Project Pages

Conceptual Framework: Recognition

Project Description: The objective of this project is to develop recognition criteria for whether information should be reported in state and local governmental financial statements and when that information should be reported. This project ultimately will lead to a Concepts Statement on recognition of elements of financial statements.

Status:
Exposure Draft approved June 2020

Conceptual Framework: Recognition—Project Plan
 

Background: The Board frequently must decide whether an item of information should be recognized in the financial statements and when such an item should be recognized. In the past, the Board has relied on the conceptual framework of other standards setters and analogous examples from practice or previous standards to make such decisions. This method of making decisions tends to lead to certain inconsistencies in financial reporting standards and could result in too much reliance being placed on accounting concepts that were not developed for a governmental environment.

Thus, the project on recognition is needed to provide the GASB with conceptual guidance as to when elements of financial statements should be reported in specific financial statements. This will entail developing recognition criteria and will include a discussion of when elements of financial statements are recognized using different measurement focuses. For the GASB to make consistent financial reporting decisions, it is necessary to have (1) definitions of the elements of financial statements, (2) a basis for determining when elements of financial statements should be recognized in the financial statements, and (3) a basis for determining which measurement approach (for example, initial amounts or remeasured amounts) is appropriate for reporting the elements. The GASB issued a Concepts Statement on the definitions for the elements of financial statements in 2007 and on measurement of elements of financial statements in 2014.  A conceptual framework project on recognition is necessary to complete the conceptual basis for reporting items in traditional financial statements.

Accounting and Financial Reporting Issues. The project is considering the following issues:
  1. What messages are financial statements conceptually attempting to convey? (In other words, what is the story that the financial statements attempt to communicate, or what questions should be answered by reading different financial statements and financial statements prepared using different measurement focuses? For example, the statement of cash flows answers the question, “What happened to cash during the year?”)
  2. What is the relationship among objectives of financial reporting (user needs), financial statements, and measurement focuses at the conceptual level?
  3. How does when an element is recognized affect the meaning that is to be conveyed by a particular financial statement?
  4. What are the fundamental recognition criteria necessary to report an element in a financial statement?
Project History:
  • Pre-agenda research approved: August 2005
  • Combined with measurement project on current technical agenda: December 2005
  • Task force established? Yes, but replaced by the task force appointed for the reexamination of the financial reporting model
  • Deliberations began: December 2007
  • Preliminary Views approved: June 2011
  • Comment period: July–September 2011
  • Public hearings held: October 2011
  • User interviews conducted regarding Preliminary Views: October–November 2011
  • Separated from measurement project: December 2011
  • Project placed on hold pending financial reporting model reexamination: January 2012
  • Deliberations recommenced in conjunction with the Financial Reporting Model Reexamination project: October 2015
  • Preliminary Views approved: September 2018.
  • Comment period: September 2018–February 2019
  • Public hearings and user forums held: March 2019
  • Redeliberations began: June 2019
  • Exposure Draft approved: June 2020
  • Comment period: June 2020–February 2021
Current Developments: An Exposure Draft of a proposed Concepts Statements on recognition was issued in June 2020. The comment period ends February 26, 2021. Public hearings and user forums are scheduled for March and April 2021.

Work Plan:
 
Board Meetings Topics to Be Considered
September 2020–February 2021: Comment period continues.
March–April 2021: Public hearings and user forums.
May 2021–January 2022: Redeliberate issues based on due process feedback.
March 2022: Discuss draft of a final Concepts Statement.
April 2022: Discuss preballot draft of a final Concepts Statement.
June 2022: Discuss ballot draft of a final Concepts Statement and consider for approval.

Conceptual Framework: Recognition—Recent Minutes


Minutes of Meetings, June 16–18, 2020

The Board reviewed a ballot draft of the Exposure Draft of a proposed Concepts Statement, Recognition of Elements of Financial Statements, and discussed clarifying edits. The Board then voted to approve the issuance of the Exposure Draft.

Minutes of Videoconference Meeting, May 26, 2020

The Board reviewed changes to various draft sections of an Exposure Draft of proposed Statement, Financial Reporting Model Improvements. and after providing clarifying edits, tentatively agreed on the proposed approach to describing the short-term measurement focus and accrual basis of accounting.
 
While reviewing those changes, the Board discussed the application of the recognition concepts of the short-term financial resources measurement focus and accrual basis of accounting to transactions such as on-behalf payments for fringe benefits and salaries and direct vendor financing, such as leases. The Board tentatively agreed to identify such transactions as examples of inflows of resources and outflows of resources in the proposed Statement. 
 
