GASB update for public sector organizations
Authored by Jodi Dobson and Gwen Zech
After the release of six new standards in the first half of 2020, there have not been any new Governmental Accounting Standards Board (GASB) standards issued since that time. In this quarterly GASB update, we turn our focus to the status of current projects on the GASB board’s agenda. The conceptual framework, comprehensive projects and practice issues will likely result in authoritative guidance issued in the future and could have a significant impact on public sector organizations.
Conceptual frameworks
Disclosure Framework:
The objective of this project is to develop concepts related to a framework for the development and evaluation of notes to financial statements for the purpose of improving the effectiveness of note disclosures in government financial reports. The framework will establish criteria for the Board to use in evaluating potential note disclosure requirements during future standards-setting activities and in reexamining existing note disclosure requirements. Those concepts also will provide governments a basis for considering the essentiality of information items for which the GASB does not specifically provide authoritative disclosure guidance.
At this time, the exposure draft comment period has closed and GASB is redeliberating. They will consider final approval in May 2021.
Recognition:
The objective of this project is to develop recognition criteria for whether information should be reported in state and local governmental financial statements and when that information should be reported. This project ultimately will lead to a Concepts Statement on recognition of elements of financial statements.
The exposure draft is available and comments on that document are due to GASB by Feb. 26, 2021 upon which GASB will redeliberate the drafted Concepts Statement.
Comprehensive projects
Financial Reporting Model – Reexamination of Statements Nos. 34, 35, 37, 41 and 46 and Interpretation 6:
The objective of this project is to make improvements to the financial reporting model, including Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, and other reporting model-related pronouncements (Statements No. 35, Basic Financial Statements—and Management’s Discussion and Analysis—for Public Colleges and Universities, No. 37, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments: Omnibus, No. 41, Budgetary Comparison Schedules—Perspective Differences, and No. 46, Net Assets Restricted by Enabling Legislation, and Interpretation No. 6, Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements). The objective of these improvements would be to enhance the effectiveness of the model in providing information that is essential for decision-making and enhance the ability to assess a government’s accounting and to address certain application issues, based upon the results of the pre-agenda research on the financial reporting model.
The exposure draft of this project was released in June 2020 and is available for comments until Feb. 26, 2021. The closure of the comment period will be followed by public hearings and user forums anticipated to take place in March and April 2021 before being redeliberated by the Board.
Revenue and Expense Recognition:
The overall objective of this project is to develop a comprehensive, principles-based model that would establish categorization, recognition and measurement guidance applicable to a wide range of revenue and expense transactions. Achieving that objective will include: (1) development of guidance applicable to topics for which existing guidance is limited, (2) improvement of existing guidance that has been identified as challenging to apply, (3) consideration of a performance obligation approach to the GASB’s authoritative literature and (4) assessment of existing and proposed guidance based on the conceptual framework. The expected outcome of the project is enhanced quality of information that users rely upon in making decisions and assessing accountability.
On the heels of the Financial Accounting Standards Boards (FASB) roll out of the revenue recognition guidance, GASB has taken up a similar project reviewing the guidance for recognition of revenues and expenses. Currently, there is an open comment period until Feb. 26, 2021 on the Board’s preliminary views followed by public hearings in March and April 2021. Deliberations are anticipated to be ongoing through November 2022. While this project is not anticipated for completion until 2025, the broad application and impact will make it one to keep up to date with its progress.
Practice issues
Compensated Absences – Reexamination of Statement No. 16:
The objective of this project is to address certain issues related to accounting and financial reporting for compensated absences. The project will consider improvements to the existing guidance in Statement No. 16, Accounting for Compensated Absences, related to: (1) addressing certain types of accrued leave benefits that are not covered in Statement 16, (2) measurement options for sick leave and (3) the usefulness of required notes to financial statements for decision-making and assessing accountability. Exposure draft is anticipated to be released in March 2021 and comments on the draft due in May 2021.
Implementation Guidance – 2021 Update:
The objective of this project is to update implementation guidance for additional issues that come to the attention of GASB staff. This project will result in the issuance of an annual Implementation Guide. In addition, all updates will be incorporated into the Codification of Governmental Accounting and Financial Reporting Standards and the Comprehensive Implementation Guide, as appropriate. The comment period continues through February 2021 with a final draft and consideration of issuance coming in May 2021.
Omnibus:
The objective of this proposed project is to address various technical corrections and other issues that have been identified in practice. Topics include:
- Remeasurement of certain assets and liabilities within GASB Statement Nos. 87, 94 and 96
- Effect of a purchase option on contract terms and the measurement of the liability within GASB Statement Nos. 87, 94 and 96
- Consideration of a third category of derivative that does not fall into Statement No. 53 or No. 72
- Recognition of exchange and exchange-like financial guaranties
An exposure draft is forthcoming in mid-2021.
