Project Pages

GAAP Hierarchy

Project Description: This project considers possible modifications to the hierarchy of generally 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:
Currently being deliberated
Exposure Drafts 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:
  • Pre-agenda research approved: April 2011
  • Added to current technical agenda: April 2012
  • Task force established? Yes
  • Deliberations began: August 2012
  • Exposure Drafts approved: December 2013
  • Comment period: February–December 2014
  • Redilberations began: January 2015
Current Developments: In January 2015, the Board discussed responses received to the Exposure Draft of a proposed Statement, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. In March 2015, the Board discussed responses received to the Exposure Draft of a proposed Implementation Guide, Implementation Guide No. 20xx-1. In April, the Board reviewed preballot drafts of a final Statement and final Implementation Guide.

Work Plan:
 

Board meetings

Topics to be considered
 

June 2015: Review ballot drafts and issue final Statement and Implementation Guide.

GAAP Hierarchy—Recent Minutes


Minutes of Meetings, April 21-23, 2015

With regard to the Exposure Draft, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, the Board evaluated respondents’ comments regarding inclusion of the current definition of a government, which is presented in the AICPA Audit and Accounting Guides, Health Care Organizations and State and Local Governments, in the Codification instructions as category (b) guidance. The Board tentatively agreed that the definition of a government, which had previously been cleared by the Board, should be included in the Codification instructions in the final Statement. The Board also discussed a preballot draft of the final Statement and suggested clarifying edits.

With regard to material in the Exposure Draft, Implementation Guide 20XX-1, the Board tentatively agreed to the following:
  • Clarify Questions 3.20.1, 6.12.2, 7.8.3, and Z.23.1. Omit the following questions from the final Implementation Guide because they will be affected by the requirements of Statement No. 72, Fair Value Measurement and Application:
    • Chapter 1: Questions 1.2.1, 1.2.2, 1.2.3, 1.2.4, 1.3.7, 1.39.1, 1.64.12, 1.65.3, 1.66.5, 1.66.6
    • Chapter 2: Question 2.20.1
    • Chapter 3: Question 3.24.1
    • Chapter 4: Question 4.35.1
    • Chapter 5: Questions 5.71.1, 5.97.3
    • Chapter 6: Questions 6.3.1, 6.4.1, 6.4.2, 6.4.6, 6.5.1, 6.5.2, 6.5.3, 6.6.2, 6.6.3, 6.7.2, 6.9.1, 6.9.2, 6.10.1, 6.11.1, 6.11.4, 6.11.5, 6.11.7, 6.12.5, 6.12.6, 6.12.8, 6.13.1, 6.16.1, 6.20.1, 6.20.2, 6.21.1, 6.27.1, 6.42.1
    • Chapter 7: Questions 7.9.4, 7.12.5, 7.12.6, 7.12.16, 7.12.17, 7.21.11, 7.85.4
    • Chapter 8: Question 8.77.1
    • Chapter 10: Questions 10.15.2, 10.46.8
    • Chapter Z: Questions Z33.4, Z.33.22, Z.51.19.
  • Omit Question 5.97.3 from the final Implementation Guide because it will be affected by the amendments to Statements No. 67, Financial Reporting for Pension Plans, and No. 68, Accounting and Financial Reporting for Pensions, that are anticipated to occur with the issuance of a final Statement on pension accounting and financial reporting that is scheduled to be approved in June 2015.
  • Omit glossary definitions that are repetitive of definitions in other literature.The Board also reviewed a preballot draft of Implementation Guide 2015-1 and suggested clarifying edits.


