Accounting standards are intended to address the need for consistency of accounting measures and consistency of data processing. Such consistency allows for comparative analysis and efficient evaluation typically employed in determining the performance of business organizations. Investors, financial managers, and governments are concerned with the performance of firms, just as they aim to ensure that businesses remain compliant with rules and regulations on corporate management and finance. However, there are different sets of standards used for accounting, based on the mandates of respective accounting standards bodies or agencies in various countries and regions around the world. GASB and FASB are accounting bodies of note.
This article compares the Governmental Accounting Standards Board (GASB) and the Financial Accounting Standards Board (FASB), and compares modified accrual and full accrual accounting.
GASB and FASB: Similarities and Differences
The Governmental Accounting Standards Board (GASB) and the Financial Accounting Standards Board (FASB) are similar mainly because of their general purpose: to develop, implement and establish standards for accounting and financial reporting processes of organizations. This means that both the GASB and the FASB are focused on ensuring that accounting and financial reporting activities are accurate and reliable, and the resulting financial reports are as accurate and beneficial to the end users. In both the case of the GASB and the case of the FASB, the end users are the public.
However, the GASB and the FASB are considerably different in terms of the scope and applicability of their objectives. It is important to note that the scope of the GASB is the government, while the scope of the FASB includes the public companies in the United States. Such a difference has significant implications on the principles underlying the objectives of the GASB and the FASB.
In the case of the GASB, the underlying principle is to ensure that government organizations properly conduct accounting and financial reporting activities in order to provide accurate and reliable information to the public in general.
In the case of the FASB, the underlying principle is to ensure that public companies properly conduct accounting and financial reporting activities in order to provide accurate and reliable information to the shareholders or investors of such companies. In this regard, one of the most notable differences between the GASB and the FASB, based on their objectives, is the end users who benefit from the standards developed by these boards. For instance, in the case of the GASB, the end users are typically citizens who pay their taxes and want/need to know about the financial transactions made by the government. In contrast, in the case of the FASB, the end users who benefit from the standards-compliant financial reports are the investors or shareholders of companies.
Full Accrual Accounting vs. Modified Accrual Accounting
The full accrual basis of accounting serves as a means through which the performance and the position of a company can be measured. This method involves the use of economic events as important factors that affect the organization, with little regard for the time or date of cash payments. The emphasis is on the principle that indicates that economic events involving an organization are recognized in the accounting process by pairing the revenues with the expenses at the time of the occurrence of the transaction, which is different from the time of the payment for such transaction. In this regard, the current cash flows can be integrated with future expected cash flows, thereby allowing the organization to provide data that can more accurately describe the current financial situation of the organization. This method is advocated by the FASB, and is therefore applied mainly in public companies.
The modified accrual basis of accounting involves recognizing revenues only when they become measureable within the context of the concerned organization. In this regard, the method is focused on using expenditures and recognizing expenditures based on the time at which the organization incurs the corresponding liability. The exception is that that the expenditures are not recognizes in such a manner in the case of material inventory, which can only be considered as expenditure when the materials are actually used or bought. This method is mainly applied in government organizations. In this regard, the use of the full accrual or modified accrual basis of accounting is another difference between the GASB and the FASB standards.