GASB Asks for Comments on Improvements to Financial Reporting Model

Chris Gaetano
Published Date:
Jan 5, 2017
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The Governmental Accounting Standards Board (GASB), in response to recent stakeholder feedback, is reconsidering key aspects of its financial reporting model as they pertain to government funds, and is asking stakeholders to comment on what they think would improve it. 

“This initial document in the reexamination of the financial reporting model lays out what two years of research indicated were the prime areas for improvement for governmental funds” said David A. Vaudt, GASB chairman. “This is a key opportunity for stakeholders to influence the direction of the Board’s deliberations on the fundamental issues related to governmental funds.”

The current model uses the modified accrual basis of reporting to report information with a particular focus on the measurement of current financial resources, something that the GASB said has some conceptual shortcomings. Government fund statements present information with a shorter time perspective than the government-wide ones and focus on financial rather than economic resources. However, said the GASB, some users may not understand what this means. 

"For example," said the GASB, "the existing governmental fund financial statements present assets and liabilities, but the fact that additional long-term assets and liabilities are presented in the government-wide financial statements may not be clear to all users. Some users continue to rely solely on information in government fund financial statements to inform decisions that have longer term implications." 

There's also issues regarding what should actually be recognized as government assets in the fund report. Because the fund report has a shorter timeframe perspective, some stakeholders have wondered as to whether longer term items or non-financial items like inventories should continue to be reported as assets in government funds, rather than presenting only assets and liabilities that mature within a consistent time frame following period-end. 

Related, the GASB said the current reporting model can make it difficult to establish guidelines for reporting more complex transactions like derivative instruments and service concession arrangements, due to their differences from more traditional transactions. The GASB said that this points to a need to develop a better conceptual understanding of what should be recognized in government fund financial statements. 

The invitation to comment covers a wide ranging set of topics, including the measurement focus and basis of accounting for governmental funds and the presentation of government fund financial statements; management's discussion and analysis; government-wide statements of activities; debt service fund presentations; permanent funds; proprietary funds; extraordinary and special items; and budgetary comparisons. 

It also suggests three possible alternatives to the recognition model: 

Statements prepared using the near-term approach would provide information about spending and resources available for spending that were acquired during the reporting period, defining resources as that which are expected to be converted into cash, excluding long-term items. This approach enables assessments of the amount of unspent resources at year-end available for the next period. The length of time following the end of the reporting period would generally range from 60 to 90 days. 

The short-term, or working capital, approach focuses on the government's one-year fiscal period. Entities using this approach would present financial resource inflows and outflows for the period as well as period-end balances related to short-term financial assets and liabilities (defined as one year). In this approach, financial resources are defined as cash, claim to cash, claims to goods or services, consumable goods like inventory, and equity securities of another entity. 

The long-term, or total financial resources, approach would recognize effects on financial resources of transactions or events when they take place regardless of when cash is received or paid. In this approach, financial resources are defined the same way as the short-term approach, though it does not recognize capital assets and capital-related debt. Information on a shorter time perspective would be presented on the balance sheet in a classified format showing current, defined as one year, assets and liabilities separately from nonrecurrent assets and liabilities. 

Beyond written comments, the GASB also plans to hold a number of public events to discuss potential improvements. 

Public Hearings
  • April 28, 2017, Atlanta, GA
  • May 3, 2017, Dallas, TX
  • May 11, 2017, San Francisco, CA
  • May 21, 2017, Denver, CO (in conjunction with the annual conference of the Government Finance Officers Association)
  • May 24, 2017, at 401 Merritt 7, Norwalk, CT
User Forums
  • April 27, 2017, New York, NY
  • May 12, 2017, San Francisco, CA
  • May 18, 2017, Washington, DC (in conjunction with the annual conference of the National Federation of Municipal Analysts)
The deadline for written notice of intent to participate is March 31, 2017. 

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