What Are GASBS in Governmental Accounting?

The Governmental Accounting Standards Board (GASB) is an independent organization that establishes financial reporting standards for U.S. state and local governments. Created in 1984, its mission is to create principles that make government financial reports more useful for taxpayers, public officials, and investors. These standards, known as GASB Statements (GASBS), are a specialized form of Generally Accepted Accounting Principles (GAAP) for the public sector. By setting clear guidelines, GASB promotes transparency and helps stakeholders understand a government’s financial health to make informed decisions.

Scope of GASB Authority

The authority of GASB extends to a wide array of public sector entities. Its standards are mandatory for all U.S. state and local governments, including primary governments like states, counties, and cities. GASB’s rules also apply to many special-purpose governments created to serve a specific public function.

Common examples include independent school districts, public utility systems, transit authorities, public housing authorities, public universities, and government-operated hospitals. If an organization is considered a governmental entity, it falls under GASB’s jurisdiction, ensuring a consistent standard of financial reporting for entities entrusted with public funds.

The Standard Setting Process

The creation of a new GASB standard follows a formal procedure known as “due process” to ensure broad participation. The process begins when the board identifies a financial reporting issue and adds a project to its technical agenda. GASB staff then conduct extensive research and analysis, which the board discusses in public meetings.

The board releases an Exposure Draft, which is the proposed standard, for public comment. To gather more direct input, GASB often holds public hearings and roundtable discussions. The board and its staff analyze all feedback received through comment letters and public forums. This leads to a period of redeliberation where the proposed standard may be modified, followed by a public vote by the board to issue a new Statement.

Key Governmental Accounting Concepts

Governmental financial reports use a few foundational concepts designed for the public sector, where accountability and legal compliance are priorities. A central feature is fund accounting, which segregates financial resources into separate self-balancing sets of accounts. Each fund is established to carry out specific activities according to special regulations.

Funds are broadly classified into three categories: governmental funds for basic services, proprietary funds for business-like activities, and fiduciary funds where the government holds resources for others, like in a pension system.

This structure leads to different accounting methods. Governmental funds use the modified accrual basis of accounting, recognizing revenues when measurable and available. In contrast, proprietary funds and the government-wide financial statements use the full accrual basis, recognizing revenues when earned and expenses when incurred. This dual perspective provides both a short-term view of available financial resources and a long-term view of all economic resources, allowing users to see details of fiscal accountability and the broader picture of operational accountability.

Major GASB Statements and Their Impact

Several GASB statements have reshaped governmental financial reporting by enhancing transparency. GASB Statement 34 required the presentation of government-wide financial statements, which provide a consolidated overview of a government’s finances using full accrual accounting. It also mandated that governments report and depreciate general infrastructure assets like roads and bridges, giving a more complete view of the total cost of government services.

GASB 68 and GASB 75 addressed retirement benefits. These statements require governments to report their net pension liability (GASB 68) and their net liability for other post-employment benefits (OPEB) like retiree healthcare directly on their financial statements. Previously, this information was often disclosed only in the notes, but now the full unfunded obligation is recognized as a liability.

GASB Statement 87 established a single model for lease accounting. Under this rule, a government lessee must recognize an intangible right-to-use lease asset and a corresponding lease liability for most leases longer than 12 months. This brought many previously off-balance-sheet obligations into view.

Building on lease principles, GASB Statement 96 addresses Subscription-Based Information Technology Arrangements (SBITAs). This standard requires governments to recognize a subscription asset and a corresponding subscription liability for SBITAs with terms longer than 12 months, ensuring technology costs are properly reflected.

Distinctions from FASB Standards

While GASB and the Financial Accounting Standards Board (FASB) both set authoritative accounting standards, they serve different sectors. FASB establishes standards for private companies and not-for-profit organizations, while GASB’s jurisdiction is limited to state and local governmental entities.

A primary conceptual difference lies in the objectives of the financial reports. GASB standards are designed for citizens and legislative bodies, with an emphasis on public accountability. In contrast, FASB standards are geared toward investors and creditors, focusing on information to help them make capital decisions.

The absence of a profit motive in government leads to significant variations in reporting. GASB requires fund accounting to demonstrate compliance with legal and budgetary restrictions. Governmental funds use a modified accrual basis of accounting, focusing on current financial resources, whereas FASB rules use a single set of full accrual statements that reports all assets and liabilities.

The presentation of financial statements also differs. GASB requires government-wide statements that are separate from fund-based statements, creating a dual-perspective report. FASB standards require a single, consolidated set of financial statements, including a balance sheet, income statement, and statement of cash flows.