The Governmental Accounting Standards Board (GASB) is a private non-governmental organization that creates accounting reporting standards or generally accepted accounting principles (GAAP) for state and local governments in the United States.

What is the Government Accounting Standards Board (GASB)?

The Governmental Accounting Standards Board (GASB) is an independent, non-political organization founded in 1984. The board’s mission is to promote clear, consistent, transparent, and comparable financial reporting for state and local governments. The Federal Accounting Standards Board (FASB) does the same for the federal government. Taxpayers, holders of municipal bonds, legislators, and oversight bodies rely on this financial information to shape public policy and invest

Who Created the GASB and Why?

The Governmental Accounting Standards Board (GASB) wasn’t created by a single person but rather established in 1984 as an independent, private-sector organization. The need arose for consistent accounting standards specifically for state and local governments. The GASB fills this role by setting these standards and ensuring clear and comparable financial reporting for governmental entities.

The Governmental Accounting Standards Board (GASB) has two main purposes:

• Setting Clear and Consistent Accounting Standards: GASB establishes accounting principles (similar to GAAP for private companies) that state and local governments must follow when preparing their financial reports. This consistency allows for easier comparison of financial health between different government entities.
• Providing Useful Information for Stakeholders: By setting these standards, GASB aims to ensure that the financial reports generated by governments are informative and transparent. This benefits taxpayers, public officials, investors, and anyone else who relies on this information to make decisions about the government’s performance and financial health.

What Standards Does the GASB Issue?

The GASB establishes accounting and financial reporting standards for U.S. state and local governments that follow generally accepted accounting principles (GAAP). The Governmental Accounting Research System (GARS) provides access to those standards.

How Does the GASB Develop Accounting Standards?

The goal of the GASB is to provide reliable, transparent and comparable government financial data. To help ensure that this happens, the GASB follows many due process activities before issuing new standards. These activities are announced publicly, and broad public participation is encouraged. They include:

• Input from an GASAC advisory task force.
• The publication of a discussion document that the public can comment on.
• The public distribution of an Exposure Draft of proposed standards. Again, the public is open to comments.
• Review of existing literature on related subjects.
• Public hearings and forums on its due process documents.

Who Uses GASB Standards?

GASB standards are recognized by:

• State and local governments
• State Boards of Accountancy
• The American Institute of CPAs (AICPA)
• Many individuals and organizations – including taxpayers, legislators, holders of municipal bonds and oversight bodies – use this information to make investments and shape public policy. Government officials can also use GASB standards to demonstrate their financial accountability and responsibility.

Benefits of Using GASB Standards

GASB standards offer several key benefits for both governments and the public they serve:

I. Increased Transparency and Accountability:

• Standardized reporting allows for a clearer picture of a government’s financial health.
• This transparency helps citizens hold their governments accountable for how they manage taxpayer dollars.

II. Improved Decision-Making:

• Consistent financial information allows for easier comparison between different government entities.
• This enables better-informed decisions regarding resource allocation, budgeting, and overall financial management.

III. Enhanced Public Trust:

• Reliable and transparent financial reporting builds trust between the government and the public.
• Citizens can be more confident that their tax dollars are being used effectively.

IV. Benefits for Investors and Creditors:

• Standardized reporting allows investors and creditors to assess the financial risks and opportunities associated with government bonds and other investments.
• This facilitates a more efficient allocation of capital.

V. Streamlined Reporting Process:

• GASB standards provide a clear framework for governments to prepare their financial statements.
• This can lead to a more efficient and cost-effective reporting process.

