GASB Statement 62: Codification of Accounting Principles

Governmental Accounting Standards Board (GASB) Statement No. 62, issued in 2010, did not introduce new accounting rules but was created to consolidate existing principles into a single, authoritative source for state and local governments. This statement incorporated guidance from pronouncements made by the Financial Accounting Standards Board (FASB) and its predecessors. GASB 62 streamlined the accounting literature, making it more accessible and organized for governmental entities and ensuring that long-standing practices were housed within GASB’s own guidance.

The Purpose of the Codification Project

Before GASB Statement 62, accounting professionals at state and local governments navigated a fragmented system of standards. They often had to reference pronouncements from bodies that did not specifically cater to the governmental environment, which created inconsistencies in financial reporting. The primary goal of the codification project was to remedy this by creating a single source for these established accounting principles.

The project targeted guidance issued on or before November 30, 1989. The literature brought into the fold originated from several key sources, including the Financial Accounting Standards Board (FASB) Statements, the Accounting Principles Board (APB) Opinions, and the AICPA’s Accounting Research Bulletins (ARBs). These documents contained foundational accounting principles that governmental entities had been applying for years. By absorbing these sources, GASB provided clarity and simplified research, fostering greater consistency.

Key Accounting Topics Incorporated

GASB Statement 62 integrated numerous accounting topics into the governmental framework. While many of these have since been updated, they formed the original foundation of the codification. Key topics included:

• Lease accounting: The statement codified previous standards based on classifying leases as either capital or operating. This guidance has since been superseded by GASB Statement No. 87, which established a single model for lease accounting where lessees recognize a lease liability and an intangible right-to-use lease asset.
• Contingencies: It provides guidance for potential gains or losses whose occurrence depends on future events. For a loss contingency to be recorded, the future event must be probable, and the amount of the loss must be reasonably estimable. Gain contingencies are not recorded until they are realized.
• Compensated absences: The codification addresses earned vacation and sick leave, requiring governments to accrue a liability for these benefits as employees earn them. The amount recorded is based on pay rates in effect at the balance sheet date, reflecting the obligation for earned but unused paid time off.
• Non-recurring transactions: Originally, GASB 62 codified the guidance for “special items” and “extraordinary items.” This has been replaced by GASB Statement No. 103, effective for fiscal years beginning after June 15, 2025. The new standard uses a single category called “unusual or infrequent items” to simplify reporting.
• Extinguishment of debt: This occurs when a government settles its debt obligations before their scheduled maturity. The statement requires that any difference between the reacquisition price and the net carrying amount of the old debt be recognized as a gain or loss in the period of extinguishment.
• Related party transactions: The codification requires specific disclosures when a government engages in transactions with organizations or individuals that can influence its policies. The nature of the relationship and the details of the transactions must be disclosed to ensure transparency.
• Prior period adjustments: The principles for handling adjustments to correct errors in the financial statements of a previous year were incorporated. This guidance was later superseded by GASB Statement No. 100, which updated the requirements for reporting accounting changes and error corrections.

Authority and Placement in the GAAP Hierarchy

The principles and guidance consolidated within GASB Statement 62 hold an important position in governmental accounting. Under the hierarchy of Generally Accepted Accounting Principles (GAAP) established by GASB Statement No. 76, GASB Statements are classified as Category A, the highest level of authority. Category B includes GASB Technical Bulletins, Implementation Guides, and AICPA literature cleared by the GASB.

The provisions within Statement 62 are authoritative only until they are amended or superseded by a subsequent GASB pronouncement. The GASB continues to issue new standards to address emerging issues or to improve existing guidance. As noted, key sections of Statement 62 have been superseded by newer statements.

This dynamic nature means that while Statement 62 provides a comprehensive baseline, it is not a static document. Governmental accountants must remain current with new GASB releases to ensure they are applying the correct standards. The statement’s role is to serve as the authoritative source for certain historical principles within an evolving framework.