Minutes of Meetings, March 10-12, 2015

The Board reviewed comments received in response to the Exposure Draft, Implementation Guide No. 20xx-1. The Board discussed general comments and suggestions made by respondents, as well as specific issues related to questions and answers, and illustrations contained within the Exposure Draft. The Board tentatively agreed to retain the material as presented in the Exposure Draft with the following exceptions:
  • The Board tentatively agreed to make clarifying edits to the following:
    • Chapter 1: Questions 1.3.8, 1.9.10, 1.10.4, 1.11.1, 1.43.2, and 1.63.3
    • Chapter 2: Section 2.6 and Questions 2.11.3, 2.15.1, and 2.24.2
    • Chapter 3: Questions 3.11.2, 3.11.3, and 3.20.1
    • Chapter 4: Questions 4.2.2, 4.6.1, 4.9.6, 4.16.1, 4.21.1, 4.28.11, 4.30.3, and 4.32.5
    • Chapter 5: Questions 5.62.3, 5.63.3, 5.64.1, 5.64.2, 5.87.4, 5.119.3, 5.120.3, 5.136.5, 5.163.6, and 5.178.5, and Appendix 5-2, Illustrations 5 and 6
    • Chapter 6: Questions 6.9.2, 6.22.1, and 6.42.5
    • Chapter 7: Questions 7.3.5, 7.5.8, 7.7.2, 7.8.3, 7.9.9, 7.19.3, 7.19.4, 7.22.14, 7.23.6, 7.24.7, and 7.52.4
    • Chapter 8: Questions 8.4.1, 8.6.3, and 8.41.6
    • Chapter 9: Questions 9.13.4, 9.17.1, and 9.25.4
    • Chapter 10: Questions 10.5.1, 10.13.1, and 10.13.7, and Appendix 10-1
    • Chapter Z: Questions Z.48.2, Z.54.3, and Z.63.1.
  • The Board tentatively agreed to reinsert Question 9.48.2 into the final Guide.
  • The Board tentatively agreed to omit Questions 3.28.2, 5.71.2, 7.49.2, 9.28.1, and Z.33.14, and Appendix 1-2, Illustration 7, Example B, from the final Guide.
  • The Board tentatively agreed to recast illustrative material from Question 5.163.6 into a new nonauthoritative illustration in the final Guide.
The Board also reviewed respondent requests for new questions and answers, as well as new illustrative material. The Board tentatively concluded that consideration of the requested new materials is outside the scope of this project but that respondent recommendations should be considered as potential material for future Implementation Guides.

Minutes of Meetings, January 27-29, 2015

The Board reviewed comment letters received in response to the Exposure Draft, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments.

After discussion, the Board tentatively affirmed the following aspects of the Exposure Draft proposal:
  • The sources of authoritative GAAP should include two levels (categories) of authority—category (a) and category (b).
  • GASB Implementation Guides should be classified as category (b) in the GAAP hierarchy. The authoritative status of material from GASB Implementation Guides when it is presented in the Comprehensive Implementation Guide should be clarified in the final Statement.
  • Interpretations heretofore issued and currently in effect should be classified as category (a) in the GAAP hierarchy. The footnote describing this authority should remain in the final Statement with clarifying editorial modifications.
  • The authoritative status of the Codification should be clarified in the final Statement.
  • AICPA literature cleared by the GASB should be classified as category (b) in the GAAP hierarchy. Clarifying editorial modifications should be made to the way in which clearance is discussed to conform language throughout the document.
  • In the absence of authoritative literature that addresses a transaction or other event, accounting principles for similar transactions or other events within a source of authoritative GAAP should be considered before consideration of nonauthoritative accounting literature from other sources that does not conflict with or contradict authoritative GAAP. The Basis for Conclusions should be expanded to discuss the Board’s view that professional judgment should be applied to evaluate whether the characteristics of the transaction or other event are sufficiently similar to that for which there is authoritative literature to apply the authoritative literature by analogy.
  • GASB Concepts Statements should be specifically identified as a source of nonauthoritative accounting literature.
  • When evaluating the appropriateness of nonauthoritative accounting literature, a governmental entity should consider the consistency of the literature with the GASB Concepts Statements. The Basis for Conclusions in the final Statement should be expanded to include a discussion of the reasons for this requirement.
  • Widely recognized and prevalent practices should be identified as a source of nonauthoritative accounting literature
  • The final Statement should be effective for periods beginning after June 15, 2015, with earlier application permitted.
The Board also tentatively agreed not to include in the final Statement (1) additional items in the list of examples of sources of nonauthoritative literature that were presented in the Exposure Draft and (2) discussion to indicate that a governmental entity should not follow an accounting treatment that would render the financial statements misleading.

