GASB vs FASB: Recognition and Reporting Differences

When it comes to understanding GASB, FASB, GAAP and other financial and accounting acronyms, things can get confusing quickly. That said, it’s not as complicated as it may seem, and the distinctions make more sense than one might realize.

At their most basic, GASB and FASB standards are both sets of accounting standards used in the United States to:

• Simplify accounting and financial reporting processes.

• Ensure that financial reporting activities are both accurate and reliable.

• Help stakeholders make informed decisions.

• Help entities accurately track their financial positions.

• Ensure that finalized financial reports are accurate and beneficial to end users aka the public.

The differences lie in the how and the who. FASB standards, on one hand, are created by the Financial Accounting Standards Board (FASB) and they apply to all public companies. GASB standards, on the other hand, are created by the Governmental Accounting Standards Board (GASB) and they apply to state and local governments. Both the FASB and the GASB board are overseen by a board of trustees made up of accounting experts with varied backgrounds.

Here are other key distinctions between GASB vs FASB.

As mentioned, GASB standards are set by the Governmental Accounting Standards Board (GASB), while FASB standards are set by the Financial Accounting Standards Board (FASB).

The FASB is a board of accounting experts that sets accounting standards for public companies and non-profit organizations in the U.S. On the FASB website, the organization establishes itself as, “the independent, private-sector, not-for-profit organization […] that establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow Generally Accepted Accounting Principles (GAAP)."

The FASB board is overseen by a board of trustees called the Financial Accounting Foundation or FAF. This board is made up of tax preparers, auditors, government officials, academics, regulators and more.

Established in 1984, the Governmental Accounting Standards Board (GASB) is an independent, private-sector organization that develops and issues accounting and financial reporting standards for federal agencies and the U.S. state and local government. Interestingly, the GASB was actually formed out of concerns that FASB standards were not sufficient for the needs of local and state governments. That said, GASB also follows GAAP standards.

The GASB is also overseen by the Financial Accounting Foundation (FAF). It is also advised by the Governmental Accounting Standards Advisory Council (GASAC), an organization that was established by the FAF’s Board of Trustees to advise the GASB on its agenda, priorities and procedural matters.

The collective mission of the GASB, the FASB and the FAF, according to the FASB website, is, “to establish and improve financial accounting and reporting standards to provide useful information to investors and other users of financial reports and educate stakeholders on how to most effectively understand and implement those standards."

When it comes to the scope and applicability of GASB and FASB objectives:

• GASB applies to governments, which means the underlying principle is to ensure that government organizations properly conduct their accounting activities so they can provide accurate and reliable information to the U.S. public, which includes taxpayers, public officials, investors and others who use financial reports.
• The underlying principle behind FASB is to ensure that public companies properly conduct their financial and accounting reporting activities to provide accurate and reliable information to their shareholders and investors.

Here, the primary difference is in the end users. For GASB, the end user is generally a taxpaying citizen. For FASB, it’s shareholders and/or investors who can benefit from standards-compliant reports.

There are 3 main financial statements that nonprofits and government entities use in their reporting. Two of them are the same for GASB and FASB: Statement of Activities and Statement of Cash Flows. The third statement, is referred to differently by both entities:

• Government (GASB): Statement of Net Position
• Nonprofits (FASB): Statement of Financial Position

These statements are ultimately balance sheets and they will represent assets, summarize asset aand liabilities and assess the financial health of the government body. That said, the GASB sheets must be more detailed as government entities must provide more detailed analyses. Additionally, FASB sheets must include a balance sheet, an income statement, a statement of cash flows and a statemetn of stockholder equity.

For government accounting, government organizations must also put together a Comprehensive Annual Financial Report (CAFR). This is not required for non-profits.

There are two accounting methods: full accrual accounting and modified accrual accounting.

The full accrual accounting method measures the performance and the position of a company based on economic events – and there is little regard to time or date of cash payments. Government organizations don’t use full accrual accounting because it means that they can only book income on their balance sheets that has already come in.

Instead, both FASB and GASB recommend modified accrual accounting. Using modified accrual accounting, entities can integrate current cash flows and expected cash flows. This can help them more accurately describe their financial situation, since it also allows them to take into account things like expected income, future budget funds, future sales of assets and expected tax revenue.

No, the FASB is not the same as the FASAB.

The Federal Accounting Standards Board (FASAB) is an advisory committee that develops accounting standards for government agencies. The FASB, on the other hand, develops accounting standards for public companies and nonprofit agencies following GAAP.

There is overlap between GASB 87 and other lease accounting standards like ASC 842 and IFRS 16. However, GASB more closely resembles IFRS 16. The standard specifically:

• Requires that all leases be reported as a capital lease/financing lease.
• Eliminates the classification of an operating lease unless the lease is a short-term lease, characterized as 12 months or less.
• Provides for three accounting treatments: short-term leases, contracts that transfer ownership and contracts that do not transfer ownership.
• Requires that a lessee recognizes a lease liability and an intangible right-to-use lease asset and that a lessor recognizes a lease receivable and a deferred inflow of resources.