GAAP Structure

Research Description: The initial objective of this pre-agenda research is to evaluate the effectiveness of the GASB’s current dual-authority approach to communicating generally accepted accounting principles (GAAP) for state and local governments—that is, a GAAP structure that includes both original pronouncements and a codification, each with equal authoritative status. Based on the outcome of the initial research, a potential subsequent objective would be to consider whether, and if so how, the GASB’s current GAAP structure could be improved.

Status: Added to Research Agenda: August 2023

GAAP Structure—Project Plan

Background: Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, establishes the GAAP hierarchy, which sets forth what constitutes GAAP for all state and local governmental entities and identifies authoritative sources of literature. As described in paragraph 4 of that Statement, GASB Statements (and GASB Interpretations issued prior to the issuance of Statement 76) comprise Category A authoritative GAAP, and GASB Technical Bulletins, GASB Implementation Guides, and AICPA literature cleared by the GASB comprise Category B authoritative GAAP. Both Category A and B GAAP are incorporated into the Codification of Governmental Accounting and Financial Reporting Standards (Codification), and when incorporated, Category A and B GAAP retain that authoritative status. As a result, the GAAP structure for governmental accounting standards is “dual authority;” that is, there are two sources—original pronouncements and the Codification—in which authoritative GAAP resides.

This pre-agenda research topic evaluating the GASB’s GAAP structure is not intended to reexamine the GAAP hierarchy; that is, the conclusions reached in Statement 76 regarding the two levels of authoritative GAAP are not being reconsidered. Rather, the purpose is to evaluate the mechanisms through which GAAP is communicated and consider whether a dual authority structure remains appropriate.

The issue of the GASB dual-authority structure has been raised by stakeholders as part of their feedback on other GASB due process documents. Some stakeholders have suggested that the GASB move to a single source of GAAP, similar to the FASB. Further, as more standards are issued and as the GASB continually reexamines and amends existing standards, both using and maintaining a dual authority structure becomes more complex.

Major Research Activities: The initial research activities, which would be aimed at evaluating the efficacy of a dual-authority GAAP structure, include:

  1. Outreach with stakeholders to assess how they interact with the GASB’s literature, including which aspects they find valuable and which they find challenging with respect to the current GAAP structure.
  2. An assessment of internal procedures, processes, and resources necessary to maintain a dual authority structure.
  • Pre-agenda research approved: August 2023
  • Consultative group appointed? No
Research Work Plan: The plan for the pre-agenda research includes the following activities:

Board Meetings Research Activities
September–October 2023 Design stakeholder interviews and protocols.
November 2023–February 2024 Conduct stakeholder interviews; evaluate internal processes and procedures.
March 2024 Analyze results of initial research.
April 2024 Present to Board for consideration of whether subsequent research is needed.