Gasb and Fasb Analysis Paper
GASB and FASB Analysis Paper
University of Phoenix
Institutions both public and independent had followed equally comparable reporting models and financial statements up until 1997. It was at this time that independent institutions such as colleges and universities were required to continue using the not-for profit guides that had initiated back in 1973 by the AICPA. The College and University Audit Guide established the groundwork for fund based reporting along with FASB 117. It was in 1984 that GASB was formed to be used by all government organizations excluding the federal government.
With so many standards and rules, better transparency is needed so that investors, taxpayers, and common readers of financial statements may have a better understanding. But each standards board has different objectives that the rules and requirements are based upon. The FASB focus is on the decision factor, its function is to help investors and creditors reach conclusions regarding investment choices. Whereas GASBs??™ focus entails more accountability since the bulk of the financial resources are received from taxpayers. Here are some of those differences.
The differences between the boards??™ are fairly apparent when examining the financial statements. GASB refers to the balance sheet as the statement of net assets, and necessitates that it be classified. Current assets/liabilities and non-current assets/liabilities must be listed separately FASB permits such documentation but not on the balance sheet. Both boards recognize three classes of net assets but they are not the same. GASB classes are unrestricted, restricted, and invested in capital assets. FASB classes include permanently restricted, temporarily restricted, and unrestricted.
Cash Flow Statement
FASB acknowledges cash flows into three categories, operating, investing, and financing. When determining cash flows FASB allows both the direct and indirect method, even though the direct method offers more accurate information. GASB on the other hand, has four categories; operating, investing, capital and related financing, and noncapital financing. GASB requires that the direct method be used when deriving the cash flow amounts from operating activities.
Here FASB has determined expenses as unrestricted though they do require the reallocation to label temporarily restricted or unrestricted. GASB has chosen to have expenses listed as restricted/unrestricted and also operating/non operating. Operating expenses must be classified as either natural, which is salaries or depreciation, or as functional/program, which includes research, and instruction. FASB requires prescribed allocation in either display or in the notes for depreciation, plant operating and maintenance, and also interest. GASB does not require prescriptive allocations for deprecation, plant operation and maintenance, but would like to see such denotations in the notes.
Modified vs. Full Accrual Accounting
Modified accrual accounting recognizes the transactions when they actually take place, regardless of when the cash is paid. Deferral of costs however, cannot take place at a future time and must be written off or expensed.
Full accrual is similar to modified the only difference is the time between acquiring the assets and their consumption. Full accrual coincides with the matching principle, where expenses are recorded in the month or period as revenues.
Colleges, universities, and government entities desire a greater amount of accountability when it comes to the allocation of funds. The comparability of the financial statements from FASB to GASB seems to leave many confused, depending on the end user. Regardless, the boards??™ have a mission and as long as they pleased the end users, then their mission and purpose has been sufficed.