WASHINGTON — The Governmental Accounting Standards Board on Monday released a concepts statement that will guide it in establishing accounting and reporting standards for state and local governments regarding the measurement of assets and liabilities.
The document is needed to promote consistency in setting standards, the board said.
"Measurement is an integral components of a fully developed GASB conceptual framework," said GASB chairman David A. Vaudt. "Our stakeholders should be able to count on the GASB's standards consistently addressing financial transactions and other events in a similar manner. The conceptual framework helps to promote that consistency."
The GASB document establishes two approaches for measuring assets and liabilities — initial amounts that will be determined at the time an asset is acquired or a liability is incurred, and re-measured amounts that will be determined at the date of each year's financial statements.
The document sets forth four characteristics for any asset or liability that is being measured.
The first is historical costs. GASB says this is the price paid to acquire an asset or the amount received pursuance to the incurrence of a liability in an actual exchange transaction.
The second is fair value. This is the price that would either be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants on the dates assets and liabilities are measured.
Replacement cost is the third. This is the price that would be paid to acquire an asset with equivalent service potential in an orderly market transaction on the date the asset is measured.
Settlement amount is the fourth. This is the amount at which an asset could be realized or a liability could be liquidated with the counterparty, other than in an active market.
GASB said the new concepts may also benefit preparers and auditors of financial statements when evaluating transactions for which there are no existing standards.
