You, Too, Can Set Accounting Standards
- Dean Michael Mead
Nov 6, 2023
The Governmental Accounting Standards Board’s (GASB) first proposed Statement in more than a year is an opportune time to remind financial statement preparers, auditors, and users of the crucial role they play in setting accounting and financial reporting standards for state and local governments. This article answers seven questions about how public input shapes the GASB’s standards and how you can participate in the process.
How are governmental accounting standards set, in a nutshell?
The GASB follows “due process” procedures that emphasize objectivity, transparency, and consistency. Its activities are conducted almost exclusively in open meetings that can be observed in person or on the GASB’s website. For all standards-setting projects on the GASB’s technical agenda, it takes the following steps:
- Conduct research and outreach to stakeholders for to define the underlying problem that may require standards setting.
- Seeks input in a public meeting from the Governmental Accounting Standards Advisory Council (GASAC) on (a) the importance of resolving the problem, often multiple times, and (b) a draft of a “project prospectus” that details the potential project and the key issues it would address.
- Discuss the project prospectus in a public meeting and vote on whether to initiate the project.
- Deliberate the issues and develop proposed standards in public meetings.
- Seek input from the GASAC and professional associations (such as GFOA, AICPA, and NASACT) on the proposed standards as they are being developed.
- Review in a public meeting and consider for issuance an Exposure Draft of a proposed Statement for public comment (or proposed Technical Bulletin, Implementation Guide, or Concepts Statement).
- Redeliberate the issues in public meetings in light of the public input.
- Seek additional input from the GASAC and professional associations.
- Review in a public meeting and consider a final Statement (or final Technical Bulletin, Implementation Guide, or Concepts Statement) for issuance.
Does the GASB do anything else for its biggest projects?
Prior to those steps, the GASB staff will conduct “pre-agenda” research if the underlying problem (1) is related to fundamental aspects of the accounting standards, (2) involves complex transactions, (3) potentially would lead to significant changes in the standards, or (4) is a hot-button issue. Potential research activities are first discussed with the GASAC and professional associations. Then, the GASB discusses a “research proposal” and votes to add the research to its technical plan in a public meeting.
The research may take six months to several years, depending on how fundamental or complex the issues are. A report on the research findings is discussed by the GASB in a public meeting. The contents of a project prospectus for these types of projects would be largely based on the findings of the research.
The standards-setting projects that result from pre-agenda research will typically issue more than one proposal for public comment. “Comprehensive projects” like the Financial Reporting Model or Revenue and Expense Recognition involve three rounds of public comments:
- Invitation to Comment (ITC): An ITC is a document of the GASB staff (as opposed to a proposal from the Board members) that describes the major issues being considered and potential solutions to identified problems.
- Preliminary Views (PV): A PV is the Board’s first version of proposed standards to address the issues. The proposal is developed after consideration of the public input in response to the ITC.
- Exposure Draft (ED): An ED is a proposed version of a final Statement developed after consideration of the public input in response to the PV. Except for its cover and front matter, an ED looks like and contains all of the content of a final Statement.
Is public involvement in those procedures important?
Standards setting does not work without public involvement. The members of the GASB may be the final arbiters of the process, but their decisions are based primarily on input received from government accountants, auditors in government and CPA firms, legislative staff, municipal bond analysts, taxpayer groups, and other stakeholders.
What makes the generally accepted accounting principles (GAAP) established by the GASB generally accepted are the openness and evenhandedness of the process and the lengths the GASB goes to involve the public. It may appear to some that the GASB does not listen to what they say, which may discourage further participation. But that point of view mistakes the difference of opinion for indifference. The input the GASB receives represents many competing and contradictory opinions, which means its decisions cannot possibly agree with everyone.
The GASB’s procedures work precisely because the input of every participant in standards setting receives the full attention of the members and staff. Regardless of the source—a governor or an individual taxpayer, an experienced CPA, or a concerned citizen with no accounting training—the GASB treats stakeholder input equally.
What does the GASB do with the comments it receives?
When the GASB receives a comment letter on an ITC, PV, or ED, every Board member and each staff member on the project team gets a copy of the letter and reads it. At the end of the comment period, the staff prepares reports presenting the comments from all the letters by issue—for example, all of the comments on the proposals for recognizing assets and other items, note disclosures, and effective date. The Board’s redeliberations of each issue are informed by discussion papers that include comment letter excerpts that represent the various viewpoints.
The GASB classifies the sources of comments in the reports and papers by type of stakeholder, such as city government, small CPA firm, or academic. This classification doesn't imply a hierarchy of importance among stakeholders; instead, it lends context to the comments and showcases the diverse spectrum of participating stakeholders.
What opportunities are there to participate in the process?
Every stakeholder has the ability to share their views with the GASB. An engaged and motivated stakeholder could provide input at multiple junctures and in many ways. In a project addressing a big issue, a stakeholder conceivably could:
- Respond to a research survey.
- Participate in a research interview.
- Participate in a research roundtable.
- Share their opinions at any time during the process with a member of the GASAC, who can express them to the GASB during their public meetings.
- Share their opinions at any time during the process with a relevant professional organization committee, such as the AICPA’s Technical Issues Committee and State and Local Government Expert Panel, which can express them during meetings with the GASB.
- Submit a comment letter in response to an ITC.
- Testify at a public hearing or participate in a user forum related to the ITC.
- Submit a comment letter in response to a PV.
- Testify at a public hearing or participate in a user forum related to the PV.
- Submit a comment letter in response to an ED.
- Testify at a public hearing or participate in a user forum related to the ED.
- Share their opinions at any time during the process directly with the GASB members and staff.
By any measure, that is ample opportunity to make one’s voice heard.
What did the GASB propose in September?
The GASB issued an ED, Disclosure and Classification of Certain Capital Assets. The project that led to this proposal, Classification of Nonfinancial Assets, was initiated due in part to recent GASB requirements to report a new kind of capital asset in the financial statements—intangible right-to-use assets such as leases and subscription-based information technology arrangements (SBITAs).
The ED proposes that the following types of capital assets be disclosed by major class in notes to financial statements and separately from other capital assets:
- Assets leased from others,
- Capital assets “held for sale” (as opposed to those used to provide service or operate the government), and
- Intangible assets (such as easements, trademarks, and copyrights).
Subscription assets from SBITAs also would be disclosed separately, though not by major class. The ED also proposes criteria for what constitutes a capital asset held for sale.
Can CRI help you to understand GASB proposals?
Your CRI advisor stands ready to answer your questions about proposed standards and the standards-setting process. Contact CRI for more information.