New GASB Standard Codifies Accounting Literature

January 10, 2011

On December 30, 2010, the Governmental Accounting Standards Board (GASB) issued Statement 62, "Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989, FASB and AICPA Pronouncements." Statement 62 incorporates guidance that previously could only be found in certain Financial Accounting Standards Board (FASB) and American Institute of Certified Public Accountants (AICPA) pronouncements.

November 30, 1989 is the date that marks the jurisdictional separation between the GASB and the FASB. On that date the GASB became the standard setting body for all government owned entities and the hierarchy of generally accepted accounting principles (GAAP) changed; separate hierarchies were established for nongovernmental and governmental GAAP.

The primary objective of Statement 62 is to directly incorporate applicable pre-November 30, 1989 guidance from FASB and AICPA pronouncements directly into GASB literature. A main driver of the new standard was FASB's Accounting Standards Codification, which became the single source of authoritative literature when issued in July 2009. Because FASB's codification made all previously issued FASB and AICPA guidance nonauthoritative, the GASB had to produce a standard that captured the pre-1989 literature that governmental entities were following.

The new GASB codification standard supersedes GASB Statement No. 20, "Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting." Statement 20 notes that all proprietary activities should apply FASB pronouncements issued on or before November 30, 1989, provided that they do not conflict with or contradict GASB pronouncements. Further, paragraph 7 of Statement 20 provides that Business Type Activities (BTA), such as public institutions, may elect to apply all FASB pronouncements issued after November 30, 1989, except for those that conflict with or contradict GASB pronouncements.

Public institutions that were following the provisions of paragraph 7:

no longer have to analyze new FASB literature to determine its relevance to the government environment; and
are not bound to continue following previously selected post-1989 FASB standards because such literature is not considered category A GAAP.

Affected public institutions should consult with their auditors as discontinuing the use of guidance previously considered authoritative is a change in accounting principle.

GASB Statement 62 is hundreds of pages in length and addresses over 100 FASB and AICPA pronouncements consolidated by topic. Several topics that may be of interest to public institutions include:

Capitalization of Interest Cost
Revenue Recognition for Exchange Transactions
Revenue Recognition When Right of Return Exists
Special and Extraordinary Items
Comparative Financial Statements
Prior-Period Adjustments
Accounting Changes and Error Corrections
Disclosure of Accounting Policies
Contingencies
Extinguishments of Debt
Troubled Debt Restructuring
Interest Costs-Imputation
Leases

Public institutions should read the standard for a comprehensive list. The topic of leases, from the above list, is highlighted to illustrate how use of GASB statement 62 will lead to another reporting difference between public and independent institutions. In 2010 FASB released an exposure draft that would change lease accounting and reporting. When FASB releases new guidance on lease accounting and reporting, independent institutions will follow FASB's updated guidance and public institutions will continue following the lease guidance in GASB Statement 62 - which is based on FASB Statement 13.

The requirements of Statement 62 are effective for financial statements for periods beginning after December 15, 2011 -FY13 for the vast majority of public institutions. The new statement will be sent to GASB literature subscribers or is available for purchase from GASB.