Conceptual Framework—Measurement of Elements of Financial Statements Show
Primary Objective: The objective of this project was to consider the measurement concepts, both the measurement approach or approaches (for example, initial amounts or remeasured amounts) that conceptually should be used in governmental financial statements and measurement attributes (the feature of the assets or liabilities that is measured). Status:
Conceptual Framework: Measurement of Elements of Financial Statements—Project Plan
Thus, the project on recognition and measurement is needed to provide the GASB with conceptual guidance as to when elements of financial statements should be reported in particular financial statements and at what amount. This will entail developing recognition criteria and will include a discussion of when elements of financial statements are recognized using different measurement focuses. For the GASB to make consistent financial reporting decisions, it is necessary to have (1) definitions of the elements of financial statements, (2) a basis for determining when elements of financial statements should be recognized in the financial statements, and (3) a basis for determining which measurement approach (for example, initial amounts or remeasured amounts) is appropriate for reporting the elements. The GASB issued a Concepts Statement on the definitions for the elements of financial statements in 2007, and a conceptual framework project on recognition and measurement is necessary to complete the conceptual basis for reporting items in traditional financial statements. Accounting and Financial Reporting Issues:
: The importance of this conceptual project was confirmed by the Governmental Accounting Standards Advisory Council (GASAC). At its July 2005 meeting, the GASAC discussed the importance of recognition issues in the development of the GASB’s conceptual framework. It was ranked sixth out of 23 current agenda, research agenda, and potential projects by Council members during their discussion of GASB agenda priorities. The potential companion project, measurement attributes, which was on the research agenda since December 2003, was ranked fourth by the GASAC members. Considering this feedback, the GASB formally added a conceptual framework project on recognition to the research agenda in August 2005. A combined recognition and measurement attributes concepts project was added to the current agenda in December 2005. Subsequently the name of the combined project was changed to recognition and measurement approaches. In June 2011, the Board approved a Preliminary Views on concepts related to Recognition of Elements of Financial Statements and Measurement Approaches.
Noting a low volume of responses, particularly from financial statement users, the Board considered several options for proceeding with the project: to move the entire Preliminary Views forward to an Exposure Draft, to separate recognition and measurement concepts and continue with only measurement concepts, or to delay the entire project to allow for further research on recognition concepts. The Board decided, at that time, not to split the recognition and measurement concepts into separate projects. The Board further concluded that it had not received sufficient feedback, to move the project forward to an Exposure Draft. The Board requested that the staff draft questions seeking additional financial statement user feedback on the Preliminary Views for review at the December meeting. In December 2011, in response to the Board’s request at the November meeting, the staff presented the Board with questions to be asked of users during interviews designed to gather feedback from users of governmental fund financial statements in regard to the Preliminary Views, Recognition of Elements of Financial Statements and Measurement Approaches. The questions were submitted for feedback from the Board on whether they were likely to elicit the information sought by the Board. The Board agreed with the overall approach that the project staff will take to elicit user response to the Preliminary Views. The Board further directed the staff to review the 2005 User Needs Study with the goal of identifying user feedback that relates to this subject. The Board tentatively decided that any further research on the use of governmental fund financial statements would be determined after reviewing the results of the Preliminary Views user interviews and the analysis of the User Needs Study. In April 2012, the staff provided the Board with the results of the user interviews that were designed to gather feedback from users of governmental fund financial statements in regard to the Preliminary Views. In addition, the staff provided the Board with feedback related to this subject gathered from the 2005 User Needs Study. In July 2012, the Board began redeliberating issues in the Preliminary Views based upon comments from respondents and from participants in the public hearings, as well as the user feedback. The Board discussed issues related to recognition in financial statements prepared using the economic resources measurement focus. The Board tentatively agreed to define the economic resources measurement focus as follows: The economic resources measurement focus incorporates all outflows of resources and inflows of resources and all assets, liabilities, deferred outflows of resources, and deferred inflows of resources. The Board tentatively agreed that the recognition criteria for financial statements prepared using the economic resources measurement focus would continue to include the first criterion proposed in the Preliminary Views—that of meeting the definition of an element of the financial statements—and that the second criterion would be modified to indicate that