In the world of finance and accounting, there are two main types of financial reporting standards organizations:the Governmental Accounting Standards Board (GASB)andthe Financial Accounting Standards Board (FASB).
The two systems have some key differences, which can be important to understand if you work in finance or accounting, or if you are a business owner who needs to choose which set of standards to follow.
The GASB is responsible for establishing standards for federal, state and local governments, while the FASB is responsible for establishing standards for non-profits, as well as private and public companies that follow theGenerally Accepted Accounting Principles(GAAP).
The goal of the GASB is to ensure that financial reports provide useful information to users who need it to make informed decisions about government operations. The FASB’s goal is similar, but its focus is on protecting the interests of investors and the public.
We take a closer look below at the key differences and similarities between GASB and FASB to help you understand which set of standards is right for your organization.
Governmental Accounting Standards Board
The GASB is responsible forsetting accounting and financial reporting standards for state and local governments in the United States.
These entities have their own set of accounting standards because they are different from businesses in several key ways. For one, government entities are usually much larger and more complex, with a wider range of activities and transactions. They also tend to be more open and transparent in their financial reporting, due to the nature of their work.
As a result, the GASB has developed a unique set of standards that helps ensure government entities are accurately and effectively communicating their financial position to the public.
One way thatgovernment entities can automate their financial processesis by using software that helps entities track and manage their finances in a way that meets all of the requirements.
Additionally, government financial reporting software provides real-time reporting that makes it easier for entities to track their progress and make necessary adjustments.
Financial Accounting Standards Board
The FASB is responsible forsetting accounting standards in the United States. These standards apply to all non-government entities, including businesses and nonprofits.
The FASB oversees financial reporting for these entities and helps to ensure compliance with accounting standards. One way that the FASB does this is by requiring an audit trail.
An audit trail is a record of all transactions that take place within a company. This record helps to ensure that companies are following the proper accounting procedures and that their financial statements are accurate.
The FASB plays an important role in ensuring that companies are complying with accounting standards and that their financial statements are accurate. Without the FASB, there would be no oversight of financial reporting for non-government entities, which can lead to inaccurate reporting and, potentially, fraud.
The FASB is also responsible for issuing guidance on accounting standards. This guidance helps companies understand how to apply the standards in their specific situation. The goal of this guidance is to help companies make informed decisions about their financial reporting.
Key differences between GASB and FASB
There are several key differences between GASB and FASB. These variations include:
Reporting financial statements
There are similarities between GASB and FASB when it comes to reporting financial statements. Both entities require a statement of activities, which reports all inflows and outflows of an entity, and a statement of cash flow, which breaks down where the cash for the entity came from and where it went.
However, there are some key differences between the two types of reports. The statement of net position for GASB requires information on all assets and liabilities, both current and noncurrent, while the statement of financial position for FASB only requires information on current assets and liabilities.
This can make a big difference when it comes to accounting for long-term debt or other complex financial instruments.
This is one reason why many organizations choose to automate their financial reporting processes; it can be difficult to keep track of all the different requirements if you’re manually preparing reports.
In addition to automating processes, it’s also important to havereal-time partnerships with your accounting softwareprovider to ensure compliance with both GASB and FASB standards.
Accounting methods
When it comes to financial reporting, there are two major accounting methods: the accrual basis and the modified accrual basis. The accrual basis is the most common method used by businesses, as it recognizes revenue when it is earned and expenses when they are incurred.
The modified accrual basis is an alternative method that is a combination of the accrual and cash basis. Government entities typically use the modified accrual basis, as it recognizes revenue when it is available to spend and expenses when they are due.
These processes can be time-consuming and difficult to track if you’re manually preparing reports. Automating your financial reporting can help to ensure compliance with both GASB and FASB standards.
Cloud-based accounting softwarehelps businesses automate their accounting processes and produce timely and accurate financial reports.
This type of software also allows businesses to track income and expenses in real time, making it easier to produce accurate reports.
GASB 87 and FASB’s ASC 842
GASB 87, which applies to state and local governments, andFASB’s (ASC) 842, which applies to all other entities, both require leases to be recognized as assets and liabilities on the balance sheet.
However, there are some significant differences between the two standards. For example, GASB 87 leases are not capitalized and disclosed to creditors, while FASB’s ASC 842 allows you to have the option to capitalize your leases; however, if your lease is not capitalized, it will still need to be disclosed to creditors.
Another key difference is that in GASB 87 all leases are financed, while with ASC 842 leases are classified and are either operating or financial leases that are determined upon the classification and criteria.
These key differences can have a significant impact on an organization’s financial statements. That’s why organizations should seek professional guidance to ensure compliance with both GASB and FASB standards.
Similarities between GASB and FASB
The Governmental Accounting Standards Board (GASB) and Financial Accounting Standards Board (FASB) both play important roles in guiding financial reporting.
While GASB focuses on government entities, and FASB on businesses, they share a common goal of ensuring transparency and accountability in financial reporting. To that end, both boards work to simplify standards, ensure accuracy and provide stakeholders with information that is useful in making informed decisions.
These efforts help promote confidence in financial reporting, which is essential for both government entities and businesses alike.
Understanding the similarities and differences between GASB and FASB is important for any organization that reports financial information, since they both have unique requirements that must be followed.
Organizations should ensure they have the proper accounting methods and processes in place. Not doing so could result in errors, omissions or even fraud. That is why working with a qualified accountant orgovernment accounting software provideris essential to ensure compliance with both GASB and FASB standards.
