Joel Black, chair of the Governmental Accounting Standards Board (GASB), discussed some of the Board’s upcoming changes in an interview with Accounting Today.

GASP is preparing new rules and proposals for state and local governments, including improvements to the financial reporting model, classification of capital assets, and measurement of infrastructure assets, he said.

GASB recently approved Statement 103, Financial Reporting Model Improvements, providing targeted improvements to the blueprint for government financial reports, and it plans to release the statement next week.

"It's been in the works for probably close to 10 years and was our reexamination of Statement 34, which was the largest change in government financial reporting that probably ever has been," said Black. "It created government-wide statements, [management discussions and analysis] and major funds, and put infrastructure on the Statement of Net Position for the first time. In researching that, we found that by and large it was working really well, but we had areas for targeted improvement."

The biggest area involved looking at the measurement focus and basis of accounting for governmental funds, such as general funds and special revenue funds, where the rules can be vague, he said.

After working for years on the Statement 103 project, GASB went through three rounds of due process. After that, it took a step back to evaluate it, said Black. The board ultimately decided to scale back the number of changes in the existing rules.

Instead of a far-reaching overhaul, GASB decided to make targeted but significant improvements. One of the most prominent is in the management discussion and analysis (MD&A) section.

"We didn't really change what's required to be in there, but better described what's required to be in there … to get better results from the preparation of MD&A, in particular, to get more analysis in the management discussion and analysis," said Black. "There's a section of MD&A about currently known facts and decisions that might affect the government's financial condition that we weren't getting much out of, so there's much more description of that section."

The new standard may help make government financial statements more accessible to regular citizens, said Black. They may be able to spot examples of overspending on expensive, wasteful projects.

"It will improve consistency and improve, in particular, the MD&A section of the report that we specifically within this project acknowledge is written more for the less sophisticated reader," said Black.

The other big change deals with proprietary business types of funds on the income statement—the statement of revenues, expenses, changes in net position—where GASB better defined what should be classified as operating and nonoperating revenues and expenses.

GASB wanted to avoid upending the rules for governmental fund accounting completely, especially as it nears its 40th anniversary in mid-June. "We are excited to commemorate the work that's gone into 40 years of standard-setting from past board members and team members and all the stakeholders contributing to a full set of GAAP that we think works really well," said Black.

GASB is looking ahead and anticipating possible changes required by the Financial Data Transparency Act (FTDA), signed into law at the end of 2022 as part of a larger national defense authorization package. The FDTA will require state and local governments to file some level of electronic financial reports and is in the rule-making process at the SEC.

While GASB's role hasn't yet been determined, the GASB staff is in the process of developing a government financial reporting taxonomy that could be used by state and local governments on a voluntary basis and, potentially, by the SEC in determining how the FDTA should be implemented. GASB is working on developing a taxonomy, similar to the one that the Financial Accounting Standards Board (FASB) has for organizing the standards around GAAP financial reporting and tagging the data.

An additional significant project that is nearing completion is final guidance on the disclosure and classification of certain capital assets to ensure that they're classified in the way that provides the most relevant information, including disclosed capital assets held for sale. The schedule calls for GASB to vote on making this a new standard in July.

The new standard could help watchdog groups and investors understand better what the assets of the government constitute, whether they're owned or just leased for some period of time, similar to the way FASB's leases standard helps investors make better sense of corporate balance sheets.

GASB is also scheduled to issue a proposal in October on infrastructure assets such as highways and sewer systems that will look at how they should be recognized and measured in financial statements as well as other issues. In some ways, the new statement could be used to track spending under the bipartisan Infrastructure and Investment Jobs Act that Congress passed in 2021.

"It is about accounting for those types of investments that a government would make, and hopefully giving better information about their current infrastructure so that they can make good decisions about where infrastructure investment is needed," said Black.

GASB is also proposing to break out the requirement to capitalize infrastructure into segments. "If a significant part of an infrastructure asset has a significantly different estimated useful life than the rest of it, capitalize those and depreciate them separately," said Black. For example, road surfaces that get replaced approximately every five years would be capitalized differently than the base of the roads, which could last for decades.

Other changes could be coming in accounting for deferred maintenance liability.

"The board has said deferred maintenance as a 'liability' does not meet our conceptual definition of what a 'liability' is, so we're not going to require that," said Black. That could give citizens better insights into the cost of repairing the crumbling infrastructure seen across the country.

"As governments invested a lot over the years in these roads and bridges, especially in sections of the country that are older, some of that infrastructure is really old," said Black. "What is its value on the financial statements? How's that reflected? How is the user supposed to know this bridge, this sewer system, the pipes that are under the ground that nobody can see are old and falling apart? Or new and in good shape? How much have they been maintained? I think that certainly is where the users are coming from and trying to say, we need more information."

Such information could help with accounting for the impact of climate change and how it's affecting and damaging bridges and other pieces of infrastructure.

Two other proposals are scheduled to be issued for comment near the end of the year: going concern and severe financial stress disclosures and subsequent events (both in December).

For the going concern project, GASB's research has shown that the existing standard for governments wasn't being consistently applied because it was written more for the private sector. “Governments in some states legally can't go bankrupt or go out of business," said Black. "They can't cease to exist."

The subsequent events project is smaller than the going concern project, so GASB has decided to go straight to an exposure draft in December. GASB did some research and found that the literature also was not being consistently applied.

GASB is also working on a proposed implementation guide that's scheduled to be released for public comment toward the end of this year and is likely to be finalized in 2025. The guide will include Q&As on a number of standard-setting topics.

GASB is continuing to make use of technology to improve its communication with stakeholders, including a newly improved and now free Government Accounting Research System (GARS) that it released last year, a revamped website launched earlier this year, and new technology to improve its internal research.

"We're seeing good traffic on the website," said Black. "What we hear more anecdotally is people are finding what they need easier. It's easier to navigate. They can find what they came to find better. We continue to get a lot of really good feedback on the GARS, the Government Accounting Research System, that was really significantly modified and improved in 2023."

GASB has also been continuing its "Bridging the GAAP" podcast series. These 10-15-minute episodes focus on different issues in governmental accounting. So far, there have been three episodes: one on the Financial Data Transparency Act, one on the proposed guidance for the disclosure and classification of certain capital assets, and one on GARS. Two more are planned in the next few months focusing on the post-implementation review (PIR) of the pension standards. The first one will describe the PIR process in general, and the second one will go over the pension PIR results.

"I think that that's a good way to meet people where they are, a little bit differently," said Black. "We're just continuing to try those new avenues to reach our stakeholders."