Minutes Archive

GAAP Hierarchy—Tentative Board Decisions to Date


These tentative decisions have been made since the issuance of the Exposure Draft documents and in anticipation of a final Statement. The Board tentatively agreed that the following requirements in the Exposure Draft should be carried forward to the final Statement:
  • The requirements of the Exposure Draft for two levels (categories) of authoritative GAAP, with Implementation Guides classified as category (b)
  • The requirements of the Exposure Draft related to Interpretations
  • The requirements of the Exposure Draft related to AICPA literature
  • The requirements of the Exposure Draft related to analogies to authoritative literature.
  • The requirements of the Exposure Draft related to Concepts Statements
  • The requirements of the Exposure Draft related to the classification of widely recognized and prevalent practices as a source of nonauthoritative literature
  • The effective date and transition requirements in the Exposure Draft.
The Board also tentatively agreed to include in the Codification instructions in the final Statement the definition of a government from AICPA literature that had previously been cleared by the GASB.

The Board also tentatively agreed to retain the material as presented in the Exposure Draft, Implementation Guide No. 20xx-1, with the following exceptions:
  • Clarifying edits to the following:
    • Chapter 1: Questions 1.3.8, 1.9.10, 1.10.4, 1.11.1, 1.43.2, and 1.63.3
    • Chapter 2: Section 2.6 and Questions 2.11.3, 2.15.1, and 2.24.2
    • Chapter 3: Questions 3.11.2, 3.11.3, and 3.20.1
    • Chapter 4: Questions 4.2.2, 4.6.1, 4.9.6, 4.16.1, 4.21.1, 4.28.11, 4.30.3, and 4.32.5
    • Chapter 5: Questions 5.62.3, 5.63.3, 5.64.1, 5.64.2, 5.87.4, 5.119.3, 5.120.3, 5.136.5, 5.163.6, and 5.178.5, and Appendix 5-2, Illustrations 5 and 6
    • Chapter 6: Questions 6.12.2, 6.22.1, and 6.42.5
    • Chapter 7: Questions 7.3.5, 7.5.8, 7.7.2, 7.8.3, 7.9.9, 7.19.3, 7.19.4, 7.22.14, 7.23.6, 7.24.7, and 7.52.4
    • Chapter 8: Questions 8.4.1, 8.6.3, and 8.41.6
    • Chapter 9: Questions 9.13.4, 9.17.1, and 9.25.4
    • Chapter 10: Questions 10.5.1, 10.13.1, and 10.13.7, and Appendix 10-1
    • Chapter Z: Questions Z.23.1, Z.48.2, Z.54.3, and Z.63.1.
  • Reinsert Question 9.48.2 into the final Guide.
  • Omit Questions 3.28.2, 5.71.2, 7.49.2, 9.28.1, and Z.33.14, and Appendix 1-2, Illustration 7, Example B, from the final Guide because they do not have the characteristics (discussed in the Basis for Conclusions of the Exposure Draft) to retain them in the final guide.
  • Omit the following questions from the final Guide because they will be affected by the requirements of Statement No. 72, Fair Value Measurement and Application:
    • Chapter 1: Questions 1.2.1, 1.2.2, 1.2.3, 1.2.4, 1.3.7, 1.39.1, 1.64.12, 1.65.3, 1.66.5, and 1.66.6
    • Chapter 2: Question 2.20.1
    • Chapter 3: Question 3.24.1
    • Chapter 4: Question 4.35.1
    • Chapter 5: Question 5.71.1
    • Chapter 6: Questions 6.3.1, 6.4.1, 6.4.2, 6.4.6, 6.5.1, 6.5.2, 6.5.3, 6.6.2, 6.6.3, 6.7.2, 6.9.1, 6.9.2, 6.10.1, 6.11.1, 6.11.4, 6.11.5, 6.11.7, 6.12.5, 6.12.6, 6.12.8, 6.13.1, 6.16.1, 6.20.1, 6.20.2, 6.21.1, 6.27.1, and 6.42.1
    • Chapter 7: Questions 7.9.4, 7.12.5, 7.12.6, 7.12.16, 7.12.17, 7.21.11, and 7.85.4
    • Chapter 8: Question 8.77.1
    • Chapter 10: Questions 10.15.2 and 10.46.8
    • Chapter Z: Questions Z.33.4, Z.33.22, and Z.51.19
  • Omit Question 5.97.3 from the final Guide because it will be affected by the amendments to Statements No. 67, Financial Reporting for Pension Plans, and No. 68, Accounting and Financial Reporting for Pensions, that are anticipated to occur with the issuance of a final Statement on pension accounting and financial reporting that is scheduled to be approved in June 2015.
  • Recast illustrative material from Question 5.163.6 into a new nonauthoritative illustration in the final Guide.
  • Remove glossary definitions that are repetitive of definitions in other literature.