CGFM Examination 2

Accounting standards significantly affect preparers, auditors, and users of financial statements. Proper due process ensures that all affected parties have opportunity to participate in standard development.

Standard-setting projects typically begin with identification of issues requiring attention. Users may report that current standards do not provide needed information. Preparers may report implementation difficulties. Auditors may identify inconsistent practices.

Standard setters prioritize potential projects based on urgency, pervasiveness, and available resources. Not every identified issue receives immediate attention.

Major projects often begin with discussion documents that explore issues without proposing specific solutions. These documents may be called discussion memoranda, invitation to comment, or preliminary views.

Discussion documents describe current practice, identify alternatives, and analyze advantages and disadvantages of each approach. They invite comment from interested parties before the board develops tentative conclusions.

After considering input on discussion documents and conducting additional research, boards develop proposed standards presented as exposure drafts. Exposure drafts contain the specific requirements that would be imposed if the standard were adopted.

Exposure drafts are published for public comment. Comment periods typically range from 60 to 120 days depending on the complexity and urgency of the issues.

For significant projects, boards may conduct public hearings or roundtables where interested parties present their views directly to board members. These sessions allow interactive discussion that written comments cannot provide.

Participation in hearings and roundtables is voluntary. Both supporters and opponents of proposed standards may participate.

After the comment period closes, boards review all comments received. Staff summarize and analyze the comments for board consideration. Boards redeliberate issues raised by commenters and may modify proposed standards.

Significant changes may require issuance of revised exposure drafts and additional comment periods. Minor changes may be incorporated directly into the final standard.

After completing redeliberation, boards vote on final standards. GASB issues a standard by a majority vote of its seven members. FASAB needs at least a two-thirds majority of its members, followed by a 90-day sponsor review (45 days for interpretations) before the standard is published.

Final standards specify effective dates allowing time for implementation. Complex standards may have extended implementation periods. Early application may be permitted or encouraged.

After standards are issued, questions arise about application to specific circumstances. Boards may issue implementation guidance in the form of guides, questions and answers, or technical bulletins.

Implementation guidance does not establish new requirements but clarifies application of existing standards. It is developed through abbreviated due process with shorter comment periods.