changing landscape of accounting standards setting, The

CPA Journal, The, Nov 2003 by Titard, Pierre L, DiGregorio, Dean W

A growing set of standards

Accounting standards setting has evolved over the past 30 years. In 1972, the Financial Accounting Standards Board (FASB) replaced the Accounting Principles Board (APB) as the primary private organization responsible for establishing accounting principles in conformity with generally accepted accounting principles (GAAP). The Governmental Accounting Standards Board (GASB) was created in 1984 to set standards for state and municipal entities. Then, in 1990, the Federal Accounting Standards Advisory Board (FASAB) was established to set standards for federal government accounting. Two years ago, the body responsible for setting international standards, the International Accounting Standards Committee (IASC), became the International Accounting Standards Board (IASB). The IASB has the responsibility for setting standards that are acceptable in more than one country.

FASAB and GAAP

In October 1999, the AICPA Council recognized the FASAB as the body designated to establish GAAP for federal entities under Rule 203 of the AICPA's Code of Professional Conduct. Rule 203 effectively states that AICPA members cannot say that the financial data of an entity are in conformity with GAAP if they depart from any principle promulgated by a body designated by Council. There are now three such bodies designated to establish GAAP: FASB, GASB, and FASAB.

Despite its lofty status in the discipline of accounting, FASAB has an identity problem. Although FASAB has been around for approximately 13 years, it is not well known within the accounting profession, not by academics or public or private practitioners. While the majority of those within the accounting profession will not audit federal entities or need a working knowledge of FASAB standards, all should be at least generally familiar with any organization having the authority to promulgate GAAP.

SAS 91

After the AICPA Council recognized FASAB, the AICPA's Auditing Standards Board issued SAS 91, Federal GAAP Hierarchy. This standard formally establishes the FASAB pronouncements within the auditing standards structure. SAS 91 is actually an amendment to SAS 69, in effect since 1992, which explains the meaning of the phrase "present fairly," and describes the sources of accounting principles in the United States. SAS 69 also provides a hierarchy of acceptable sources for nongovernmental entities and state and local governmental entities. SAS 91 closes the loop by establishing a hierarchy of accounting principles for federal governmental entities.

The hierarchy that SAS 91 establishes for FASAB is similar to that previously established for FASB and GASB. SAS 91 provides four categories of accounting principles, labeled from highest (a) to lowest (d).

* Category a includes officially established accounting principles, which include FASAB Statements and Interpretations, along with FASB pronouncements specifically made applicable to federal governmental entities by FASAB Statements or Interpretations.

* Category b includes FASAB Technical Bulletins and AICPA Industry Audit and Accounting Guides and AICPA Statements of Position, if specifically made applicable to governmental entities by the AICPA and cleared by the FASAB.

* Category c consists of AICPA AcSec Practice Bulletins, if specifically made applicable to federal governmental entities and cleared by FASAB, as well as Technical Releases of the Accounting and Auditing Policy Committee of FASAB.

* Category d includes implementation guides published by FASAB staff, as well as practices that are widely recognized and prevalent in the federal government (Auditing Standards Board 2000).

Regarding categories b and c, auditors can generally assume that, unless otherwise stated, relevant AICPA statements and Practice Bulletins have FASAB clearance.

Similar to FASB and GASB accounting principles, the standard also indicates that, in the absence of a pronouncement covered by Rule 203 or another source of established accounting principles, the auditor of a federal governmental entity may consider other relevant accounting literature. SAS 91 includes a list of examples of such accounting literature.

With the implementation of SAS 91, we now have a comparable hierarchy across the three types of standard-setting bodies. For example, category a for nongovernmental entities, state and local governmental entities, and federal governmental entities, consists of FASB Statements and Interpretations, GASB Statements and Interpretations, and FASAB Statements and Interpretations, respectively, along with applicable AICPA and FASB pronouncements. FASAB's Source of Authority

Over the years, accounting systems for federal agencies have not been the models that most accountants would choose to follow. The emphasis has been on accounting for budgetary expenditures, not financial performance. Prior to FASAB, federal agencies used a number of different accounting methods, which resulted in inconsistencies throughout the government. The legislative requirements for financial reporting were not always clear.