The Board then tentatively decided that certain language regarding the short-term financial resources measurement focus and accrual basis of accounting from the proposed Statement also should be included in a ballot draft of an Exposure Draft of a proposed Concepts Statement, Recognition of Elements of Financial Statements, which will be discussed at the June 2020 Board meeting.
 
Finally, the Board also reviewed selected sections of the Codification, marked up to reflect the proposed standards and suggested clarifying edits.

Minutes of Meetings, May 6–8, 2020

The Board reviewed a preballot draft of the Exposure Draft of a proposed Concepts Statement, Recognition of Elements of Financial Statements, and discussed clarifying edits. The Board then agreed to move forward with a ballot draft of an Exposure Draft of a proposed Concepts Statement, which will be discussed at the June 2020 Board meeting.

Minutes of Meetings, February 11–13, 2019

The Board began deliberations by discussing the “applicability to a future reporting period” concept in the context of the short-term financial resources measurement focus. The Board first discussed the concept of “applicability of the reporting period” for items arising from short-term transactions or other events. The Board tentatively decided that the “applicability of the reporting period” for such transactions and events should be determined using interperiod equity.
 
Next, the Board discussed the concept of “applicability of the reporting period” for items arising from long-term transactions or other events. The Board tentatively decided that the “applicability of the reporting period” for such transactions and events should be determined by applying an accrual basis of accounting to the fundamental transaction (applying interperiod equity in the context of the short-term financial resources measurement focus).
 
The Board then reviewed a draft of the Concepts section of an Exposure Draft of a proposed Concepts Statement and discussed clarifying edits.
 
Next, the Board discussed the characteristics of the information that would be included in an Exposure Draft. The Board tentatively agreed that the proposed recognition concepts in the Exposure Draft would meet all of the characteristics in Group 1 and, therefore, are within the scope of the GASB’s authority.
 
Finally, the Board discussed whether the benefits resulting from the application of the proposed recognition concepts justify the costs to preparers and other stakeholders. The Board tentatively decided that the expected benefits associated with the application of the proposed concepts justify the perceived costs of implementation and ongoing compliance of the resulting accounting standards.

Minutes of Meetings, October 15–17, 2019
 
The Board continued redeliberations based on feedback received on the proposals in the Preliminary Views, Recognition of Elements of Financial Statements. First, the Board discussed proposed language describing the recognition concepts of the short-term financial resources measurement focus. The Board tentatively decided that the proposed definition of a long-term transaction should be modified to any transaction that does not meet the definition of a short-term transaction. The Board also discussed whether the definition of a short-term transaction should reference “the date of inception” or “the date the item arose.” The Board tentatively decided that the proposed language “the date of inception” better captures the Board’s intent and would be further explained possibly in a footnote.
 
The Board then discussed the proposed hierarchy of recognition. The Board tentatively decided that the hierarchy of recognition proposed in the Preliminary Views should be carried forward to the Exposure Draft.
 
The Board then discussed the recognition concepts in financial statements applying the economic resources measurement focus. The Board tentatively decided that the definition and recognition concepts for the economic resources measurement focus proposed in the Preliminary Views should be carried forward to the Exposure Draft.

Minutes of Meetings, August 27–28, 2019

The Financial Reporting Model Reexamination project and the Conceptual Framework: Recognition project were discussed in conjunction. The Board continued redeliberations based on feedback received on the proposals in the Preliminary Views, Financial Reporting Model Improvements, and the Preliminary Views, Recognition of Elements of Financial Statements, related to the measurement focus of governmental funds. The Board tentatively decided that the measurement focus for governmental fund financial statements should have the following characteristics:
  • The term used to classify short-term transactions or other events and long-term transactions or other events should be established by the specific applicable contractual (or statutory) terms of the transaction or other event or estimated payments when there are no contractual terms
  • Items arising from long-term transactions or other events should be recognized when due—the date at which payment is scheduled or, if not scheduled, expected to be made in accordance with the recognition terms
  • The recognition period should be one year.
[July 2019 Board Meeting]
 
[The following was discussed at the July 2019 Board Meeting: In conjunction with the Financial Reporting Model Reexamination project discussions, the Board began redeliberations on the measurement focus of governmental funds based on feedback received on the proposals in the Preliminary Views, Recognition of Elements of Financial Statements. The three topics discussed include whether (1) the measurement focus for governmental funds should determine recognition by contractual terms (or expected payment dates) or what is normal for governments in general, (2) long-term assets and liabilities should be accrued to the extent that they are due within the given recognition period or recognized when due, and (3)  the recognition period should be one year or near-term. No tentative decisions were reached.]

Minutes Archive

Conceptual Framework: Recognition—Tentative Board Decisions to Date


The Exposure Draft of a proposed Concepts Statement, Recognition of Elements of Financial Statements, was approved in June 2020.