GASB moves to next stage of financial report model improvements project

Authored by Heather Acker

The Government Accounting Standards Board (GASB) issued Preliminary Views (PV) in its reexamination of the financial reporting model. Following the 2017 Invitation to Comment (ITC), this is the second due process document issued in connection with this significant project, aimed at improving governmental financial reporting.

The scope of the financial reporting model project includes a reexamination of GASB Statements 34, 35, 37, 41 and 46 as well as Interpretation 6, and has potential to significantly change the landscape of governmental financial reporting. The PV provides stakeholders the opportunity to comment on these changes and influence the direction of Board deliberations prior to an exposure draft later in the process.

In the ITC, GASB contemplated three alternative recognition approaches for governmental fund financial statements, potential presentation changes for the reconciliation of the governmental funds to the government-wide financial statements, and potential expansion of cash flow statements to the governmental activities. Feedback on the ITC, as well as continued research by GASB, helped shape the current state of the project.

Proposed changes detailed in the PV include:

  1. The establishment of a short-term financial resources measurement focus in the governmental fund financial statements. The recognition concepts for this measurement focus would be based on whether items arise from short-term or long-term transactions or events. Some notable differences of this model when compared with today’s financial resources measurement focus include:
    1. Long-term transactions, which would include notes receivable and special assessments receivable, would not be recognized in the fund financial statements until payments are due.
    2. Short-term inflow transactions, such as grants receivable, would be recognized at period-end for the amounts normally collected within one year of inception of the transaction. This will essentially eliminate the concept of period of availability and the related deferred inflow.
    3. Short-term outflow transactions, such as accrued interest and claims payable from routine risk retention, would be recognized in the fund financial statements at period-end.
  2. The resource flows for governmental funds would be presented using a current and noncurrent activity format, which includes the presentation of transactions related to the purchase of capital assets and the payment of long-term debt separately from other governmental fund transactions.
  3. The resource flows for proprietary funds would remain fairly similar to today’s presentation which distinguishes between operating and non-operating revenues and expenses, but the definition for both categories is clarified and the statement would include additional subtotals.
  4. Governments would be required to report budgetary comparison information as required supplementary information (RSI) (the option for reporting as a basic financial statement would be removed), and variances would be required to be reported between original and final budget amounts as well as final budget and actual amounts.
  5. If reporting major component unit financial statements in a separate column in the reporting entity’s financial statements is not feasible, an option would be provided for presentation as a combining financial statement.
  6. A new Schedule of Government-Wide Expenses by Natural Classification as supplementary information would be required for entities that present a comprehensive annual financial report.

The PV invites readers to respond with feedback on the Board’s current views. Due to the significance of this project, GASB is actively encouraging governments to read and consider responding to the PV, which is located on gasb.org. Comments are due by Feb. 15, 2019.

For more information on this topic, or to learn how Baker Tilly state and local government specialists can help, contact our team.