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Certified Public Accountants | Business Consultants
government finance Quarterly
In this issue
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GASB or FASB?
Making the Right Decision
for Your Organization
Moss Adams to Host AICPA
SLGEP Meeting
Upcoming Events and Webcasts
Mos s A dam s to Hos t
A ICPA SLGEP Mee t ing
Moss Adams partner Jim
Lanzarotta will be hosting
the next AICPA State & Local
Government Expert Panel
meeting. Jim has served
on the panel for six years,
the past three as chair. The
meeting will be held April 23
in Seattle.
The agenda is still in
development, but it’s expected
to include:
• Auditing issues for
governments, such as
federal compliance audit
requirements
• Changes to the AICPA’s
state and local government
audit guide
• Practice issues facing
governmental auditors
and financial statement
preparers
GASB or FASB?
Making the Right
Decision for Your
Organization
by James C. Lanzarotta, Partner
Not-for-Profit & Government Group
GASB. FASB. GAAP. Twelve letters,
but what a difference they make—and
what a potential problem they pose—for
governmental and other not-for-profit
organizations as they try to determine
which financial reporting framework is
the correct one to follow. FASB and GASB
standards each represent GAAP, and
identifying which set of standards applies
to an organization is critical. Indeed, if
an entity is incorrectly following FASB
standards when it should be following
GASB standards, its financial statements
are likely materially misstated, which
could lead to noncompliance with debt
and other agreements that require
following GAAP.
The vast majority of the 80,000 to 90,000
government entities across the nation
properly follow GASB standards, which
represent GAAP for state and local
governmental entities, because they’re
organized as counties, cities, and other
public bodies. But nontraditional entities
in the government arena, including certain
not-for-profit organizations, often struggle
with making the correct decision. Indeed,
there are more mistakes surfacing these
days, pointing out the need for caution.
Part of the problem is that fiscally
challenged governments have to be more
creative today to serve their citizens.
They’re forming joint ventures, creating
new entities, and hiring outside firms to
perform work for certain departments and
agencies. This has led to more confusion
because the new entities don’t fit a
traditional governmental or commercial
mold in which determination of FASB
versus GASB is usually an easy endeavor.
The lack of clarity between the two sets
of standards has been weighing on us for
decades, even after an agreement was
reached between the FASB and GASB
in 1996. Each GAAP standard-setting
board has its own mission, rules, and
requirements, and this leads to disparity
in recognition, measurement, display, and
disclosure principles that often gets in the
way of financial reporting comparability
and transparency.
Upc oming E v ent s
a nd W ebca s t s
Oregon Municipal Finance
Officers Association
Spring Conference
March 4–7 | Bend, OR
Join Moss Adams partner
Jim Lanzarotta as he presents
on the status and impact of
developments and proposals
from the GASB, SEC, GAO,
and others. He’ll also walk
through the GASB exposure
draft on the accounting and
reporting of public pension
plans.
Learn more about this and
other upcoming events.
Government Accounting,
Auditing, and Regulatory
Update
May 10 | Online
Join our annual review
highlighting recent
developments and new audit
and accounting requirements
affecting state and local
governments this year.
We’ll also preview proposed
changes.
Learn more about this and
other upcoming webcasts.
GOVERNMENT FINANCE QUARTERLY
The contrast between the GASB and FASB
is especially striking when it comes to the
nature, form, and format of the required
financial statements; the accounting
for certain events or transactions,
such as investments and employee
benefit programs; and required footnote
disclosures. In a nutshell the FASB wants
to help investors and creditors make
financial decisions. The GASB, on the other
hand, is about accountability, because
governments use taxpayer funds.
That said, both boards try to take each
other’s perspective into account when
setting standards, although they’re
reluctant to put more definitive guidance
for determining whether to follow
FASB or GASB standards into their own
standards or codifications. The American
Institute of Certified Public Accountants’
(AICPA) government and not-for-profit
audit and accounting guides provide the
most comprehensive guidance currently
available about the applicability of FASB
and GASB standards. Unfortunately, the
AICPA guides aren’t incorporated at the
highest level of GAAP. Furthermore, the
GASB and FASB define the AICPA guides
at different levels of GAAP—Level B
GAAP under GASB and “other accounting
literature” under FASB—compounding
the confusion.
All this complexity surrounding GASB and
FASB standards is forcing organizations
and their financial consultants to
work harder to avoid costly mistakes.
The first—and most crucial—issue to
determine is the level of involvement and
control a governmental entity has over an
organizational structure, net assets, and
operations. The agreement between the
FASB and GASB, as provided for in the
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AICPA guides, is that, generally speaking,
an organization should use GASB
standards if:
• It’s a state, city, town, or municipality
created for the administration of
public affairs
• Its officers are popularly elected
• The majority of its governing body is
appointed by another governmental entity
• Its assets go to a government if the
organization is dissolved
• It has the power to enact or enforce a
tax levy
It’s the ability of a government to appoint or
control a majority of the separate entity’s
board and to dissolve the entity, with its
net assets reverting to the government,
that tends to be the key provision requiring
GASB reporting.
Another key issue involves employee
benefit plans. Here the confusion stems
from the fact that many of the federal
ERISA (Employee Retirement Income
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GOVERNMENT FINANCE QUARTERLY
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plans sponsored or administered by a
governmental entity.
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In our experience, entities created to
provide services to governments—such
as chartered not-for-profit organizations,
auxiliaries and foundations supporting
public colleges and universities, business
activities of Indian tribes such as casinos,
and governmental pension plans subject
to ERISA—are often where reporting
mistakes are made.
Security Act of 1974) requirements and
disclosures for corporate pensions,
codified through FASB standards,
simply aren’t applicable to state and
local government plans. As a result,
when ERISA does apply, organizations
often report their plans using FASB
standards, which isn’t appropriate for
The bottom line is that nontraditional
entities in the government arena, including
certain not-for-profit organizations—
indeed, any organization that isn’t a typical
commercial enterprise—must review the
guidance and make sure it understands
whether GASB or FASB standards
apply. The decision itself isn’t often a
difficult one. In fact, once an analysis is
performed of the underlying rules, the
correct reporting framework is often
black-and-white. The challenge for most
organizations is simply being aware of the
issue in the first place.
A bou t Mos s A dam s
Across the nation,
Moss Adams LLP provides
insight and expertise to
public, private, and notfor-profit enterprises in a
wide range of industries.
To discover how we can
make a difference to your
organization, visit
www.mossadams.com.
Acumen. Agility. Answers.
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