Accounting rule making a two headed monster?

June 9, 2021

The Difference Between FASB & GASB Effects on the Statement of Cash Flows

Federal agencies report under the Federal Accounting Standards Advisory Board, or FASAB, the body that regulates generally accepted accounting principles for the federal government. GASB on the other hand, provides accounting guidance for local and state government agencies. Phase 2—Financial The Difference Between FASB & GASB Effects on the Statement of Cash Flows statements for periods beginning after June 15, 2002, for governments with total annual revenues of $10 million or more but less than $100 million in the first fiscal year ending after June 15, 1999. Different provisions apply for reporting general infrastructure assets at transition.

The Difference Between FASB & GASB Effects on the Statement of Cash Flows

FSP Corp recently developed a new patented process to detect certain chemicals in waste water. Starting nine months ago, FSP Corp began marketing their product to municipalities and corporate entities that manage waste water. FSP Corp charges a fee each time its patented process is used to analyze a sample. Its commercial process is dependent on a proprietary sampling device, installed at the customer’s location, which collects samples that are then sent to FSP Corp for analysis. FSP Corp sells or rents the sampling device at cost, as the economics of their business is based solely on the fee charged to analyze a sample. Said differently, FSP Corp is indifferent between selling and renting sampling devices, and will therefore accommodate a customer’s individual preference.

Gross and Net Cash Flows

This type of software also allows businesses to track income and expenses in real time, making it easier to produce accurate reports. If the lender provides a concession that allows the acquiree’s debt to be assumed by the acquirer or settled after the acquisition date, such concession indicates that the acquirer has assumed the debt. Therefore, it is important to understand the specific terms of any change in control provisions, and whether the lender was required to grant consent to allow the acquirer to assume the debt. Guidance and discussion of the cash flow presentation for leasing activities, including noncash transactions, can be found in LG 9.2.3 for lessees and LG 9.3.3 for lessors.

What are the differences in cash flow statements required by GASB standards when compared with cash flow statements required by FASB standards?

Cash Flow Statement

GASB requires that entities use the direct method of determining cash flows from operating activities, while the FASB allows either the direct or indirect method.

In this example, a substantial portion of the cash received by the seller for the period consists of a payout from the collections account at the Payment Date ($191,000). Consistent with the terms of the receivables purchase agreement, this receipt represents a return of a portion of the seller’s DPP – an investing cash inflow. Pursuant to replacement or unwinding of these accounts receivable programs, or through other transactions, the original seller of the accounts receivable balances may reacquire some of its own previously sold receivables. The nature of these collections on reacquired receivables do not change to that of an operating cash flow due to the repurchase transaction. We believe that it is acceptable for a reporting entity to consider the investee’s forecasted annual earnings in classifying dividends as either a return on or return of investment under the cumulative earnings approach. We also believe it is acceptable to analyze dividends received on a quarter-by-quarter basis without consideration of the investee’s forecasted earnings.

Governmental Accounting Standards Board

Even though the FASB and IASB created the Norwalk Agreement in 2002, which promised to merge their unique set of accounting standards, they have made minimal progress. In an effort to move towards unification, the FASB aids in the development of IFRS. In some cases, unauthorized access to assets may be gained through vulnerable accounting records-especially records maintained on computer systems. For example, if warehouse requisitions can be issued through a computer terminal, access to inventory may be gained through the system. Controls over unauthorized access to assets through computer records may be physical (e.g., terminals are kept in a locked room) or logical (e.g., access to the computer program or data files may be obtained only with the proper password or other user-identification method). Monitoring the control procedures that address unauthorized access includes observing physical control procedures, reviewing established access privileges with the manager of information systems, or reviewing reports of attempted computer access violations.

The Difference Between FASB & GASB Effects on the Statement of Cash Flows

In such situations, the entity needs to ensure that the service organization has adequate controls over processing the transactions. For example, an organization might store inventories of supplies and commodities in locked storage areas, store currency in a vault or a locked drawer, and use alarm systems to restrict access by unauthorized individuals. If controls to prevent unauthorized access to assets are not effective, assets may be lost or stolen. If detective control procedures such as physical inventory counts are appropriately performed, shortages should be discovered in a timely manner.