Government building

In this quarterly Governmental Accounting Standards Board (GASB) update, we provide a brief summary of these new standards along with an update on the status of current projects on the GASB board’s agenda. The conceptual framework, comprehensive projects, major 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 framework

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.

January 2024 update: The Board reviewed the tentative decisions reached in this project in light of the tentative decision reached in the Financial Reporting Model project at its June 2023 meeting. The Board decided it will not further pursue the tentative decisions made in this project.

Major Projects

Going Concern Uncertainties and Severe Financial Stress Disclosures

The objective of this project is to address issues related to disclosures regarding going concern uncertainties and severe financial stress. The project will consider (1) improvements to existing guidance for going concern considerations to address diversity in practice and clarify the circumstances under which disclosure is appropriate, (2) developing a definition of severe financial stress and criteria for identifying when governments should disclose their exposure to severe financial stress, and (3) what information about a government’s exposure to severe financial stress is necessary to disclose.

January 2024 update: The Board has been deliberating on the most appropriate model to describe the circumstances requiring severe financial stress disclosures. The work plan on this project extends well into 2027.

Infrastructure Assets

The proposed project would address issues related to accounting and financial reporting for infrastructure assets. The project would evaluate standards setting options related to reporting infrastructure assets to make information (1) more comparable across governments and more consistent over time, (2) more useful for making decisions and assessing government accountability, (3) more relevant to assessments of a government’s economic condition, and (4) better reflect the capacity of those assets to provide service and how that capacity may change over time. The project is considering the following issues:

  1. How should infrastructure assets be recognized and measured in financial statements? Should the optional use of the modified approach continue to be allowed to report infrastructure assets?
  2. Should additional information related to the maintenance and preservation of infrastructure assets be presented in financial statements and, if so, what information and what method of communication should be used to provide that information?

January 2024 update: The Board is deliberating on the required characteristics of an asset management system for using an optional preservation method. The work plan on this project extends well into 2027.

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.

January 2024 update: In its June 2023 meeting, the Board decided to remove governmental funds from the scope of the project for various reasons but the rest of the project would continue for other areas. In its October/November meetings, the Board reviewed a draft of the Standards and Effective Date and Transition sections of a final Statement, discussed several clarifying edits, and cost-benefit considerations associated with the requirements to be included in a final Statement. The Board tentatively decided that the expected benefits of the requirements proposed for a final Statement would justify the perceived costs.

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.

January 2024 update: As of December 2023, the Board is redeliberating recognition issues. While this project is not anticipated for completion until 2027, the broad application and impact will make it one to keep up to date with its progress.

Practice issues

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.

January 2024 update: GASB issues GASB Statement No. 102 - Certain Risk Disclosures in December 2023. See additional information under “Newly Released or Effective Standards and Guidance.”

Classification of Nonfinancial Assets

The objective of this project would be to reconsider the existing classification of nonfinancial assets and other related sub-classifications (for example, capital assets or intangible assets) to ensure that (1) assets are classified in a way that provides the most relevant financial information and (2) the definitions of the classifications are understandable and appropriate to meeting financial reporting objectives. The project also would consider how any classification changes would affect financial statement presentation and disclosure of nonfinancial assets. The project would not, however, reexamine recognition or measurement of nonfinancial assets.

January 2024 update: Comment period for the exposure draft ended January 5, 2024.

Newly Released or Effective Standards and Guidance:

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.

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. 94

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. 96

Guide 2021-1 was issued in May 2021 and contains new questions and answers (Q&A) in addition to clarifying previously issued Q&A from past implementation guides. Topics covered include: Accounting and Financial Reporting for Derivative Investments, Fiduciary Activities, Leases, Basic Financial Statements and Management’s Discussion and Analysis, and Other Implementation Guidance. Questions in this guide are effective for reporting periods beginning after June 15, 2021 through June. 15, 2023. Earlier application is encouraged if related pronouncements have been implemented.

Implementation Guide 2021-1

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 recent pronouncements, including GASB 87 – Leases, GASB 94 – Public-Private and Public-Public Partnerships and Availability Payment Arrangements, and GASB 96 – Subscription-Based Information Technology Arrangements.

Effective Date: The requirements of this Statement are effective as follows:

  • The requirements related to extension of the use of LIBOR, accounting for SNAP distributions, disclosures of nonmonetary transactions, pledges of future revenues by pledging governments, clarification of certain provisions in Statement 34, as amended, and terminology updates related to Statement 53 and Statement 63 are effective upon issuance
  • The requirements related to leases, PPPs, and SBITAs are effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter.
  • The requirements related to financial guarantees and the classification and reporting of derivative instruments within the scope of Statement 53 are effective for fiscal years beginning after June 15, 2023, and all reporting periods thereafter.

Earlier application is encouraged and is permitted by topic.

GASB Statement No. 99

This Statement defines accounting changes as changes in accounting principles, changes in accounting estimates, and changes to or within the financial reporting entity and describes the transactions or other events that constitute those changes. This Statement also prescribes the accounting and financial reporting for (1) each type of accounting change and (2) error corrections in previously issued financial statements.

The requirements of this Statement are effective for accounting changes and error corrections made in fiscal years beginning after June 15, 2023, and all reporting periods thereafter. Earlier application is encouraged.

GASB Statement No. 100

GASB 101 requires that liabilities for compensated absences be recognized for (1) leave that has not been used and (2) leave that has been used but not yet paid in cash or settled through noncash means. This Statement also establishes guidance for measuring a liability for leave that has not been used, generally using an employee’s pay rate as of the date of the financial statements.

The requirements of this Statement are effective for fiscal years beginning after December 15, 2023, and all reporting periods thereafter. Earlier application is encouraged.

GASB Statement No. 101

Guide 2023-1 was issued in June 2023 and contains new questions and answers (Q&A) in addition to amending previously issued Q&A from past implementation guides. Topics covered include: Leases, Subscription-Based Information Technology Arrangements (SBITAs), and Other Implementation Guidance. Questions in this guide are effective for reporting periods beginning after June. 15, 2023. Earlier application is encouraged if related pronouncements have been implemented.

Implementation Guide 2023-1

The objective of this Statement is to disclose within government financial statements risks related to a government’s vulnerabilities due to certain concentrations or constraints. A concentration is defined as a lack of diversity related to an aspect of a significant inflow of resources or outflow of resources. A constraint is a limitation imposed on a government by an external party or by formal action of the government’s highest level of decision-making authority. Concentrations and constraints may limit a government’s ability to acquire resources or control spending.

A government is required to assess whether a concentration or constraint makes the primary government reporting unit or other reporting units that report a liability for revenue debt vulnerable to the risk of a substantial impact. Additionally, a government is required to assess whether an event or events associated with a concentration or constraint that could cause the substantial impact have occurred, have begun to occur, or are more likely than not to begin to occur within 12 months of the date the financial statements are issued.

The requirements of this Statement are effective for fiscal years beginning after June 15, 2024, and all reporting periods thereafter. Earlier application is encouraged.

GASB Statement No. 102

Jodi Dobson
Partner
Tax planning
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