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:
Preliminary Views Redeliberations

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
Current Developments: Redeliberations on the measurement focus for governmental fund financial statements were held in July and August 2019 in conjunction with deliberations on the Financial Reporting Model Reexamination project.

Work Plan:
 
Board Meetings Topics to Be Considered
February 2020: Discuss first draft of the concepts section of an Exposure Draft of proposed recognition concepts.
May 2020: Discuss preballot draft of an Exposure Draft of proposed recognition concepts.
June 2020: Discuss ballot draft of an Exposure Draft of proposed recognition concepts and consider for approval.
July–September 2020: Comment period.
October 2020: Public hearings.
December  2020–September 2021: Redeliberate issues based on due process feedback.
November 2021: Discuss draft of a final Concepts Statement.
December 2021: Discuss preballot draft of a final Concepts Statement.
February 2022: Discuss ballot draft of a final Concepts Statement and consider for approval.

Conceptual Framework: Recognition—Recent Minutes


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 langauge “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 of Teleconference, September 12, 2018

The Board reviewed and provided suggested edits to a ballot draft of the Preliminary Views, Recognition of Elements of Financial Statements, which included the alternative views of two Board members. The Board approved the issuance of the Preliminary Views in a four to three vote.

Minutes Archive

Conceptual Framework: Recognition—Tentative Board Decisions to Date


The Preliminary Views, Recognition of Elements of Financial Statements, was approved in September 2018.
 
The Board tentatively decided to propose the following:
  • The short-term financial resources measurement focus should have the following characteristics:
    1. Payment terms 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.
    2. Items arising from long-term transactions and 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.
    3. The recognition period should be one year.
  • The hierarchy of recognition proposed in the Preliminary Views should be carried forward to the Exposure Draft.
  • The definition and recognition concepts for the economic resources measurement focus proposed in the Preliminary Views should be carried forward to the Exposure Draft.