities. The project was added to the research agenda in April 2011.

The project was discussed with the AICPA’s state and local government expert panel at the Board’s November 2011 liaison meeting. The general sentiment among the members of the panel was support for the Board to consider amending the hierarchy to elevate the status of the Implementation Guides to level A. Those guides are currently in level D. The most significant issues to be addressed are (1) the assessment of the issues in the Comprehensive Implementation Guide (CIG) for incorporation into the Codification, and (2) how to subject the existing guidance to appropriate due process.

In March 2012, the GASAC reviewed a project prospectus that recommended addition to the current agenda, and the project was again rated among the top five priorities. In April 2012, the Board moved the project from the research to the current technical agenda. The project staff began researching the current hierarchy and considered (1) the evolution of the hierarchy for state and local governments, (2) the hierarchy of other standard-setting bodies, and (3) the impact to accounting and financial reporting and to due process of the many potential alternatives to revise the hierarchy. The Board began initial deliberations on proposed revisions to the GAAP hierarchy at the August 2012 meeting.

The Board began deliberations on proposed revisions to the GAAP hierarchy at the August 2012 meeting. The Board discussed the rigor of due process, intended purpose, and method of Board approval for GASB literature (Statements, Interpretations, Technical Bulletins, Implementation Guides, and Concepts Statements) and tentatively concluded that for guidance to be placed at the highest level of GAAP, the source should be (1) formally approved by the Board for the purpose of creating, amending, superseding, interpreting, clarifying, explaining, or elaborating on standards, and (2) exposed for a period of public comment. Based on the use of GASB literature in practice and respondent comments to the Exposure Draft that led to Statement 55, the Board tentatively decided to reduce the GAAP hierarchy to two levels: authoritative and nonauthoritative. This would place all GASB literature at the highest level of GAAP with the exception of Concepts Statements. Because Concepts Statements are not issued with the intended purpose of setting standards, but rather to create a conceptual framework for standards setting, the Board tentatively decided that Concepts Statements should remain nonauthoritative.

The Board tentatively concluded to revise the due process for Implementation Guides and the CIG to include public exposure and Board approval, which would elevate it to the highest level of GAAP. The Board also discussed AICPA literature that is authoritative under the existing hierarchy and plans to continue deliberations on placement of AICPA literature in the proposed GAAP hierarchy at future meetings.

The Board considered whether practices that are widely recognized and prevalent in state and local government should remain authoritative and tentatively concluded that prevalent practice should be nonauthoritative because it is not subject to due process or approved by the Board. Also, the Board tentatively decided to remove the placeholder in the existing GAAP hierarchy for consensus positions of a group of accountants organized by the GASB that attempts to reach consensus positions on accounting issues applicable to state and local governmental entities until such a group is created. The Board also tentatively decided to add the FASB Accounting Standards Codification as nonauthoritative literature.

At the October 2012 meeting, the Board tentatively decided to discontinue Interpretations and Technical Bulletins due to their infrequency and the ability to communicate such guidance through Statements in the future. The Board tentatively concluded that existing Interpretations would be incorporated into authoritative literature by reference as they are given authority equal to Statements in the existing GAAP hierarchy. The Board also began discussions at the October 2012 meeting and continued those discussions in the November 2012 meeting regarding the proposed methods of analyzing the existing Implementation Guides in preparation for public exposure and elevation to the highest level of GAAP. The Board tentatively decided that analysis of the Implementation Guide on an individual question-and-answer basis was necessary prior to public exposure to determine whether existing guidance is appropriate for the highest level of GAAP. Because the existing Implementation Guides are authoritative under the existing hierarchy, the Board tentatively concluded that the analysis will follow an approach that considers a question-and-answer authoritative unless it only contains guidance that is directly stated in the related pronouncements or is illustrative. The Board also discussed the results of an analysis of Chapter 2 of the CIG performed under this approach and reached tentative decisions on the individual questions-and-answers within that chapter.

