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GASB’s “Big Three” Projects Enter Critical Phase

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By David A. Vaudt
July 10, 2020

The views expressed in this article are those of the author only. Official positions of the GASB on accounting matters are determined only after extensive public due process and deliberation.

As I prepare to conclude my time as chairman of the Governmental Accounting Standards Board (GASB), I wanted to update you on the comprehensive approach we’re taking to bringing improvements to accounting and financial reporting for state and local governments. With new proposals recently issued for public comment, these efforts have reached a critical phase.

I’ll also brief you on what the Board is doing to help stakeholders address the financial reporting implications of the pandemic.

Taking a Comprehensive View of Governmental Financial Reporting

The Board recently issued three interrelated proposals designed to further enhance and provide additional clarity into the financial information reported by tens of thousands of state and local governments across the United States.

The GASB’s “Big Three” projects are: the financial reporting model, revenue and expense recognition and note disclosures.

Not long after I became GASB chair in 2013, I realized that the time had come to take a new look at the reporting model—Statement 34 and related standards—which is now more than 20 years old. The goal of our initial research was to determine which provisions were working well and which could be improved. The research showed us that while overall the model was working very well, there were opportunities for targeted improvement.

Research found, for example that management’s discussion and analysis, or “MD&A,” which was ushered in under Statement 34, was well regarded, but that certain clarifications to current provisions would be helpful. Research also found that some redundancies could be eliminated and formatting issues in some areas could be improved.

One of the key issues in my mind was governmental funds. When the GASB developed Statement 34, the Board really didn’t touch on the kind of information that was reported in governmental funds. This was probably where you found the most inconsistency in terms of how things were recognized in the financial statements. For example, in the area of revenue recognition, some governments would establish a 60 day availability period to align with standards for property tax revenue recognition, others would employ a 90 day availability period for revenue other than property taxes and still others would establish a one year availability period for non-property tax revenues, which makes comparability across governments difficult. In the proposal the Board recently issued for public comment, we attempt to take a much more consistent approach by proposing a governmental fund financial reporting model based on a short-term measurement focus and an accrual basis of accounting.

Revenue and Expense Recognition

As we begin to firm up what the financial reporting model is going to look like, the Board also is focused on how revenue and expense transactions would be recognized within that model.

The current approach is based on the notion of exchange transactions, where you have willing buyers and willing sellers exchanging resources of equal values, and non-exchange transactions, where you don’t. One of the issues encountered in practice is how one assesses value in order to classify transactions, especially in situations where government services are provided in a noncompetitive marketplace.

The Board believes the approach it has proposed will address those classification challenges and provide greater consistency and comparability across governments.

Note Disclosures

At this stage in its development, the third of the Big Three projects—note disclosures—remains conceptual in nature. The Board’s conceptual framework—which guides the Board in its work setting standards—provides that notes are “essential” to understanding financial statements but does not offer a method for determining what is essential.

The GASB is currently seeking comments from stakeholders on proposed criteria for determining essentiality. Once finalized, the Board will then use those criteria to examine current disclosure requirements.

Let the GASB Know What You Think

Each of those proposals are available on the GASB’s Documents for Public Comment page. The Board is at a critical phase in the development of these projects, so please review the documents and let us know what you think.

Addressing Financial Reporting Implications of the Pandemic

I also wanted to let you know that the GASB has been very active of late helping governments and other stakeholders deal with the financial reporting implications of the pandemic.

The GASB has made a variety of resources available to help stakeholders navigate financial accounting and reporting issues that may arise, including an emergency toolbox that details how some two dozen areas of guidance in existing standards may apply in the current situation. 

In May, the Board issued Statement 95 to postpone most upcoming effective dates of various standards by one year (except for Statement 87 on leases, which is postponed by 18 months). Other recent Statements and upcoming proposals include extended effective dates. These actions are intended to not only assist preparers as they face difficult challenges, but also to assist financial statement users that face challenges of their own.

Thank You

As my tenure leading the Board draws to a close at the end of June, I’d like to thank everyone who took the time to share their thoughts and ideas with the Board. Please join me in welcoming incoming GASB Chair Joel Black as he prepares to assume his new role. As always, we appreciate your support and look forward to your continued engagement.


Author: David A. Vaudt, CPA, Chairman, Governmental Accounting Standards Board, external board member, Government Finance Research Center, University of Illinois in Chicago.

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