GOVERNMENTAL ACCOUNTING
STANDARDS BOARD (GASB)

The Government Accounting Standards Board (GASB) was created in 1984 to establish generally accepted accounting principles (GAAP) for state and local government entities. Prior to 1984, issues in public sector accounting were addressed by the National Committee on Governmental Accounting (NCGA) of the Government Finance Officers Association (GFOA). As provided for in the GASB charter, an extensive review was conducted on the GASB's performance after five years. The 1989 report, while making several recommendations for change, concluded that the GASB had performed well in the public interest.

The GASB is one of two boards that establishes GAAP. The other is the Financial Accounting Standards Board (FASB). While the GASB has jurisdiction over financial reporting by governmental entities, the FASB establishes rules for private sector accounting. Both boards are independent, nongovernmental bodies whose members are appointed by the trustees of the Financial Accounting Foundation (FAF). The FAF is an independent, nongovernmental body that is responsible for the basic structure for establishing accounting principles. With respect to the GASB, the FAF appoints GASB members, raises funds, and provides general oversight of governmental accounting standards setting. Both the FAF and GASB are assisted by the Government Accounting Standards Advisory Council (GASAC).

The GASB originally consisted of five members. As first organized, the GASB had a full-time chairperson with the vice-chair and three other members being part-time. Following the 1989 review, it was decided to make all members full-time if sufficient funding was available. In 1997 two new members were added, bringing the total to seven members. GASB members' five-year terms are staggered so that they do not expire at the same time.

When it was first established in 1984, the GASB's first statement affirmed the authority of all previous rules established by the NCGA as well as certain state and local government accounting and reporting guidelines of the American Institute of Certified Public Accountants (AICPA). The existing rules were collected and published as the Codification of Governmental Accounting and Financial Reporting Standards. Revisions to existing rules and new rules are announced periodically by the GASB.

Two key issues have arisen concerning the relationship between the GASB and FASB. While the jurisdictional boundaries of the two boards were clearly spelled out, a jurisdictional question that became a source of potential conflict occurred with respect to special entities. A special entity is one that could be either publicly or privately owned, such as a utility, a hospital, or a college or university. Since some special entities are government owned and others are privately operated, it became possible for two similar entities to be governed by two different sets of GAAP. While the matter of which standards would apply to special entities was given considerable attention in the five-year review, the proposal that finally settled the issue simply charged the GASB to be mindful of the need (with regard to special entities) for comparison between public and private sector financial statements. That is, special entities that are privately owned continue to be subject to FASB rules, while special entities that are government owned remain subject to GASB rules.

In 1996 it was felt that further clarification was required for nonprofit organizations, such as healthcare organizations and colleges and universities. The FASB and GASB met in an unusual joint meeting and issued a definition of "government" to clarify whether certain nonprofit organizations should follow FASB or GASB generally accepted accounting principles.

The other issue that arose during the first five years of GASB was known as the hierarchy issue. The hierarchy issue refers to the applicability of FASB rules to government entities when the rules cover areas that have not been addressed by the GASB. As originally conceived, government entities would be subject first of all to all GASB rules, then to FASB rules if no GASB rule applied. During its first five years, the GASB denied the applicability of two FASB rules to state and local government entities. Following the five-year review, the FAF adopted the recommendation that government entities would not have to comply with FASB rules unless the GASB designated them as mandatory.

A NEW GOVERNMENT FINANCIAL
REPORTING MODEL

Since its inception in 1984, the GASB has been charged with the task of developing a new model for f i n a n c i a I r e p o r t i n g for government entities. It was not until mid-1995, however, that it released a preliminary view document called "Governmental Financial Reporting Model: Core Financial Statements," to that end. Then in January 1997 it issued an exposure draft entitled "Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments." The proposed changes were then subject to comment and discussion by the accounting profession. The GASB will take these into account before issuing a final document on the subject.