Concepts Statement No. 3Concepts Statement No. 3Communication Methods in General Communication Methods in General Purpose External Financial Reports Purpose External Financial Reports

That Contain Basic Financial That Contain Basic Financial StatementsStatements

Issued: April 2005Issued: April 2005

Concepts StatementsConcepts Statements

Not used to prescribe the financial reporting Not used to prescribe the financial reporting requirements that apply to a particular item requirements that apply to a particular item or event.or event.

Provides GASB with the conceptual Provides GASB with the conceptual foundation to consider the merits of foundation to consider the merits of alternative approaches to financial reporting.alternative approaches to financial reporting.

Assist Assist preparerspreparers and and usersusers in better in better understanding fundamental concepts understanding fundamental concepts underlying financial reporting.underlying financial reporting.

ObjectiveObjective

The objective of this Statement is to provide The objective of this Statement is to provide conceptual guidance regarding the conceptual guidance regarding the placement of information within general placement of information within general purpose external financial reports that purpose external financial reports that contain the basic financial statements, notes contain the basic financial statements, notes to basic financial statements, and supporting to basic financial statements, and supporting information related to basic financial information related to basic financial statements. statements.

OverviewOverview

The statement defines and provides The statement defines and provides criteria for communication methods used in criteria for communication methods used in general purpose external financial reports.general purpose external financial reports.

– Recognition in basic financial statementsRecognition in basic financial statements– Disclosure in notes to basic financial Disclosure in notes to basic financial

statementsstatements– Presentation as required supplementary Presentation as required supplementary

information (RSI)information (RSI)– Presentation as supplementary information. Presentation as supplementary information.

General Purpose External General Purpose External Financial ReportingFinancial Reporting

Hierarchical ApproachHierarchical Approach

Report in financial statements if it meets Report in financial statements if it meets definition and criteria for recognition, definition and criteria for recognition, otherwiseotherwise

– Disclose in Notes to F/S if it meets definition & Disclose in Notes to F/S if it meets definition & criteria for notes, otherwisecriteria for notes, otherwise

Present as RSI if it meets definition & criteria for RSI, Present as RSI if it meets definition & criteria for RSI, otherwiseotherwise

– May choose to present as SI if it meets definition & criteriaMay choose to present as SI if it meets definition & criteria

Notes to Financial StatementsNotes to Financial Statements Notes to financial statements are integral to Notes to financial statements are integral to

financial statements and are essential to a financial statements and are essential to a user’s understanding of financial position or user’s understanding of financial position or inflows and outflows of resources. Notes inflows and outflows of resources. Notes provide: provide: – Descriptions of the accounting and finance-Descriptions of the accounting and finance-

related policies underlying amounts recognized related policies underlying amounts recognized in financial statementsin financial statements

– More detail about or explanations of amounts More detail about or explanations of amounts recognized in financial statements recognized in financial statements

– Additional information about financial position or Additional information about financial position or inflows and outflows of resources that does not inflows and outflows of resources that does not meet the criteria for recognition.meet the criteria for recognition.

Notes to Financial StatementsNotes to Financial Statements Notes have a “clear” and “demonstrable” Notes have a “clear” and “demonstrable”

relationship to information in the F/S and are relationship to information in the F/S and are “essential” (“indispensable”) to “essential” (“indispensable”) to understanding by user with “reasonable understanding by user with “reasonable understanding” of govt. and public financing understanding” of govt. and public financing activities and fundamentals of govt. financial activities and fundamentals of govt. financial reporting and “willingness to study” info. with reporting and “willingness to study” info. with “reasonable diligence.”“reasonable diligence.”

Supporting InformationSupporting Information Supporting information places basic Supporting information places basic

financial statements and notes to basic financial statements and notes to basic financial statements in an appropriate financial statements in an appropriate operational, economic, or historical context. operational, economic, or historical context. This information either is required by GASB This information either is required by GASB pronouncements to be presented with the pronouncements to be presented with the basic financial statements and notes to basic financial statements and notes to basic financial statements, is required to be basic financial statements, is required to be presented by laws or regulations, or is presented by laws or regulations, or is presented at the election of the preparer. presented at the election of the preparer.

Required Supplementary Information Required Supplementary Information (RSI)(RSI)

RSI is supporting information that the GASB RSI is supporting information that the GASB has concluded is essential for “placing basic has concluded is essential for “placing basic financial statements and notes to basic financial statements and notes to basic financial statements in an appropriate financial statements in an appropriate operational, economic, or historical context.” operational, economic, or historical context.” RSI is required to accompany the basic RSI is required to accompany the basic financial statements and notes to basic financial statements and notes to basic financial statements in a government’s financial statements in a government’s general purpose external financial report. general purpose external financial report.

Supporting InformationSupporting Information RSI has clear and demonstrable relationship RSI has clear and demonstrable relationship

to info. In the basic financial statements or to info. In the basic financial statements or notesnotes

Supplementary Information (SI)Supplementary Information (SI) SI is supporting information that is useful for placing SI is supporting information that is useful for placing

basic financial statements and notes to basic financial basic financial statements and notes to basic financial statements in an appropriate operational, economic, or statements in an appropriate operational, economic, or historical context. SI is presented with the basic historical context. SI is presented with the basic financial statements, notes to basic financial financial statements, notes to basic financial statements, and RSI in a government’s general statements, and RSI in a government’s general purpose external financial report. Although the GASB purpose external financial report. Although the GASB does not require SI to be presented, preparers of does not require SI to be presented, preparers of governmental financial reports who elect to present SI governmental financial reports who elect to present SI (or are otherwise required by law or regulations to (or are otherwise required by law or regulations to present SI) with their basic financial statements, notes present SI) with their basic financial statements, notes to basic financial statements, and RSI should follow to basic financial statements, and RSI should follow any applicable GASB-issued or cleared guidance any applicable GASB-issued or cleared guidance regarding the format and content of that information.regarding the format and content of that information.