PSAB is proposing to assign a higher level of authority under GAAP to four application guidance Public Sector Accounting (PSA) Handbook Appendices.
- Appendix A to Section PS 3400, Revenue;
- Appendix B to Section PS 3410, Government Transfers;
- Appendix A to Section PS 3450, Financial Instruments; and
- Appendix A to Section PS 4270, Disclosure of Allocated Expenses by Not-for-Profit Organizations.
A GAAP designation is the relative level of authority assigned to a pronouncement. GAAP designations are identified in paragraph PS 1150.03 (d), Generally Accepted Accounting Principles, and together are generally termed the “GAAP Hierarchy”. The GAAP hierarchy sets out the three levels of primary sources of GAAP in descending order of authority.
Paragraph PS 1150.16 designates all appendices as level (iii) GAAP within the GAAP hierarchy. But three appendices in the PSA Handbook are described as “integral” to the related standard and a fourth was intended as integral. Appendix identification as integral conflicts with paragraph PS 1150.16. So, the Exposure Draft explains that “integral to the standard” is associated only with application guidance and proposes that such appendices should be level (i) GAAP, the same as the standard to which they relate. Some public sector entities will have already interpreted “integral to the standard” in this manner. For other entities, adding greater weight to the authority of application guidance appendices may result in a change in practice in applying the four related standards.
These changes are important for maintaining the quality of the PSA Handbook and users’ understanding of its requirements:
(a) The classification and renumbering of appendices PSAB approved in December 2022 as part of the 2022-2023 Annual Improvements represent a structural aspect of implementing the Board’s International Strategy.
(b) The Exposure Draft proposals provide clarity about the GAAP designation of PSA Handbook appendices, which is important for applying the standards and guidelines.