GASB defines elements of financial statements

NORWALK, Conn. June 28, 2007 — The Governmental Accounting Standards Board has issued Concepts Statement No. 4, "Elements of Financial Statements," defining the basic elements of state and local government financial statements.

Together, the GASB’s concepts statements form a conceptual framework that provides a foundation to guide the GASB's development of accounting and financial reporting standards.

The GASB has defined these fundamental building blocks of financial reporting in order to further develop the basic conceptual foundation for considering the merits of alternative approaches to financial reporting, and to help the GASB develop well-reasoned financial reporting standards. The concept of a resource — an item with a present capacity to provide service — is central to the definitions. Accordingly, the new concepts statement defines the elements of statements of financial position as follows:

Assets: Resources with present service capacity that the government presently controls
Liabilities: Present obligations to sacrifice resources that the government has little or no discretion to avoid
A deferred outflow of resources: A consumption of net assets by the government that is applicable to a future reporting period
A deferred inflow of resources: An acquisition of net assets by the government that is applicable to a future reporting period
Net position: The residual of all other elements presented in a statement of financial position.

Concepts Statement 4 defines deferred outflows and inflows of resources as distinct financial statement elements for the first time. The statement also defines elements of resource flows statements as follows:

Outflow of resources: A consumption of net assets by the government that is applicable to the reporting period
Inflow of resources: An acquisition of net assets by the government that is applicable to the reporting period.

“One of the keys to establishing consistently effective standards is building them on a solid conceptual foundation,’’ said GASB Chair Robert H. Attmore. “Definitions of assets, liabilities and other financial statement elements are cornerstones of that foundation.”

Previous concepts statements addressed the objectives of financial reporting, service efforts and accomplishments reporting, and communication methods. The GASB's next concepts statement is expected to address recognition and measurement attributes.

Concepts Statement 4 (Product Code GC04) can be ordered through the GASB’s order department at (800) 748-0659 or via its Web site at www.gasb.org.