Non-routine is the new routine as we navigate our way through this ongoing COVID-19 pandemic. Many state and local government entities will undoubtedly encounter accounting challenges due to the impacts of this situation. As things continue to change, there may be a need to re-evaluate accounting principles and/or estimates.
There is a presumption that a government should not change an accounting principle once adopted without justification, and only upon that, adopt another generally accepted accounting principle (GAAP). Changes in accounting principles generally restate the beginning net position/fund balance for the cumulative effect of the change except in some instances where the cumulative effect is not determinable. Disclosure of the nature and justification for the change in principle should be made. If the need for a change in accounting principle arises, ensure the decision is not to disguise the true nature of the effects of the pandemic.
A more likely occurrence than a change in accounting principle will be a change in estimates. Common estimates include useful lives of depreciable assets, allowances for doubtful accounts and pension or other post-employment benefit obligations. While estimates should be evaluated at least annually with period end financial reporting, there may be some significant changes to those estimates from the last period end, especially as the economy continues to be impacted. Changes in estimates are accounted for in the period of change rather than restating any prior periods. If the change in estimate impacts future periods, the effect of the change should be disclosed. If the estimates are made each period in the ordinary course of accounting for the related transactions, such accounts receivable and the related allowance for doubtful accounts, disclosure would not be necessary.
Additional guidance on accounting changes can be found in the Governmental Accounting Standards Board (GASB) Codification Section 2250 paragraphs .121-.150 and GASB Statement No 62.
For more information, or to learn how Baker Tilly public sector specialists can help, contact our team.