Guidelines for Responding to Proposed Accounting and Auditing Standards: The GFOA Executive Board Recently Approved Specific Principles for Responding to Proposed Accounting and Financial Reporting Standards and to Proposed Auditing Standards

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The Government Finance Officers Association (GFOA) routinely responds to proposed new guidance from the Governmental Accounting Standards Board (GASB), such as exposure drafts, preliminary views documents, and invitations to comment. Over the years, the GFOA has informally adopted a number of basic concepts and positions to which it has frequently appealed in responding to various GASB initiatives. These concepts and positions have allowed the GFOA to take principled positions that have remained consistent over time.

This past June, the GFOA's standing Committee on Accounting, Auditing, and Financial Reporting concluded that it would be beneficial to develop these informal principles into a set of formal guidelines that the GFOA could both use itself and share with state associations that might desire help in crafting their own responses to GASB proposals. The product was a draft set of guidelines that was sent to the GFOA's Executive Board for its consideration. At its fall meeting in Chicago, the GFOA's Executive Board formally approved the proposed guidelines, which have been separately communicated to each state association.

The 12 specific principles that the GFOA's Executive Board has promulgated for responding to proposed accounting and financial reporting standards are as follows.

1. Accounting is a means to an end, not an end in itself. Accounting standards should always be justifiable on the grounds that they provide information that is of practical use to decision makers. This practical use should be demonstrated.

2.Willingness to accept something for free is not sufficient evidence of genuine demand. Users of financial statements virtually always can be expected to support requirements for additional disclosure since they do not have to bear the related costs. A positive response from users to a proposed new disclosure is not, of itself, sufficient evidence of real demand.

3. Less often is more. The sheer volume of financial reporting can be a significant obstacle to users and potential users of financial statements and needs to be minimized, especially in the case of note disclosure.

4. Unnecessary differences with private-sector standards should be avoided for accrual presentations. Differences in the accrual treatment of transactions and events should always be based on significant underlying environmental differences (i.e., transactions and circumstances unique to the public sector), not just the conflicting preferences of different standard-setting bodies.

5. Resist assigning new meanings to existing private-sector terminology. The same technical term should not have different meanings in the public and private sectors (e.g., cash flows from operating activities).

6. The financial statement display of "soft" data compromises user confidence in financial statements. Softer data are best provided through note disclosure.

7. The integrity of the current financial resources measurement focus and the modified accrual basis of accounting must be preserved. Recognition and display in governmental funds should be driven by the unique measurement focus of those funds, rather than "shadowing" the accrual-based treatment used in the government-wide financial statements. A major reason the GFOA supported government-wide reporting was to "take the pressure off" governmental funds to provide information inconsistent with their primarily budgetary objective.

8. The integrity of fund accounting needs to be preserved. It is essential that fund financial statements be treated as the true equal of government-wide financial statements and not as the equivalent of supporting schedules.

9. The expansion of required supplementary information needs to be resisted. Such presentations easily could become a growth category, especially given the broad definition of the category provided in GASB Concepts Statement No. 3, Communication Methods in General Purpose External Financial Reports that Contain Basic Financial Statements. …