The Financial Accounting Foundation oversees two standard setters. The FASB sets US GAAP for nongovernmental entities, which includes businesses and private nonprofits. The GASB sets GAAP for state and local governments. Picking the wrong framework is the first mistake in a governmental audit, and it infects everything after it: the opinion units, the statements, the notes and the report.
This page compares the two systems for auditors and finance teams. For short definitions, see GASB and FASB.
Which board's standards apply to the entity?
The question is whether the entity is governmental. The AICPA's audit guide and GASB literature treat an organization as governmental if it has one of a set of characteristics, such as officers chosen by popular election or appointed by a government, a possibility of unilateral dissolution by a government with assets reverting to it, the power to enact and enforce a tax levy, or the ability to issue directly (rather than through a state authority) debt that pays interest exempt from federal taxation. That determination is an entity-by-entity judgment.
In practice:
- Cities, counties, school districts, special districts and public pension plans are governmental and follow GASB.
- Public colleges and universities are generally governmental and follow GASB. Private colleges and universities follow FASB, with ASC 958 as the nonprofit standard.
- Private nonprofits follow FASB. See nonprofit financial statements under ASC 958.
- A nonprofit that is a component unit of a government can report under FASB in its own statements but be presented in the government's statements under GASB's component unit rules.
What are the GAAP hierarchies?
For nongovernmental entities, the FASB Accounting Standards Codification is the sole source of authoritative GAAP other than SEC rules for SEC registrants (as GAO's Professional Standards Update puts it, in describing the Codification).
For state and local governments, the hierarchy is in GASB Statement No. 76. The top level is GASB Statements and Interpretations, together with AICPA and FASB pronouncements that a GASB Statement or Interpretation makes applicable. The next level is GASB Technical Bulletins and Implementation Guides, and AICPA literature the GASB has cleared. When no authoritative guidance exists, the entity looks to other sources, including FASB literature that is consistent with GASB concepts.
AICPA Rule 203 recognizes both boards, so a CPA's report may say financial statements follow GAAP when they follow GASB or FASB standards, as applicable.
How do the reporting models differ?
| Area | FASB (nongovernmental) | GASB (state and local governments) |
|---|---|---|
| Basic statements | Entity-wide statements: balance sheet or statement of financial position, income statement or statement of activities, cash flows, equity | Two views: government-wide statements and fund statements, with MD&A and other required supplementary information (GASB 34) |
| Measurement basis | Accrual basis throughout | Government-wide: economic resources, full accrual. Governmental funds: current financial resources, modified accrual. Proprietary and fiduciary funds: economic resources |
| Equity | Stockholders' equity, or net assets with and without donor restrictions for nonprofits | Net position (net investment in capital assets, restricted, unrestricted); fund balance in governmental funds |
| Leases | ASC 842: lessee classifies as operating or finance | GASB 87: one lessee model, liability and right-to-use asset, no operating/finance split |
| Pensions | ASC 715 | GASB 68 and related standards, net pension liability on government-wide statements |
| Contributions and grants | ASC 606 and ASC 958-605 | Nonexchange transaction standards |
| Operating results | Net income or change in net assets | Net position changes by activity; governmental funds report revenues and expenditures |
The effect on the audit is structural. A government's opinion units, fund statements and reconciliation between the two views drive the work. Major funds are identified with the 10% and 5% tests in GASB 34 (see the GASB 34 entry). MD&A and RSI are not audited, but the auditor performs limited procedures on RSI.
Illustration (illustrative)
A city buys a $500,000 truck with general fund cash. In the general fund (a governmental fund, modified accrual), the purchase is an expenditure of $500,000. In the government-wide statements (full accrual), the truck is a capital asset of $500,000, and with a 10-year life and no salvage value depreciation is $500,000 / 10 = $50,000 per year in governmental activities. The reconciliation from fund balance to net position adds back the $500,000 capital outlay less accumulated depreciation each year. The same purchase by a private company is a $500,000 fixed asset depreciated in the one set of statements.
What are the near-term GASB dates?
From GAO's Professional Standards Update No. 102 (October 2026):
| Pronouncement | Effective for fiscal years beginning after |
|---|---|
| GASB 103, Financial Reporting Model Improvements | June 15, 2025 |
| GASB 104, Disclosure of Certain Capital Assets | June 15, 2025 |
| GASB 105, Subsequent Events | June 15, 2026 |
GASB 103 addresses MD&A, unusual or infrequent items, presentation of the proprietary fund statement of revenues, expenses and changes in fund net position, major component unit information and budgetary comparison information. GASB 104 requires certain capital assets to be disclosed separately in the capital assets note and adds requirements for capital assets held for sale. GASB 105 clarifies recognized and nonrecognized subsequent events and sets note disclosures for nonrecognized events. Earlier application is encouraged for each.
For a June 30 government, a fiscal year beginning July 1, 2025 is after June 15, 2025, so GASB 103 and 104 apply to the year ending June 30, 2026, and GASB 105 applies to the year ending June 30, 2027. For a calendar-year government, they apply to 2026 and 2027 respectively.
What does the auditor do differently?
- Confirm the framework at acceptance and in the engagement letter, and document the governmental determination.
- Plan around opinion units and major funds, not one set of statements.
- Use GAGAS where required. Many government audits are Yellow Book audits. See the Yellow Book 2024 revision and single audit walkthrough.
- Use a GASB disclosure checklist, not the FASB one, and avoid importing FASB concepts such as lease classification.
- Test the government-wide to fund reconciliations.
Common problems, which are practice observations rather than findings from a published source: using ASC 842 lease classification for a government, missing contracts that contain leases, and mixing FASB terminology into governmental notes.
Frequently asked questions
Does a nonprofit follow GASB or FASB?
A private nonprofit follows FASB. A nonprofit that is itself a governmental organization, such as a public university, follows GASB.
What is the GAAP hierarchy for governments?
GASB Statement 76: GASB Statements and Interpretations first, then Technical Bulletins and Implementation Guides and AICPA literature cleared by the GASB, then other sources when there is no authoritative guidance.
Is net position the same as net assets?
No. Net position is reported in three components: net investment in capital assets, restricted and unrestricted. Nonprofit net assets are classified as with or without donor restrictions.
Does GASB 87 distinguish operating and finance leases?
No. GASB 87 has one lessee model. ASC 842 splits lessee leases into operating and finance.
When does GASB 103 take effect?
For fiscal years beginning after June 15, 2025.
Sources
- GAO, Professional Standards Update No. 102, July through September 2026 (October 23, 2026): GASB Statements 103, 104, 105 and the description of the FASB Codification as the sole source of authoritative GAAP. https://www.gao.gov/yellowbook
- GASB, Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments; Statement No. 34; Statement No. 87; Statement No. 68. https://www.gasb.org
- AICPA, Code of Professional Conduct, Rule 203 (Accounting Principles), and the Audit and Accounting Guide: State and Local Governments.
- Financial Accounting Foundation, oversight of the FASB and GASB. https://accountingfoundation.org
Related
CORAA prepares ready-to-review audit files for US CPA firms from QuickBooks books; you review and sign. See /us.
Part of CORAA University · Government, single audit and nonprofits: related guides, calculators and templates.
AU-C references are to AICPA Professional Standards, paraphrased here; read the standard itself before relying on a requirement. This page is guidance, not professional advice. Report an error