11.3 State and Local GAAP Hierarchy: GASB Statement No. 76
Key Takeaways
- Under GASB Statement No. 76, the state and local GAAP hierarchy is streamlined into Category A (GASB Statements) and Category B (Technical Bulletins, Implementation Guides, and cleared AICPA literature), followed by nonauthoritative sources.
- Under FASAB SFFAS 34, the federal GAAP hierarchy establishes four authoritative tiers (Categories A through D), formally anchoring federal reporting standards within established professional due process.
- GASB Concepts Statement 1 establishes public accountability as the cornerstone of state and local reporting, while FASAB SFFAC 1 delineates four federal objectives: budgetary integrity, operating performance, stewardship, and systems and control.
State and Local GAAP Hierarchy: GASB Statement No. 76
In June 2015, the GASB issued Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, which superseded GASB Statement No. 55 and dramatically streamlined the state and local hierarchy from four tiers into two authoritative categories:
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| GASB STATEMENT NO. 76 STATE & LOCAL GAAP HIERARCHY |
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| CATEGORY A (Officially Established Accounting Principles): |
| • GASB Statements of Governmental Accounting Standards |
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| CATEGORY B (Authoritative Interpretive Guidance): |
| • GASB Technical Bulletins |
| • GASB Implementation Guides (Q&As) |
| • AICPA Literature Cleared by the GASB |
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| NONAUTHORITATIVE ACCOUNTING LITERATURE (If Cat A & B do not address issue): |
| • GASB Concepts Statements |
| • FASAB Statements and Concepts Statements |
| • FASB Accounting Standards Codification (ASC) |
| • International Public Sector Accounting Standards (IPSAS) |
| • Non-cleared AICPA Literature, State Controller Manuals, Textbooks |
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- Category A: The highest level of authority. If an accounting transaction is addressed by a GASB Statement, its provisions are legally binding on GAAP financial statements and override any lower-level guidance.
- Category B: If a transaction is not addressed in Category A, a government must evaluate Category B literature. GASB Technical Bulletins are issued by staff to provide timely guidance on emerging issues. GASB Implementation Guides provide question-and-answer guidance developed by staff and formally cleared by the board. AICPA literature (such as Industry Audit and Accounting Guides) cleared by the GASB carries Category B authority.
- Nonauthoritative Literature: If neither Category A nor Category B specifies an accounting treatment, a government may consider nonauthoritative literature. However, governments may not apply nonauthoritative guidance if it conflicts with or contradicts Category A or B standards or the conceptual underpinnings of GASB Concepts Statements.
Federal GAAP Hierarchy: SFFAS 34
Federal reporting entities adhere to the GAAP hierarchy promulgated in SFFAS 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. SFFAS 34 maintains a four-tier authoritative structure:
| Level | Authoritative Documents Included in SFFAS 34 |
|---|---|
| Category A | FASAB Statements and FASAB Interpretations (Officially established principles). |
| Category B | FASAB Technical Bulletins and, if specifically cleared by FASAB, AICPA Industry Audit and Accounting Guides. |
| Category C | FASAB Technical Releases of the Accounting and Auditing Policy Committee (AAPC). |
| Category D | FASAB Implementation Guides published by FASAB staff and cleared by the Board. |
| Nonauthoritative | FASAB Concepts Statements, pronouncements of other standard-setters (GASB, FASB, IPSASB), professional textbooks, and prevailing practices. |
Under SFFAS 34, certain federal government corporations and business-like entities (e.g., the Tennessee Valley Authority) that historically applied FASB standards are permitted to continue doing so as their primary source of Category A GAAP if designated as an authorized commercial-type reporting entity.
Open Government Financial Reporting Standards
In modern governmental financial management, transparency mandates have expanded beyond static printed reports (such as the Annual Comprehensive Financial Report - ACFR) toward machine-readable, open data architectures.
The DATA Act of 2014
The Digital Accountability and Transparency Act of 2014 (DATA Act) (P.L. 113-101) amended the Federal Funding Accountability and Transparency Act of 2006 (FFATA). It required the federal government to establish government-wide data standards for financial data and spending information:
- Standardized Data Elements: Directed OMB and the Treasury to establish uniform data standards for non-federal financial entities receiving grants, contracts, and loans.
- Linking Financial and Programmatic Data: Mandated that federal agencies report spending using the United States Standard General Ledger (USSGL), linking departmental accounting systems directly with USAspending.gov.
- Machine-Readable Formats: Obligated agencies to publish quarterly spending reports in accessible, structured, machine-readable formats to enable automated analytics and anti-fraud surveillance.
The Financial Data Transparency Act (FDTA) of 2022
Enacted as Title LVIII of the James M. Inhofe National Defense Authorization Act for Fiscal Year 2023, the Financial Data Transparency Act (FDTA) represents a major modernization of subnational financial reporting. The FDTA mandates that federal financial regulators—including the SEC and MSRB—establish joint data standards for information submitted by municipal securities issuers to the Electronic Municipal Market Access (EMMA) system.
- Structured Data Standards: Requires the transition of municipal disclosure filings (including audited financial statements and continuing disclosures) into structured, open, and machine-readable formats (such as inline eXtensible Business Reporting Language - iXBRL).
- Impact on State and Local Governments: While the FDTA does not directly empower federal agencies to dictate GASB accounting standards, it fundamentally reshapes public finance reporting workflows, accelerating the standardization of state and local chart-of-accounts taxonomies to enable seamless digital consumption by analysts, rating agencies, and citizens.
Practical Public Finance Scenario: Navigating Conflicting Accounting Literature
To observe the application of standard-setting boundaries and GAAP hierarchies in practice, evaluate the following scenario:
Scenario: The Metro Regional Health System (MRHS) is an independent public hospital authority created by an act of the state legislature. Its governing board is appointed by the county commission, and it exercises the power of eminent domain. MRHS is preparing its annual audited financial statements. The Chief Financial Officer proposes accounting for a complex $50 million cross-currency interest rate swap agreement using a specialized standard from the FASB Accounting Standards Codification (FASB ASC 815) on derivatives, arguing that FASB standards provide more comprehensive commercial healthcare guidance than GASB statements. Concurrently, an assistant controller argues that because GASB has issued GASB Statement No. 53 (Accounting and Financial Reporting for Derivative Instruments), applying FASB ASC 815 would violate GAAP.
Professional Financial Analysis
- Determination of Governing Standard Setter: MRHS possesses statutory creation, an appointed public board, and sovereign eminent domain authority. Under the AICPA/GASB jurisdictional definition, MRHS is a governmental healthcare entity. Consequently, it falls under the sole standard-setting jurisdiction of the GASB, not the FASB.
- Application of GASB Statement No. 76 Hierarchy: Under GASB Statement No. 76, GASB Statement No. 53 constitutes Category A authoritative GAAP. FASB ASC 815 represents nonauthoritative literature in the state and local hierarchy.
- Resolution of Conflict: A government is legally prohibited from applying nonauthoritative literature (FASB ASC) when the accounting matter is explicitly governed by Category A authoritative guidance (GASB Statement No. 53). Applying FASB derivative accounting would result in a departure from GAAP, compelling the independent external auditor to issue a qualified or adverse audit opinion. MRHS must account for the swap under GASB Statement No. 53, measuring the derivative at fair value on the Statement of Net Position and recognizing synthetic hedge effectiveness through deferred outflows or deferred inflows of resources.
Under GASB Statement No. 76, which of the following documents is classified as Category B authoritative guidance in the state and local government GAAP hierarchy?