Prior period adjustments, accounting changes, and error corrections – Reexamination of GASB Statement No. 62:
The objective of this project is to improve the accounting and financial reporting for prior-period adjustments, accounting changes and error corrections in Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. The project will fully reexamine the existing standards to address issues related to (1) inconsistency in practice, (2) confusion about and difficulty applying regarding the requirements and (3) the usefulness of the related disclosures. This topic is new to the GASB agenda and initial considerations kicked off in January 2021.
Risks and Uncertainties Disclosures:
The primary objectives of this practice-issue project are to identify potential risks and uncertainties in the state and local government environment and to consider developing disclosure requirements associated with those risks and uncertainties. Currently initial deliberations are ongoing and an exposure draft is anticipated mid-2021.
Lastly, GASB has added a Renaming the Comprehensive Annual Financial Report practice issue to their agenda for consideration. An exposure draft is anticipated in April 2021.
Below is a recap from past Baker Tilly updates of current accounting standards that might impact your organization, projected effective dates and resources from Baker Tilly technical research and the GASB website to use while implementing new standards.
GASB standards for future implementations and for which earlier application is encouraged
GASB Statement No. 84 – Fiduciary Activities
GASB 84 clarifies the criteria for identifying fiduciary activities, with the focus on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. Activities meeting certain criteria should be reported in a fiduciary fund in the financial statements. GASB 84 is effective for fiscal years beginning after Dec. 15, 2019.
GASB Statement No. 84
Fiduciary activities changes affecting existing agency funds
Reporting fiduciary activities webinar
Understanding reporting requirements for fiduciary activities
GASB 84 fiduciary activities implementation reminders
Implementation Guide No. 2019-2, Implementation Guide for GASB Statement No. 84 – Fiduciary Activities
Guide 2019-2 contains questions and answers to assist in implementing GASB Statement No. 84. This guide is effective for reporting periods beginning after Dec. 15, 2019. Earlier application is encouraged if Statement No. 84 has been implemented.
Implementation Guide No. 2019-2
Guide 2019-2 paragraph 6 was amended by Implementation Guide No. 2020-1, which is effective immediately.
GASB Statement No. 87 – Leases
GASB 87 defines a lease as a contract that conveys control of the right to use another entity’s non-financial asset for a period of greater than one year. Purchased power agreements are exempt from this treatment (unlike the Financial Accounting Standards Board lease standard). GASB 87 is effective for fiscal years beginning after June 15, 2021.
GASB Statement No. 87
Get compliant with GASB 87: a guided approach to the new lease accounting standard (NEW)
GASB 87: Lease accounting evaluation tool
Five steps for implementing the GASB 87 lease standard
GASB 87 countdown: Are you ready for lease accounting changes
GASB 87: lease term podcast
GASB 87: lessee accounting podcast
GASB 87: lessor accounting podcast
Preparing for lease accounting under GASB 87
Implementation Guide No. 2019-3, Implementation Guide for GASB Statement No. 87 – Leases
Guide 2019-3 was issued in August 2019 and contains questions and answers to assist in implementing GASB Statement No. 87. This guide is effective for reporting periods beginning after June 15, 2021. Earlier application is encouraged if Statement No. 87 has been implemented.
Implementation Guide 2019-3
Additional lease implementation questions were issued in Implementation Guide 2020-1.
GASB Statement No. 89 – Accounting for Interest Cost Incurred before the End of Construction Period
GASB 89 requires that interest costs incurred before the end of a construction period will not be capitalized unless electing GASB 62 Regulated Operations accounting if these costs are included in utility rates. GASB 89 is effective for fiscal years beginning after Dec. 15, 2020.
GASB Statement No. 89
How capitalized interest changes impact utility rate cost recovery
GASB Statement No. 90 – Majority Equity Interests (amendment of GASB Statements No. 14 and No. 61)
GASB 90 defines a majority equity interest and specifies a majority equity interest in a legally separate organization should be reported as an investment if a government’s holding of the equity interest meets the definition of an investment. A majority equity interest that meets the definition of an investment should be measured using the equity method, unless it is held by a special-purpose government engaged only in fiduciary activities, a fiduciary fund or an endowment (including permanent and term endowments) or permanent fund. GASB 90 is effective for fiscal years beginning after Dec. 15, 2019.
GASB Statement No. 91 – Conduit Debt Obligations
GASB 91 provides a single method of reporting conduit debt obligations by issuers and eliminates diversity in practice associated with (1) commitments extended by issuers, (2) arrangements associated with conduit debt obligations and (3) related note disclosures. The Statement clarifies the existing definition of a conduit debt obligation, i.e. that it is not a liability of the issuer but it is a debt instrument having all of the following characteristics:
- A least three parties involved: 1) an issuer, 2) a third-party obligor and 3) a debt holder or debt trustee
- Issuer and third-party obligor are not within the same financial reporting entity
- Debt obligation is not a parity bond of the issuer, nor is it cross-collateralized with other debt of the issuer
- Third-party obligor or its agent, not the issuer, ultimately receives the proceeds from the debt issuance
- Third-party obligor, not the issuer, is primarily obligated for the payment of all amounts associated with the debt obligation
GASB 91 is effective for fiscal years beginning after Dec. 15, 2021.
