GASB Update - Statement No. 76

GASB Statement No. 76 Establishes GAAP Hierarchy for State and Local Government Financial Reporting With its June 2015 release of Statement No. 76 – The Hierarchy of Generally Accepted Accounting Principles (GAAP) for State and Local Governments, the Governmental Accounting Standards Board (GASB) seeks to improve the consistency and usefulness of state and local financial statement information by reducing the GAAP authoritative hierarchy to two authoritative categories. Statement No. 76 supersedes Statement No. 55 –The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments.

Effective Date Statement No. 76 applies to financial statements for reporting periods beginning after June 15, 2015.

Three Objectives for Improvement The GASB cites the following three anticipated improvements from requiring Statement No. 76 guidance:  Statement No. 76 will raise the category of GASB Implementation Guides in the GAAP hierarchy, thereby providing opportunity for broader input  Statement No. 76 emphasizes the importance of authoritative literature analogies when accounting treatment is not specified in authoritative GAAP  Statement No. 76 requires consideration of consistency with the GASB Concepts Statements when evaluating accounting treatments specified in non-authoritative literature Overall, the GASB aims to reduce variation in preparing financial statements, improve the usefulness of financial statement information for making decisions and accountability and make it easier to compare financial statement information among governmental entities.

Scope and Applicability of GASB Statement No. 76 The GAAP hierarchy established in Statement No. 76 applies to all state and local government entities. In addition to superseding Statement No. 55, Statement No. 76 also amends guidance from Statement No. 62 – Codification of Accounting and Financial Reporting Guidance Contained in PreNovember 1989 FASB (Financial Accounting Standards Board) and AIPCA (American Institute of CPAs) Pronouncements.

Two Sources for Authoritative GAAP Statement No. 76 defines the following two categories as sources for authoritative GAAP:  Category A: GASB Statements  Category B: GASB Technical Bulletins, GASB Implementation Guides and AICPA literature cleared by the GASB Statement No. 76 sets Category A (GASB Statements) as the highest source of authoritative guidance for accounting and financial reporting. If a GASB statement does not specify treatment for a particular transaction or other event, a state or local government entity should then evaluate whether one of the

GASB Statement No. 76 – Page 1

sources listed in Category B provides specified accounting treatment.

In setting those two categories, the GASB recognized the rigorous due process for GASB statements while also acknowledging the AICPA’s historical significance in setting standards.

If specified accounting treatment cannot be found in either Category A or Category B, Statement No. 76 directs state and local government entities to evaluate non-authoritative accounting literature based on:  Consistency with GASB Concepts Statements  Relevance to particular circumstances  The specificity of the literature  General recognition of the author or issuer as an authority Summary In releasing Statement No. 76, the GASB establishes a GAAP hierarchy that applies to all financial statements prepared by state and local government entities. The hierarchy establishes two authoritative categories and provides guidance for treating events not specified by those categories.

Overall, Statement No. 76 seeks to make financial statement information more consistent, more useful and more comparable to financial statements issued by different government entities.

GASB Statement No. 76 – Page 2