Are state and local governments required to follow FASB standards?

State and local governments are generally not required to follow Financial Accounting Standards Board (FASB) standards. Instead, these governments adhere to standards established by the Governmental Accounting Standards Board (GASB), which is specifically focused on the unique financial reporting needs of state and local governments.

The correct response indicates a misunderstanding of the accounting standards that apply to governmental entities. FASB standards are primarily designed for private sector entities and non-governmental organizations, while GASB provides the necessary guidelines that address the public accountability and finance-related accountability of governmental units.

While there may be circumstances where a state or local government could voluntarily apply FASB standards, such as for certain reporting purposes, there is no overarching obligation for governmental entities to follow these standards as the default requirement is to operate under GASB principles.