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.

Exposure Draft 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
  • Exposure Draft approved: June 2020
  • Comment period: June 2020–February 2021
  • Public hearings and user forums held: March and April 2021
  • Redeliberations began: May 2021
Current Developments: No developments.

Work Plan:
Board Meetings Topics to Be Considered
Discuss draft of final concepts.
January 2024 Discuss preballot draft of a final Concepts Statement.
March 2024 Discuss ballot draft of a final Concepts Statement and consider for approval.

Conceptual Framework: Recognition—Recent Minutes

Minutes of Meetings, February 21–23, 2023

The Board reevaluated the proposed recognition hierarchy in the Exposure Draft, Recognition of Elements of Financial Statements, based upon additional information identified in the application of the hierarchy in the Revenue and Expense Recognition project. The Board considered three alternatives for addressing the issue: (1) eliminate the recognition hierarchy from a final Concepts Statement, (2) modify the recognition hierarchy proposed in the Exposure Draft to be a transaction-based hierarchy, or (3) retain the recognition hierarchy proposed in the Exposure Draft. The Board tentatively decided to eliminate from a final Concepts Statement the recognition hierarchy proposed in the Exposure Draft.

Minutes Archive

Conceptual Framework: Recognition—Tentative Board Decisions to Date

The Board tentatively decided the following:
  • A measurement focus and basis of accounting that has a short-term perspective should be retained.
  • The name of the measurement focus for governmental fund financial statements should be short-term financial resources measurement focus.
  • The name of the basis of accounting for governmental fund financial statements should be modified accrual basis of accounting.
  • The recognition terms for the short-term financial resources measurement focus and accrual basis of accounting (short-term method) should be the terms of the binding arrangement (or estimated payments if there is no binding arrangement or the binding arrangement does not include specific payment terms).
  • The recognition method for long-term transactions and events in the short-term method should be based on the inception date of the transaction (Transactions and other events for which the period from inception to conclusion is greater than the recognition period should be recognized when payments are due).
  • The recognition period of the short-term method should be one year.
  • In the short-term method, financial assets include cash, assets that are available to be converted to cash, and assets that are consumable in lieu of cash. All liabilities are financial liabilities.
  • Applicability to the period for outflows of resources and inflows of resources in the short-term method should be determined using the concept of interperiod equity.
  • Under the economic resources measurement focus and accrual basis of accounting, elements of financial statements would be recognized when an item meets the definition of an element and the measurement of the item sufficiently reflects the qualitative characteristics of information in financial reports, subject to the limitations of financial reporting described in Concepts Statement No. 1, Objectives of Financial Reporting.
  • The recognition hierarchy proposed in the Exposure Draft should not be included in the final Concepts Statement.