GASB and FASB Accounting Standards
In the accounting industry, there are two fundamentally different but similar types of accounting for financial transactions. These types are referred to in this paper by the name of the organizations that develop the relevant standards, namely the Governmental Accounting Standards Board (GASB) and the Financial Accounting Standards Board (FASB). A professional working in the accounting industry is generally not free to choose which standard (GASB or FASB) to use, as these rules are dictated by the nature of the industry, geographic and legal location, and other factors. That said, a good practitioner should understand both standards so they can switch between them and understand the nuances of each.
Comparison
Stakeholders
First, a critical difference between GASB and FASB is the standard’s fundamental objective. On the one hand, GASB’s key objective is to develop accounting standards for state and local governments. On the other hand, FASB aims to develop standards that private and not-for-profit organizations actively use. It follows that the primary difference between the two standards is the nature of the stakeholders: whether they are predominantly governmental and political entities, as in GASB, or independent market entities, as in FASB.
Objective
Second, with respect to the objectives of financial statements, there is little difference between GASB and FASB. Both standards aim to develop financial statements that comply with the requirements and conditions of the respective standard and that summarize a company’s current position, efficiency, and effectiveness. In other words, the objective is to achieve transparency and accountability that would allow companies and organizations to report their financial results honestly.
In this sense, it is also worth noting that, unlike GASB, the presentation of financial statements made under FASB tends to focus on the interests of private investors and business stakeholders. In contrast, GASB is more focused on bureaucratic aspects. At the real-world difference level, while GASB generally requires a statement of deferred assets and liabilities, FASB generally requires a statement of changes in shareholders’ equity. Notably, both organizations (GASB and FASB) strive to ensure that appropriate financial reporting principles are followed.
Algorithm
Third, the two standards share a mechanism for recognizing revenues and expenses. Both GASB and FASB use the accrual-basis accounting (ABA) algorithm, which records cash flows not when they are physically received, but when a transaction or transactions occur. In other words, the income and expenses of a company, whether for-profit or not-for-profit, are recognized when they are incurred.
Budgeting
Finally, both organizations recognize the importance of budgeting for public financial management. On the one hand, budgeting, as understood by GASB, is perceived as a cash flow management tool for public agencies. From this perspective, one requirement of GASB is for public companies to disclose financial information to increase transparency.
On the other hand, budgeting is also recognized at the FASB level. Still, among the requirements of this standard, there is no requirement for financial disclosure for for-profit companies. To facilitate comparison between the two types of standards, a Venn diagram is provided below.
