Statement No. 55 of the Governmental Accounting Standards Board - the Hierarchy of Generally Accepted Accounting Principles for State and Local Governments

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SUMMARY

The objective of this Statement is to incorporate the hierarchy of generally accepted accounting principles (GAAP) for state and local governments into the Governmental Accounting Standards Board's (GASB) authoritative literature. The "GAAP hierarchy" consists of the sources of accounting principles used in the preparation of financial statements of state and local governmental entities that are presented in conformity with GAAP, and the framework for selecting those principles.

The GASB is responsible for establishing GAAP for state and local governments. However, the current GAAP hierarchy is set forth in the American Institute of Certified Public Accountants' (AICPA) Statement on Auditing Standards No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles, rather than in the authoritative literature of the GASB.

How the Changes in This Statement Will Improve Financial Reporting

The requirements in this Statement will improve financial reporting by contributing to the GASB's efforts to codify all GAAP for state and local governments so that they derive from a single source. The Board concluded that the GAAP hierarchy should reside in the accounting literature established by the GASB and is issuing this Statement to accomplish that objective. This Statement will make it easier for preparers of state and local government financial statements to identify and apply all relevant guidance. The Board does not expect that this Statement will result in a change in current practice.

CONTENTS

Introduction/1
Standards of Governmental Accounting and
Financial Reporting/2-6
Scope and Applicability of This Statement/2
The Hierarchy of Generally Accepted
Accounting Principles/3-6
Effective Date/7
Appendix A: Background/8-9
Appendix B: Basis for Conclusions/10-16
Appendix C: Codification Instructions/17

INTRODUCTION

1. The objective of this Statement is to identify the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of state and local governmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy).

STANDARDS OF GOVERNMENTAL ACCOUNTING AND FINANCIAL REPORTING

Scope and Applicability of This Statement

2. This Statement applies to the financial statements of all state and local governments that are presented in conformity with GAAP

The Hierarchy of Generally Accepted Accounting Principles

3. The GAAP hierarchy governs what constitutes GAAP for all state and local governmental entities. It lists the order of priority of pronouncements that a governmental entity should look to for accounting and financial reporting guidance. The sources of accounting principles that are generally accepted are categorized in descending order of authority as follows:

a. Officially established accounting principles--Governmental Accounting Standards Board (GASB) Statements and Interpretations. GASB Statements and Interpretations are periodically incorporated in the Codification of Governmental Accounting and Financial Reporting Standards. (1)

b. GASB Technical Bulletins and, if specifically made applicable to state and local governmental entities by the American Institute of Certified Public Accountants (AICPA) and cleared (2) by the GASB, AICPA Industry Audit and Accounting Guides, and AICPA Statements of Position.

c. AICPA Practice Bulletins if specifically made applicable to state and local governmental entities and cleared (3) by the GASB, as well as consensus positions of a group of accountants organized by the GASB that attempts to reach consensus positions on accounting issues applicable to state and local governmental entities. (4)

d. Implementation guides (Q&As) published by the GASB staff, as well as practices that are widely recognized and prevalent in state and local government. …