GASB Statement No. 91
Additional GASB 91 implementation questions were issued in Implementation Guide 2020-1.
GASB Statement No. 92 – Omnibus 2020
Omnibus statements are issued by GASB to address practice issues identified after other standards have been approved for implementation. Omnibus statements “clear up the loose ends” for recent prior statements GASB has issued. This Omnibus addresses eight recent pronouncements, including GASB 87 – Leases, GASB 84 – Fiduciary Activities, and GASB 83 – Asset Retirement Obligations.
GASB 92 is effective for reporting periods beginning after June 15, 2021. Earlier application is encouraged and is permitted by topic.
GASB Statement No. 93 – Replacement of Interbank Offered Rates
GASB 93 establishes accounting and reporting requirements related to the replacement of Interbank Offered Rates such as the London Interbank Offered Rate (LIBOR) for hedging derivative instruments. As a result of global reference rate reform, LIBOR is expected to cease to exist in its current form after Dec. 31, 2021. The requirements of this Statement, except for paragraphs 11b, 13, and 14 are effective for reporting periods beginning after June 15, 2020. The requirement in paragraph 11b is effective for reporting periods ending after Dec. 31, 2021. The requirements in paragraphs 13 and 14 are effective for fiscal years periods beginning after June 15, 2021, and all reporting periods thereafter. Earlier application is encouraged.
GASB Statement No. 94 – Public-Private and Public-Public Partnerships and Availability Payment Arrangements
A public-private and public-public partnership arrangement (PPP) is an arrangement in which a government (the transferor) contracts with an operator (a governmental or nongovernmental entity) to provide public services by conveying control of the right to operate or use a nonfinancial asset, such as infrastructure or other capital asset (the underlying PPP asset), for a period of time in an exchange or exchange-like transaction. An availability payment arrangement (APA) is an arrangement in which a government compensates an operator for services that may include designing, constructing, financing, maintaining, or operating an underlying nonfinancial asset for a period of time in an exchange or exchange-like transaction. GASB 94 establishes financial reporting and accounting for PPPs and APAs. GASB 94 is effective for fiscal years beginning after June 15, 2022.
GASB Statement No. 96 – Subscription-Based Information Technology Arrangements
GASB 96 provides guidance on accounting for Subscription-Based Information Technology Arrangements (SBITA) where the government contracts for the right to use another party’s software. The standards for SBITAs are based on the standards established in GASB Statement No. 87, Leases. GASB 96 is effective for fiscal years beginning after June 15, 2022.
GASB Statement No. 97 – Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans – an amendment of GASB Statements No. 14 and No. 84, and a supersession of GASB Statement No. 32
The statement (1) requires that a Section 457 plan be classified as either a pension plan or another employee benefit plan depending on whether the plan meets the definition of a pension plan and (2) clarifies that Statement 84, as amended, should be applied to all arrangements organized under IRC Section 457 to determine whether those arrangements should be reported as fiduciary activities.
The requirements of this Statement are effective as follows:
- The requirements in (1) paragraph 4 of this Statement as it applies to defined contribution pension plans, defined contribution OPEB plans and other employee benefit plans and (2) paragraph 5 of this Statement are effective immediately
- The requirements in paragraphs 6–9 of this Statement are effective for fiscal years beginning after June 15, 2021
- All other requirements of this Statement are effective for reporting periods beginning after June 15, 2021
Earlier application is encouraged and is permitted by specific requirement as follows:
- Paragraph 4 of this Statement as it applies to arrangements other than defined contribution pension plans, defined contribution OPEB plans or other employee benefit plans
- Paragraphs 6–9 of this Statement and the supersession of the remaining requirements of Statement 32 (as detailed in paragraph 3 of this Statement)
Questions 4.3 and 4.5 of Implementation Guide 2019-2, as amended, are effective for reporting periods beginning after Dec. 15, 2019. Earlier application is encouraged if Statement 84, as amended, has been implemented.
Implementation Guide No. 2020-1, Implementation Guide Update – 2020
Guide 2020-1 was issued in April 2020 and contains new questions and answers (Q&A) in addition to clarifying previously issued Q&A from past implementation guides. Topics covered include: The Financial Reporting Entity, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, Fiduciary Activities, Leases, Asset Retirement Obligations, Conduit Debt Obligations, Pensions and OPEBs. Questions in this guide are effective for reporting periods beginning after June 15, 2021 through Dec. 15, 2021. Earlier application is encouraged if related pronouncements have been implemented.
For more information on this topic, or to learn how Baker Tilly public sector specialists can help, contact our team.
