The objective of this Statement is to incorporate into the Governmental Accounting Standards Board's (GASB) authoritative literature certain accounting and financial reporting guidance presented in the American Institute of Certified Public Accountants' Statements on Auditing Standards. This Statement addresses three issues not included in the authoritative literature that establishes accounting principles--related party transactions, going concern considerations, and subsequent events. The presentation of principles used in the preparation of financial statements is more appropriately included in accounting and financial reporting standards rather than in the auditing literature.
This Statement does not establish new accounting standards but rather incorporates the existing guidance (to the extent appropriate in a governmental environment) into the GASB standards.
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 sources of generally accepted accounting principles for state and local governments so that they derive from a single source. This effort is important from the perspective of bringing the authoritative accounting and financial reporting literature together in one place, with that guidance modified as necessary to appropriately recognize the governmental environment and the needs of governmental financial statement users.
Unless otherwise specified, pronouncements of the GASB apply to financial reports of all state and local governmental entities, including general purpose governments; public benefit corporations and authorities; public employee retirement systems; and public utilities, hospitals and other healthcare providers, and colleges and universities. Paragraph 2 discusses the applicability of this Statement.
1. Standards of Governmental Accounting and Financial Reporting/2-19
Scope and Applicability of This Statement/2-3
Related Party Transactions/4-7 Subsequent Events/8-15
Going Concern Considerations/16-19
Appendix A: Background/21-23
Appendix B: Basis for Conclusions/24-39
Appendix C: Codification Instructions/40
1. Certain accounting and financial reporting guidance has been included in Statements on Auditing Standards of the American Institute of Certified Public Accountants (AICPA). The objective of this Statement is to incorporate that guidance into the state and local governmental accounting and financial reporting standards.
STANDARDS OF GOVERNMENTAL ACCOUNTING AND FINANCIAL REPORTING
Scope and Applicability of This Statement
2. This Statement establishes accounting and financial reporting standards for related party transactions, subsequent events, and going concern considerations. This Statement applies to all state and local governments.
3. This Statement amends paragraph 26 of the National Council on Governmental Accounting (NCGA) Statement 5, Accounting and Financial Reporting Principles for Lease Agreements of State and Local Governments.
Related Party Transactions
4. State and local governments are required to disclose certain related party transactions. (1) If the substance of a particular transaction is significantly different from its form because of the involvement of related parties, financial statements should recoguize the substance of the transaction rather than merely its legal form.
5. Examples of transactions with related parties that have features that may indicate that governments should consider whether a form-over-substance condition exists include:
a. Borrowing or lending on an interest-free basis or at a rate of interest significantly above or below market rates prevailing at the time of the transaction