New guidance on the GAAP Hierarchy.

• Author: Gauthier, Stephen J.
• Position: The Accounting Angle - Generally accepted accounting principles

Generally accepted accounting principles (GAAP) provide the criteria for determining whether financial statements are "fairly presented." There are multiple potential sources of guidance as to what constitutes GAAP for state and local governments. The role of the "GAAP Hierarchy" is to identify those sources and establish their authority in relationship to one another.

In June 2015, the Governmental Accounting Standards Board (GASB) issued GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, which will replace an earlier GASB pronouncement of the same title (GASB Statement No. 55).

GASB Statement No. 55 established a four-level hierarchy of authoritative sources of GAAP. It also identified a number of non-authoritative sources of GAAP that financial statement preparers and auditors were advised to consult in the absence of authoritative guidance. The new GASB standard reduces the GAAP Hierarchy to just two levels of authoritative guidance:

* Category A--GASB Statements and GASB Interpretations.

* Category B--GASB Technical Bulletins, GASB Implementation Guides, and relevant guidance of the American Institute of Certify Public Accountants (AICPA) "cleared" by the GASB).

Category A guidance always takes precedence. Category B guidance is relevant if the appropriate accounting treatment for a transaction or event is not specified by a pronouncement in Category A. If specific guidance cannot be found in either category, financial statement preparers and auditors are to consider guidance in both categories for similar transactions or events (unless the treatment itself, or its application by analogy, is prohibited).

The new GAAP Hierarchy also identifies non-authoritative sources of GAAP that could be useful to...