11.2 Standard-Setting Bodies and Jurisdictional Framework

Standard-Setting Bodies and Jurisdictional Framework

Public sector financial managers must navigate a complex institutional landscape of standard-setting boards, each operating under distinct authority, structural charters, and stakeholder constituencies.

+-------------------------------------------------------------------------------------+
|                       PRIMARY STANDARD-SETTING JURISDICTIONS                        |
+-----------------------+-----------------------------+-------------------------------+
|  BOARD                |  OVERSIGHT / SPONSOR        |  AUTHORITATIVE JURISDICTION   |
+-----------------------+-----------------------------+-------------------------------+
|  GASB                 |  Financial Accounting       |  50 State Governments,        |
|  (Gov. Accounting     |  Foundation (FAF)           |  ~90,000 Local Governments,   |
|  Standards Board)     |                             |  Public Utilities & Unis      |
+-----------------------+-----------------------------+-------------------------------+
|  FASAB                |  Treasury, OMB, GAO         |  Consolidated Federal Govt,   |
|  (Fed. Accounting     |  (Principals)               |  24 CFO Act Departments,      |
|  Standards Adv. Board)|                             |  Federal Executive Agencies   |
+-----------------------+-----------------------------+-------------------------------+
|  FASB                 |  Financial Accounting       |  For-Profit Corporations,     |
|  (Financial Accounting|  Foundation (FAF)           |  Nongovernmental Non-Profits, |
|  Standards Board)     |                             |  Private Universities/Hosps   |
+-----------------------+-----------------------------+-------------------------------+
|  IPSASB               |  International Federation   |  Sovereign, Regional, and     |
|  (Intl. Public Sector |  of Accountants (IFAC)      |  Local Governments Worldwide  |
|  Standards Board)     |                             |  (Non-U.S. Public Entities)   |
+-----------------------+-----------------------------+-------------------------------+

Governmental Accounting Standards Board (GASB)

Established in 1984 under the oversight of the Financial Accounting Foundation (FAF)—an independent private-sector foundation that also oversees the FASB—the GASB establishes Generally Accepted Accounting Principles (GAAP) for state and local governmental entities in the United States.

• Jurisdiction: Encompasses all 50 state governments, territories, and approximately 90,000 general-purpose and special-purpose subnational governments (counties, cities, townships, public school districts, public utility authorities, and state-chartered universities).
• AICPA Authority: The American Institute of Certified Public Accountants (AICPA) formally designates the GASB under Rule 203 of the AICPA Code of Professional Conduct as the sole authorized standard-setter for state and local government GAAP.

Federal Accounting Standards Advisory Board (FASAB)

Created in October 1990 by a tripartite Memorandum of Understanding among the Department of the Treasury, the Office of Management and Budget (OMB), and the Government Accountability Office (GAO) (the "three principals"), the FASAB promulgates federal accounting standards.

• Jurisdiction: Governs all reporting entities of the federal government, including the executive departments (e.g., Department of Defense, Health and Human Services), independent regulatory agencies, government corporations, and the consolidated Financial Report of the United States Government.
• AICPA Recognition: In October 1999, the AICPA governing council officially recognized FASAB as the standard-setting body for federal governmental entities under Rule 203 of the AICPA Code of Professional Conduct.

Financial Accounting Standards Board (FASB)

Organized in 1973 under the FAF, the FASB promulgates financial accounting and reporting standards for commercial business enterprises and nongovernmental non-profit organizations.

• Jurisdictional Boundary with GASB: Whether an entity follows FASB or GASB standards depends entirely on its legal status as a governmental versus nongovernmental entity. Under the GASB/FASB Jurisdictional Agreement and AICPA audit guides, an entity is classified as governmental if it possesses any of the following characteristics:
  1. Created directly by a state or local statute to deliver governmental services;
  2. Administered by a board whose majority is appointed or elected by public officials;
  3. Possesses sovereign powers, such as the power to levy taxes, exercise eminent domain, or issue tax-exempt municipal bonds; or
  4. Subject to unilateral dissolution by a government, with its remaining net assets reverting to the public treasury.
• Example: A private non-profit university (e.g., Stanford University) follows FASB standards (using Net Assets with and without donor restrictions), whereas a public state university (e.g., the University of California) must adhere to GASB standards (using Net Position and fund reporting).

International Public Sector Accounting Standards Board (IPSASB)

Operating as an independent standard-setting board under the auspices of the International Federation of Accountants (IFAC), the IPSASB issues International Public Sector Accounting Standards (IPSAS) for use by sovereign, regional, and local governments around the globe, as well as international entities like the United Nations. IPSAS standards are accrual-based frameworks modeled largely on International Financial Reporting Standards (IFRS) adapted for the public sector. While U.S. domestic governments follow GASB or FASAB standards, IPSAS serves as the benchmark for sovereign accounting modernization across the European Union, OECD nations, and multilateral development banks.

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Standard-Setting Due Process

Both the GASB and FASAB adhere to rigorous, open due-process procedures before issuing authoritative guidance. This public due process protects standards from political capture, balances technical accounting rigor with practical implementation feasibility, and ensures all affected stakeholders are heard.

The Six Stages of Due Process

1. Pre-Agenda Research and Issue Identification: Staff researchers monitor technical problems, consult with advisory councils (such as the Governmental Accounting Standards Advisory Council - GASAC, or the Federal Appointments Advisory Committee), evaluate user needs, and conduct foundational research to determine whether a project warrants formal board agenda placement.
2. Invitation to Comment (ITC) / Discussion Memorandum (DM): On complex or controversial issues, the board issues an exploratory document outlining the accounting problem, analyzing alternative theoretical solutions, and soliciting early written public feedback.
3. Preliminary Views (PV): The board publishes a document presenting its initial, non-binding collective view on the preferred solution, inviting detailed public critique before formal standards are drafted.
4. Exposure Draft (ED): The board drafts the proposed standard in precise legal and accounting language. The Exposure Draft is made publicly available for a formal comment period (typically 60 to 90 days), allowing preparers, auditors, financial analysts, and citizens to submit written comment letters.
5. Public Hearings and User Forums: The board conducts public hearings where respondents provide oral testimony, answer questions from board members, and debate implementation challenges.
6. Re-deliberation and Final Promulgation: The board reviews all public input, re-deliberates issues during open public meetings, makes necessary revisions, and takes a formal roll-call vote. Upon achieving the required majority vote (at least a supermajority or simple majority depending on board bylaws), the authoritative document is published as a formal Statement or Interpretation.

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GAAP Hierarchies: State and Local vs. Federal

When accounting for a novel transaction or complex public finance structure, financial managers cannot merely select a preferred method. They must strictly follow the established GAAP hierarchy—the authoritative ordering of accounting literature that dictates which pronouncements take precedence.