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GASB Proposes Concepts Statement on Elements of Financial Statements

September 6, 2006

The Governmental Accounting Standards Board (GASB) has issued an exposure draft of Concepts Statement No. 4, Elements of Financial Statements.  The proposed concepts statement would establish definitions for the seven elements of historically based financial statements.

Unlike GASB pronouncements, concepts statements do not establish accounting and financial reporting standards. Rather than the preparers and auditors of financial statements, the primary audience for a final concepts statement is the GASB itself. Concepts statements provide a framework for setting standards, guiding the GASB, and helping it maintain a consistent conceptual approach from standard to standard. This particular proposal lays out suggested definitions for the various items that appear in financial statements, such as assets and liabilities.   

A central feature of each of the proposed definitions is a resource, which is an item with a present capacity to provide services, directly or indirectly.  A resource may be tangible, intangible, or may even be embodied in the skills of an individual. It remains a resource only as long as it is capable of providing services.  The elements, which are the fundamental components of financial statements, are defined as follows: 

  • Assets are resources the entity presently controls.
  • Liabilities are present obligations to sacrifice resources or future resources that the entity has little or no discretion to avoid.
  • A deferred outflow of resources is a consumption of net resources by the entity that is applicable to a future reporting period.
  • A deferred inflow of resources is an acquisition of net resources by the entity that is applicable to a future reporting period.
  • Net assets are the residual of all other elements presented in a statement of financial position. 
  • An outflow of resources is the consumption of net resources by the entity that is applicable to the reporting period.
  • An inflow of resources is an acquisition of net resources by the entity that is applicable to the reporting period.

 Assets, liabilities, deferrals, and net assets are elements of statements of financial position, such as the government-wide statement of net assets. Outflows and inflows of resources are elements of resource-flows statements, such as the governmental fund statement of revenues, expenditures, and changes in fund balance.   

Concepts Statement No. 4 is available on the GASB Web site.  The deadline for written comments for the proposed concepts statement is November 17.  Comments should be addressed to the Director of Research and Technical Activities, Project No. 3-1.  Alternatively, written comments may be submitted through an Internet-based form.  NACUBO encourages members to comment to the GASB, also plans to comment, and would like to hear members' reactions to the exposure draft.   

NACUBO staff contact: Sue Menditto, director, accounting policy.