GASB vs. FASB: The Case for Unified Accounting Standards
This paper examines the historical tension between the Government Accounting Standards Board (GASB) and the Financial Accounting Standards Board (FASB) over the authority to establish generally accepted accounting principles (GAAP) for state, local, and private entities. Beginning with the creation of GASB in 1984 under the Financial Accounting Foundation, the paper traces the evolution of the GAAP hierarchy, the problems caused by duplicative and conflicting standards, and real-world consequences in areas such as cash flow reporting and pension accounting. The author argues that a single oversight organization with separate accounting staff for governmental and commercial entities would best balance the unique needs of government agencies with the practical need for consistency across similar transactions.
- Background: The Creation of GASB: Origins of GASB and dual-board authority
- The GAAP Hierarchy and Early Conflicts: Structural Agreement and negative-standard disputes
- SAS No. 69 and the Separate Hierarchy: Establishment of independent governmental GAAP hierarchy
- Problems Caused by Divergent Standards: Cash flow and pension standard inconsistencies
- The Case for a Single Integrated Standards Board: Recommendation for unified board with separate staffs
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What makes this paper effective
- The paper uses concrete, real-world examples — such as divergent cash flow reporting requirements for hospitals and conflicting pension accounting standards — to ground an otherwise technical policy argument in observable consequences.
- It moves logically from historical context through the structural problem to a policy recommendation, giving the argument a clear and persuasive arc.
- The paper demonstrates command of primary source material, drawing on CPA Journal articles and authoritative accounting standards documents to support its claims.
Key academic technique demonstrated
The paper employs a problem–consequence–solution structure common in policy-oriented accounting and finance writing. It first establishes institutional background, then documents specific harms caused by the dual-board system (inconsistent GAAP, administrative burden, non-comparability), and finally proposes a structural remedy. This approach makes the normative conclusion — merging the boards — feel like a logical inference from the evidence rather than an unsupported opinion.
Structure breakdown
The paper opens with the historical origins of GASB (1984) and the Structural Agreement that attempted to divide GAAP authority. It then details how the initial GAAP hierarchy broke down, leading to SAS No. 69 and a fully separate hierarchy for governmental entities. Two detailed examples — healthcare cash flow reporting and pension expense recognition — illustrate the practical costs of divergence. The paper closes with a concise policy recommendation for a unified board with separate staffs.
Background: The Creation of GASB
Up until the early 1980s, state and local governments followed disparate financial policies and systems. The problem began receiving attention in the late 1970s because of New York City's financial crisis. As a result, many began calling for the creation of an oversight body for state and local governments similar to the private sector's Financial Accounting Standards Board (FASB), which operated under the Financial Accounting Foundation (FAF). In 1984, the FAF added the Government Accounting Standards Board (GASB).
Because both boards have the authority to establish generally accepted accounting principles (GAAP), there has been significant historical conflict caused by different answers to the same questions. This paper discusses these problems and the need to integrate the two boards into a single organization with separate accounting staff for commercial and government entities.
The GAAP Hierarchy and Early Conflicts
The "Agreement Concerning the Structure for a Governmental Accounting Standards Board (GASB)" — known as the Structural Agreement — defined authority and specified a GAAP Hierarchy: the relative authority of the standards, rules, procedures, and other literature on financial accounting and reporting. This was an attempt to prevent conflict arising from two separate boards defining GAAP. It states: "The GASB will establish standards for activities and transactions of state and local governmental entities, and the FASB will establish standards for activities and transactions of all other entities."
The Structural Agreement also dictated that the GAAP Hierarchy for state and local governments would first consist of pronouncements of the GASB, followed by pronouncements of the FASB. In other words, in the absence of a GASB pronouncement, every FASB pronouncement would automatically apply to state and local governments unless exempted by the FASB or unless GASB issued a "negative standard."
The result of this initial GAAP Hierarchy was a fiasco, as GASB constantly issued negative standards for each FASB pronouncement it determined did not apply to state and local governments. For example, in 1988, GASB issued two negative standards, issued an exposure draft modifying the application of a FASB standard, and deferred action on a FASB exposure draft on financial instruments pending resolution of the jurisdiction issue.
SAS No. 69 and the Separate Hierarchy
In response, the Accounting Standards Board issued SAS No. 69, which established a completely separate hierarchy for state and local governments:
Under this framework, GASB became relatively unconcerned with FASB GAAP.
References
Garner, Martha, and Woodrin Grossman. "Consistency Endangered by FASB-GASB Dispute." Healthcare Financial Management, February 1991.
Hardiman, Patrick F. "Government Accounting: Who's in Charge." The CPA Journal, May 1989.
Poteau, Raymond R. "Accounting Rule Making — a Two Headed Monster?" The CPA Journal, June 1994.
Schleier, George C. "GASB and FASB View of Pensions: The Two Contrasted." The CPA Journal, May 1990.
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