At the January 2013 meeting, the Board discussed the approach to nonauthoritative literature when a transaction or event is not specified within a source of authoritative GAAP or cannot be analogized to accounting principles for similar transactions or events within a source of authoritative GAAP. The Board tentatively decided to clarify that governments in this situation should not select an accounting policy from a nonauthoritative source that conflicts with or contradicts authoritative GAAP. The Board also discussed how the GASB Concepts Statements should influence the evaluation of the appropriateness of nonauthoritative literature and tentatively concluded that, in evaluating the appropriateness of nonauthoritative literature, a government should consider its consistency with the GASB Concepts Statements, its relevance to particular circumstances, the specificity of the guidance, and the general recognition of the issuer or author as an authority. The Board also discussed the previous tentative decisions regarding the discontinuation of Technical Bulletins and tentatively decided that existing Technical Bulletins would be incorporated into Statements through a reference. The Board revisited tentative decisions regarding Technical Bulletins in its April 2013 meeting and tentatively decided to retain Technical Bulletins.

At the February 2013 meeting, the Board deliberated the appropriate placement in the GAAP hierarchy of the AICPA Industry Audit and Accounting Guides, AICPA Statements of Position, and AICPA Practice Bulletins that have been specifically made applicable to governments and cleared by the GASB. The Board tentatively decided that the AICPA should continue to be recognized as an organization that promulgates authoritative accounting and financial reporting guidance; however, this status would be dependent on the authoritative pronouncements being subject to a mutually agreed-upon due process and continuing to be cleared by the GASB. In addition, the Board tentatively agreed to add a second level of authoritative literature and place the authoritative AICPA pronouncements in that second level.

The Board also continued the analysis of the CIG and discussed Chapters 3 and 4. The Board tentatively decided that the analysis should be improved to separate illustrative material from the answers and place that information in an appendix, to include any answers that link concepts between Statements, to combine answers that would be more effectively presented in combination, and to remove answers that only present guidance that would be similar to the Basis for Conclusions of a Statement.

After adding a second level to the authoritative section of the hierarchy of generally accepted accounting principles (GAAP hierarchy) at the February 2013 meeting, the Board tentatively agreed at the April 2013 meeting to propose retaining GASB Technical Bulletins in this level. The Board also addressed the placement of the Comprehensive Implementation Guide (CIG), and tentatively decided to propose the promotion of the CIG to the second level of authoritative literature, below GASB Statements in the GAAP hierarchy. The Board also tentatively agreed to propose that Technical Bulletins and the CIG would remain staff documents subject to clearance by the Board, which means they would be issued if four or more GASB members do not object to their issuance.

Based on the revised methodology for analyzing the CIG on an individual question-and-answer (Q&A) basis identified at the February 2013 meeting, the Board reconsidered specific questions in Chapters 2, 3, and 4 of the CIG. The Board concluded discussions by providing comments and suggestions regarding the staff analysis of Chapters 9 and Z of the CIG on an individual Q&A basis.

At the March 2013 Board teleconference, the Board discussed the analysis of Chapter 4 of the CIG on a question-and-answer basis. Chapter 4 addresses the financial reporting entity. The Board tentatively agreed with the staff recommendations contained in the issues papers, with the understanding that certain questions marked for removal would be reviewed further by staff and presented for reconsideration at the April meeting.

At the April 2013 Board meeting, after adding a second level to the authoritative section of the GAAP hierarchy at the February 2013 Board meeting, the Board tentatively agreed to propose retaining GASB Technical Bulletins in this level. The Board also addressed the placement of the CIG, and tentatively decided to propose the promotion of the CIG to the second level of authoritative literature, below GASB Statements in the GAAP hierarchy. The Board also tentatively agreed to propose that Technical Bulletins and the CIG would remain staff documents subject to clearance by the Board, which means they would be issued if four or more GASB members do not object to their issuance.

