Governmental Accounting Standards Board

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State and local government accounting standards are set by the Governmental Accounting Standards Board (GASB). GASB standards include those dictating financial reporting of state and local public pension plans. GASB was established in 1984 by agreement of the Financial Accounting Foundation (FAF) and 10 national associations of state and local government officials.[1]

GASB is a private sector, not-for-profit entity and an operating component of the FAF. Funding, however, comes primarily from the accounting support fee established under the Dodd-Frank Wall Street Reform bill as well as the Consumer Protection Act. Standards are not federal law, and GASB does not have enforcement authority.[1]

Pension reporting standards

GASB distinguishes pension reporting standards from traditional financial reporting for two reasons. First, pension plans are distinguished by their status as either a defined benefit or defined contribution plan. Under a defined benefit plan, benefits due to an employee are defined by the benefit terms laid out upon employment. In a defined contribution system, an employee's benefit is dependent on the contributions made to an employee's account plus earnings on investment.[2]

Secondly, defined benefit plans can be further distinguished by the number of governments participating in the plan, and how assets and obligations are shared among them. Categories include single employer, agent employer, and cost-sharing employer.[2]

Changing standards

In 2006, GASB began a six-year process of re-evaluating its public pension reporting standards for state and local governments. On June 25, 2012, GASB approved Statement No. 68 and Statement No. 67 providing updated pension accounting and reporting standards.[2]

Statement 67 replaced Statement No. 25 and Statement No. 50. It applies to the reporting standards of pension plans themselves. Statement No. 67 (Financial Reporting for Pension Plans) becomes effective in June, 2013.[2]

Statement 68 replaced Statement No. 27 and Statement No. 50. It applies to the reporting standards for governments that fund and provide pension benefits. Statement No. 68 (Accounting and Financial Reporting for Pensions) becomes effective in June, 2014.[2]

Pension as long-term liability

The key change included in GASB's revised standards is that it now requires pensions to be viewed as a long-term liability. It requires governments operating defined-benefit pension plans to report a "net pension liability" on balance sheets. The liability will be equal to the difference between total pension liability and the value of assets set aside to pay benefits. Governments must also begin recognizing annual service costs, interest on the pension liability, and the effect of changes to benefit terms, including cost of living adjustments.[3]

This change is an update from the earlier standard in that previously, reported pension liabilities were based on the difference between legally required contributions, not actual funding. According to the Journal of Accountancy, "The change reflects the view that pension costs and obligations should be recorded as employees earn them, rather than when the government contributes to a pension plan or when retirees receive benefits."[3]

Discount rate assumptions

Another change applies to a defined benefit plan's discount rate assumption. If a plan's long funding position is projected to be sufficient to pay pensions of current employees and retirees, discount rates may continue to be based on a single rate reflecting expected investment returns. If a plan fails to meet required funding levels, it must instead rely on the expected return of a yield or index rate on a tax-exempt, 20-year, AA-or-higher rated municipal bond.[2]


Under Statement 68, employers are required to present further information in financial documents. Required information includes descriptions of the types of benefits provided, contribution calculations, and assumptions used to calculate the liability. Single and agent employers will be required to disclose the composition of employees covered by specific benefit terms and the source of all changes to net pension liability in a current year.[2]

Special funding situations

In certain situations, governments are responsible for providing contributions on behalf of employees of another government. In these special situations, non-employer governments still legally required to make financial contributions will disclose their proportionate share of the other employers' pension liability and expense.[2]

GASB transparency

Setting standards

The process that GASB uses to set standards are laid out in the organization's Rules of Procedure. Broadly, according to GASB, steps for setting standards include:[1]

  • Appointment of an advisory task force of outside experts.
  • Studying existing literature on the subject, and conducting or commissioning additional research when necessary.
  • Publishing of a discussion document for public comment.
  • Distribution of an Exposure Draft of standards for public comment.
  • Public hearings and forums on documents.

Meetings & public hearings

GASB meetings are open to the public. Dates are posted online, but attendance required registration at least 24 hours before the meeting.[4] Recent meeting minutes are posted on the organization's website.[5]

Public hearings are often held along with other conferences around the country to give interested parties an opportunity to participate. Hearings are held at the Board's discretion. Participants are encouraged to submit comments with a public hearing testimony, and those comments become part of the Board's public record.[6]

Comment letters

GASB's mission statement requires the Board to "carefully weigh the views of its constituents so that standards and concepts will meet the accountability and decision-making needs of the users of governmental financial reports and gain general acceptance among state and local government preparers and auditors of financial reports…" Public comment letters are the Board's primary means of soliciting feedback on proposals.[7]

Comment letters received by GASB become part of the public record. Items available for comment are posted on the organization's website.[8] Letters are posted on the GASB website after the close of the comment period. Letters posted online can be found here.[9]

Task forces and advisory committees

Projects on GASB's technical agenda often utilize the appointment of task forces and advisory committees. According to GASB, task forces "serve as a sounding board, providing guidance and feedback to the GASB as a project progresses." Members review papers prepared by GASB staff and monitor Board deliberations. Participants are appointed by the GASB chairman based on staff recommendations. Potential members are identified from GASB's constituent database and from those who regularly participate in the process by submitting comment letters. The board seeks a balance of "financial statement preparers, auditors, and users on each task force and committee."[10]