FASB and GASB define "government." (Financial Accounting Standards Board, Governmental Accounting Standards Board)(Brief Article)

Not-for-profit organizations that often fall into a gray area between private and government now have guidance on deciding whether they need to follow government accounting standards. At an unusual joint meeting of the Financial Accounting Standards Board and the Governmental Accounting Standards Board in March, the two bodies agreed to a definition of government, which is expected to be especially helpful to health care organizations and colleges and universities. However, neither group is issuing a statement of accounting standards; rather, the definition will appear in the American Institute of CPAs audit and accounting guides Health Care Organizations and Not-for-Organizations, expected to be published by the end of July.

"I think this is a great move. It was sorely needed for both preparers and auditors," said Kenneth D. Williams, chair of the AICPA not-for-profit organizations committee. "The definition is operational and easily understood?' Williams did not expect the definition to be a great shock to anyone. However, he thought there would be some entities that thought there would be a financial advantage to applying FASB Statements no. 116, Accounting for Contributions Received and Contributions Made, and no. 117, Financial Statements of Not-for--Profit Organizations, that now cannot--and vice versa. (See "Which GAAP Should NPOs Apply?" JofA, Nov. 95, page 77.) Some state governments, said Williams, would have preferred to have all entities associated with those states follow GASB statements. "There may be another visit to this issue some time in the future;' he said.

A practical partnership

FASB Chair Dennis Beresford told the Journal that the FASB and GASB solved the definition problem in the context of reviewing the health care and NPO guides. "We received letters; firms were asking for guidance. The two boards' staffs developed appropriate language for a definition, and then the boards met jointly with AICPA representatives and created a draft to send to a number of interested parties, such as the Health Care Financial Management Association and the National Association of College and University Business Officers." Beresford said there were no plans for further FASB or GASB pronouncements.

Beresford praised the smooth way the FASB, GASB and Institute worked together to create the definition and said that although there were no issues before either board requiring another joint meeting, the staffs would continue as necessary to work behind the scenes.

The FASB/GASB Definition of Government

Public corporations and bodies corporate and politic are governmental organizations. Other organizations are governmental organizations if they have one or more of the characteristics listed below:

* Popular election of officers or appointment (or approval) of a controlling majority of the members of the organization's governing body by officials of one or more state or local governments.

* The potential for unilateral dissolution by a government with the net assets reverting to a government.

* The power to enact and enforce a tax levy

Furthermore, organizations are presumed to be governmental if they have the ability to issue directly (rather than through a state or municipal authority) debt that pays interest exempt from federal taxation. However, organizations possessing only that ability (to issue tax-exempt debt) and none of the other governmental characteristics may rebut the presumption that they are governmental if their determination is supported by compelling, relevant evidence.

Williams, would have preferred to have all entities associated with those states follow GASB statements. '"There may be another visit to this issue some time in the future," he said.

A practical partnership

FASB Chair Dennis Beresford told the Journal that the FASB and GASB solved the definition problem in the context of reviewing the health care and NPO guides. "We received letters; firms were asking for guidance. The two boards' staffs developed appropriate language for a definition, and then the boards met jointly with AICPA representatives and created a draft to send to a number of interested parties, such as the Health Care Financial Management Association and the National Association of College and University Business Officers." Beresford said there were no plans for further FASB or GASB pronouncements.

Beresford praised the smooth way the FASB, GASB and Institute worked together to create the definition and said that although there were no issues before either board requiring another joint meeting, the staffs would continue as necessary to work behind the scenes.