Based on the revised methodology for analyzing the CIG on an individual question-and-answer basis, identified at the February 2013 meeting, the Board reconsidered specific questions in Chapters 2, 3, and 4 of the CIG. The Board concluded discussions by providing comments and suggestions regarding the staff analysis of Chapters 9 and Z of the CIG on an individual question-and-answer basis. Chapter 9 addressed the statistical section and Chapter Z addresses topics other than those addressed in Chapters 1 through 10.

At the May 2013 Board meeting, the Board provided comments and recommendations regarding the staff analysis of Chapters 1 and 6 of the CIG on an individual question-and-answer basis. Chapter 1 addresses disclosures related to deposits with financial institutions, investments (including repurchase agreements), and reverse repurchase agreements. Chapter 6 addresses accounting and financial reporting for certain investments and for external investment pools.

At the June 2013 Board meeting, the Board provided comments and recommendations regarding the staff analysis of Chapter 10 of the CIG on an individual question-and-answer basis. Chapter 10 addresses accounting and financial reporting for derivative instruments.

At the August 2013 Board meeting, the Board discussed the staff analysis of Questions 7.2.1–7.40.3 of Chapter 7 of the CIG on and individual question-and-answer basis. This portion of Chapter 7 addresses Management’s Discussion and Analysis and government-wide financial statements.

The Board tentatively did not object to proposing the staff recommendations regarding the items reviewed in Chapter 7, subject to clarifications and revisions agreed to at the meeting.

At the September 2013 meeting, the Board discussed the staff analysis of Questions 7.42.1–7.107.8 in Chapter 7 of the Comprehensive Implementation Guide (CIG) on an individual Q&A basis. Chapter 7 addresses basic financial statements and management’s discussion and analysis. The Board tentatively did not object to the staff recommendations regarding the items reviewed in Chapter 7, subject to clarifications and revisions agreed to at the meeting.

At the October 2013 teleconference, the Board discussed the staff analysis of the first half of the questions-and-answers (Q&As) in Chapter 8 of the CIG on an individual Q&A basis. At the October 2013 meeting, the Board discussed the staff analysis of the second half of the Q&As in Chapter 8 of the CIG on an individual Q&A basis. Chapter 8 addresses employer and plan accounting and reporting for postemployment benefits other than pensions. In both the October 2013 teleconference and the October 2013 meeting, the Board tentatively did not object to the staff recommendations regarding the items reviewed in Chapter 8, subject to clarifications and revisions agreed to at the meetings.

At the October 2013 meeting, the Board also considered issues related to the effective date and transition provisions for the proposed Exposure Draft, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, and the effective date and transition provisions for the proposed Implementation Guide. The Board tentatively agreed the proposed Statement and the proposed Implementation Guide would be effective for periods beginning after June 15, 2015, and that the transition provisions would permit early application.

The Board continued its discussion by reviewing a preliminary draft of the proposed Statement, tentatively agreeing upon clarifying edits.

At its December 2013 meeting, the Boar reviewed the preballot drafts of the proposed Statement and the proposed Implementation Guide. At its December 2013 teleconference, the Board reviewed the ballot drafts of these documents, approved the Exposure Drafts of the proposed Statement, The Hierarchy of General Accepted Accounting Principles, and cleared the Exposure Draft of the proposed Implementation Guide, Implementation Guide No. 20XX-1. The comment period for these documents ends on December 31, 2014.

Work Plan:
 

Board meetings

Topics to be considered

January–March 2015: Redeliberation of issues raised in response to the Exposure Drafts.
April 2015: Review preballot draft of final Statement and Implementation Guide.
June 2015: Review ballot draft and issue final Statement and Implementation Guide.

GAAP Hierarchy—Recent Minutes


Minutes of Meeting, December 20, 2013

The Board reviewed a ballot draft of the Exposure Draft, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. After making minor clarifying changes, the Board members voted unanimously to issue the Exposure Draft.