measurement of the item sufficiently reflects the qualitative characteristics described in Concepts Statement No. 1, Objectives of Financial Statements. The Board believes that emphasis on or reference to only one or some of the qualitative characteristics would inappropriately imply a hierarchy among the qualitative characteristics. The Board also tentatively agreed to explicitly identify a three-step hierarchy for recognition concepts for financial statements prepared using the economic resource measurement focus, which is consistent with the approach used by the Board in deliberating issues resulting in the issuance of Statement No. 65, Items Previously Reported as Assets and Liabilities. In this three-step hierarchy, an item is first evaluated as to whether it meets the definition of an assets or liability. If the item does not meet the definition of an asset or liability, then the item is evaluated as to whether it meets the definition of a deferred outflow of resources or deferred inflow of resources. If the item does not meet the definition of a deferred outflow of resources or deferred inflow of resources, then the item would be evaluated as to whether it meets the definition of an outflow of resources or inflow of resources. From August through November, the Board discussed feedback received on the measurement proposals in the Preliminary Views. At the December 2012 meeting, the Board decided to separate the project into a phase for measurement and a phase for recognition. Each phase would issue a separate Exposure Draft and Concepts Statement. The Board concluded its evaluation of feedback received on the measurement proposals in the Preliminary Views and issued the Exposure Draft, Measurement of Elements of Financial Statements in June 2013. Further developments on an Exposure Draft for recognition concepts was put on hold in August 2013 pending research being conducted pursuant to the reexamination of the financial reporting model. During September 2013, in conjunction with the fair value project, a webcast was presented for users of financial statements covering the porposals in the Exposure Draft, Measurement of Elements of Financial Statements. 25 comment letters were received on the Exposure Draft, and 4 stakeholders responded to the plain-language supplement on the Exposure Draft. On November 1, 2013, the Board conducted a public hearing on the Exposure Draft, again in conjunction with the Preliminary Views issued as part of the fair value project. The Board began evaluating this feedback on the Exposure Draft in December 2013. Conceptual Framework: Measurement of Elements of Financial Statements—Minutes for Deliberations
Minutes of Meetings, January 27-29, 2014 The Board concluded its review of feedback received on the Exposure Draft, Measurement of Elements of Financial Statements. As a result of that feedback, the Board tentatively decided to include as concepts the following three views proposed in the June 2011 Preliminary Views, Recognition of Elements of Financial Statements and Measurement Approaches:
Minutes of Meetings, December 10-12, 2013 The Board began its evaluation of the feedback received on the Exposure Draft, Measurement of Elements of Financial Statements. The feedback received on the overall proposals in the Exposure Draft and on the two measurement approaches was considered at this meeting, with the Board tentatively agreeing to certain clarifying changes to the concepts. Minutes of Meetings, October 17-19, 2013 The Board resumed deliberations on concepts for recognition of elements in financial statements prepared using the current financial resources measurement focus. The Board discussed various perceived flaws with the current financial resources measurement focus as it presently is applied in governmental funds. After discussing the potential impact the potential reexamination of the financial
reporting model could have on the recognition phase of the conceptual framework, the Board decided to place this phase on hold pending future coordination with the proposed reexamination of the financial reporting model. Minutes of Meetings, June 3, 2013 The Board reviewed the ballot draft of an Exposure Draft on concepts related to Measurement of Elements of Financial Statements, tentatively agreeing upon various clarifications. The Board voted 6-1 to issue the Exposure Draft with Mr. Granof dissenting. Minutes Archive Conceptual Framework: Measurement of Elements of Financial Statements—Tentative Board DecisionsConcepts Statement No. 6, Measurement of Elements of Financial Statements, was approved in March 2014. What is current financial resources measurement focus?Current Financial Resources Measurement Focus
Measures cash or assets that are expected to be converted to cash within or shortly after the accounting period. Measures whether the financial resources obtained during the accounting period are sufficient to cover claims against the fund during that period.
What is the difference between a measurement focus and basis accounting?The accounting basis determines when the economic consequences of transactions and events are reflected in financial statements. Unlike the selection of an accounting basis, which is concerned with the timing of transactions and events, a measurement focus identifies what transactions and events should be recorded.
What measurement focus is used in governmentThe GWFS are reported using the economic resources measurement focus and the full accrual basis of accounting.
Which of the following fund types uses the economic resources measurement focus?Private-Purpose Trust Funds
These funds are accounted for using the accrual basis of accounting and use the economic resources measurement focus.
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