W8-2

The video I selected from the Governmental Accounting Standards Board (GASB) YouTube website is called “Developing A New Revenue and Expense Recognition Model”. The video talks about the GASB’s efforts to develop a comprehensive revenue and expense recognition model. According to the GASB (2020, min. 0:05), “the Board has tentatively moved away from assessing whether a transaction is considered an exchange or a non-exchange transaction” this decision is based in the reliance on equal value as mean to distinguish between transaction in the governmental environment can be problematic.

In the governmental environment the major motivation for revenue and expense transactions is public purpose motive. According to the GASB (2019, par. 95), “the benefit generated by a government’s procurement of goods and services should always be construed to accrue to the government’s constituency, in the fulfillment of its public purpose mission” therefore as a result government have had to rely on other attributes to asses equal value, such as benefit and cost recovery, but relying on these attributes produces inconsistent results because it relies in the amount of the transaction.

Tysiac (2018, par. 6) explains that there are “two potential models are discussed. An exchange/nonexchange model would include a classification process based on the existing definition for exchange transactions and a performance obligation/no performance obligation model would include a classification process based on a tentative definition of a performance obligation” therefore, to create a more comprehensive system to address a wide variety of transactions, including those for which there is currently no guidance and to enhance the comparability on the financial statements, the Board determined that a new categorization methodology should be developed that will produce consistent results.