The Board also reviewed a ballot draft of the Exposure Draft, Implementation Guide XX-1. Subject to minor clarifications agreed to at the meeting, the Board members unanimously agreed to not object to the issuance of the Exposure Draft.

Minutes of Meeting, December 10-12, 2013

The Board considered feedback from the GAAP Hierarchy Advisory Committee in response to the draft of the standards section of the Exposure Draft, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, presented at the October 2013 Board meeting and also discussed the preballot draft of the Exposure Draft. Subject to clarifications and revisions agreed to at the meeting, the Board directed the project staff to prepare a ballot draft for consideration at the December 20, 2013 Board teleconference.

The Board also discussed the preballot draft of the Exposure Draft, Proposed Implementation Guide, and reviewed recommended modifications to selected Q&As. Subject to clarifications and revisions agreed to at the meeting, the Board directed the project staff to prepare a ballot draft for consideration at the December 20, 2013 Board teleconference.

Minutes of Meeting, October 29-31, 2013

The Board considered issues related to the effective date and transition provisions for the proposed Exposure Draft, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, and the effective date and transition provisions for the proposed Comprehensive Implementation Guide. The Board tentatively agreed the proposed Statement and the proposed Comprehensive Implementation Guide would be effective for periods beginning after June 15, 2015, and that the transition provisions would permit early application.

The Board continued its discussion by reviewing a preliminary draft of the proposed Statement, tentatively agreeing upon clarifying edits. The Board then directed the project staff to prepare a preballot draft of the proposed Statement for consideration at the December meeting.

In addition, the Board discussed the staff analysis of the remaining portion of the questions-and-answers (Q&As) in Chapter 8 of the Comprehensive Implementation Guide on an individual Q&A basis. Chapter 8 addresses employer and plan accounting and reporting for postemployment benefits other than pensions. The Board tentatively did not object to proposing the staff recommendations regarding the items reviewed in Chapter 8, subject to clarifications and revisions agreed to at the meeting.

Minutes of Meeting, October 2, 2013

The Board discussed the staff analysis of the first half of the questions-and-answers (Q&As) in Chapter 8 of the Comprehensive Implementation Guide on an individual Q&A basis. Chapter 8 addresses employer and plan accounting and reporting for postemployment benefits other than pensions. The Board tentatively did not object to the staff recommendations regarding the items reviewed in Chapter 8, subject to clarifications and revisions agreed to at the meeting.

Minutes of Meeting, September 17-19, 2013

The Board discussed the staff analysis of the remaining half of the questions-and-answers (Q&As) in Chapter 7 of the Comprehensive Implementation Guide on an individual Q&A basis. Chapter 7 addresses basic financial statements and management’s discussion and analysis. The Board tentatively did not object to the staff recommendations regarding the items reviewed in Chapter 7, subject to clarifications and revisions agreed to at the meeting.

Minutes of Meeting, August 6-8, 2013

The Board examined paragraph 5 of GASB Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, and tentatively decided to propose clarifying language to emphasize that if the guidance for a transaction or event is not specified within a source of authoritative GAAP for governmental entities, a governmental entity should first consider accounting principles for similar transactions and then may consider other accounting literature.
The Board continued its discussion by providing comments and recommendations regarding the staff analysis of the first half of the questions-and-answers (Q&As) in Chapter 7 of the Comprehensive Implementation Guide on an individual Q&A basis. Chapter 7 addresses basic financial statements and management’s discussion and analysis.

Minutes of Meeting, June 25-27, 2013

The Board provided comments and recommendations regarding the staff analysis of Chapter 10 of the Comprehensive Implementation Guide on an individual Q&A basis. Chapter 10 addresses accounting and financial reporting for derivative instruments.

Minutes Archive

GAAP Hierarchy—Tentative Board Decisions to Date


The Exposure Draft, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, was approved in December 2013.