Criticisms of GASB Standards

• Implementation Costs: Some argue that complying with GASB standards can be expensive for governments, particularly smaller ones with limited resources. Implementing new accounting systems and training staff can be a significant financial burden.
• Applicability to Public Sector: Critics argue that some GASB standards, often modeled after private sector accounting, don’t fully consider the unique aspects of government operations. For example, some government assets may not have a clear market value, making valuation under private sector standards challenging.
• Focus on Accrual Accounting: A shift towards full accrual accounting, which requires estimating the cost of long-term liabilities, can create a less familiar picture of a government’s finances for those accustomed to cash-based reporting.
• Burden on Users: Complex financial statements can be difficult for non-financial professionals to understand. Critics argue that GASB standards may prioritize detailed information over user-friendliness.

Impact of GASB Standards on Government Financial Reporting

• Enhanced Transparency and Accountability: Standardized reporting allows for a clearer picture of a government’s financial health. This transparency helps citizens hold their governments accountable for how they manage taxpayer dollars. Users can now compare financial information between different government entities with greater ease.
• Improved Decision-Making: Consistent financial data allows for better-informed decisions on resource allocation, budgeting, and overall financial management.
• Increased User Confidence: Reliable and transparent financial reporting builds trust between the government and the public. Investors and creditors can also make more informed decisions based on standardized reporting.

How Do GASB Standards Impact You?

The impact of GASB standards on you, as an individual, is likely indirect. GASB standards primarily affect government entities and the financial information they report. However, depending on your level of involvement with government finances, there could be some trickle-down effects:

• More Informed Citizen: Standardized financial reporting can make government finances more transparent. This allows you to be a more informed citizen by providing a clearer picture of how your tax dollars are being spent and managed.
• Improved Government Services: By enabling better financial decision-making by governments, GASB standards could contribute to more efficient allocation of resources, potentially leading to improved government services.
• Investor or Creditor: If you invest in municipal bonds or other government-backed securities, GASB standards can provide you with more reliable and comparable financial information to assess the risks and opportunities associated with these investments.
• Taxpayer: In theory, by increasing transparency and accountability, GASB standards could lead to a more efficient use of tax dollars, potentially impacting the overall tax burden.

How to Stay Informed About GASB Standards

• GASB Website: The Governmental Accounting Standards Board (GASB) website is the primary source for information on their activities and pronouncements. They offer various resources, including:
• Recently Issued Statements: This section highlights the latest standards and updates and guidance.
• Exposure Drafts: These are proposed standards open for public comment before finalization.
• Meeting Materials and Agendas: Stay updated on upcoming GASB meetings and review past meeting materials.
• Email Subscriptions: Sign up for email alerts to receive notifications about new pronouncements, events, and other GASB sources.

Conclusion

The Governmental Accounting Standards Board (GASB) plays a critical role in ensuring transparency and accountability in government finances. By setting clear and consistent accounting standards, GASB helps governments produce informative financial reports that benefit both the public and the government itself.

Government Accounting Standards Board (GASB) – FAQs

What does the GASB do?

The Governmental Accounting Standards Board sets standards that follow Generally Accepted Accounting Principles (GAAP).These standards are intended to promote financial reporting and provide useful information to groups and individuals who use financial reports, including public officials, investors and taxpayers.

What does GAAP mean?

The GAAP, or Generally Accepted Accounting Principles, are the standards set by GASB, FASB, the American Institute of Certified Public Accountants (AICPA)and the United States Securities and Exchange Commission (SEC).

What does GASB stand for?

GASB stands for the Governmental Accounting Standards Board, which establishes accounting and financial reporting standards for U.S. state and local governments.

What is the difference between GAAP and governmental accounting?

GAAP (Generally Accepted Accounting Principles) is a broad set of accounting standards for all entities in the U.S., including public companies and nonprofits. Meanwhile, governmental accounting refers specifically to practices for state and local governments, following standards set by GASB, which sometimes diverge from GAAP to address public sector needs.

What is the purpose of a governmental accounting system?

The purpose of a governmental accounting system is to provide a framework for managing public finances with transparency and accountability. It ensures fiscal responsibility and compliance with legal and regulatory standards, facilitating the reporting and monitoring of governmental financial operations.