Financial Reporting Model Proposal About to be Released by GASB

The Governmental Accounting Standards Board (GASB) will be releasing its Preliminary Views (PV) on its “Financial Reporting Model Improvements” project on September 28. The objective of this project is to make improvements to the current financial reporting model (GASB Statement 34) to enhance its effectiveness in providing information that is essential for decision-making and enhance the ability to assess a government’s accounting.

Statement 34 provides the blueprint for state and local government financial reporting. The current effort to offer improvements is considering the following issues:

  • options for enhancing the financial statement analysis component, including the elimination of requirements that are boilerplate and no longer necessary for understanding the financial reporting model;
  • alternatives for the format of the statement of activities, including whether a government-wide statement of cash flows should be required and, if so, how those cash flows should be presented;
  • options for providing additional information about debt service funds;
  • a conceptually consistent measurement focus and basis of accounting and a presentation format for governmental fund financial statements consistent with the measurement focus and basis of accounting;
  • the evaluation of operating indicator alternatives in conjunction with the guidance for the separate presentation of operating and nonoperating revenues and expenses;
  • where the fiduciary fund financial statements should be presented in the basic financial statements; and
  • the appropriate method of communication (either as basic financial statements or required supplementary information) for budgetary comparison information and consider whether and, if so, which budget variances should be required to be presented.

The project began in 2013 and an “Invitation to Comment” (ITC) was issued at the end of 2016. This is normally done when the Board has not reached a clear consensus on an issue. It laid out the ideas and options for recognition in and presentation of governmental funds in a neutral fashion and stated no preference for one approach over another.

According to a recent interview with David Vaudt, the Chair of GASB, more than 100 comment letters on the ITC were received, and there was “strong participation in the series of public hearings and user forums last spring.” The PV will now provide a specific approach and overall direction for governmental funds, as well as an alternative view.

Chairman Vaudt said that beyond governmental funds, the PV will propose enhancing proprietary fund financial statements by introducing a description of nonoperating and a definition of operating and including a presentation of a subtotal for operating income or loss and noncapital subsidies. “We also propose providing budgetary comparison information only as required supplementary information and requiring two variance columns,” he explained. Other topics include proposed guidance on the communication of major component unit information and the introduction of a schedule of government-wide expenses by natural classification.

Vaudt encouraged input in response to the PV. “We’re in a more formative stage right now,” he explained, and sharing thoughts at this point is “really helping firm up the direction and approach we’re going to ultimately take.” Vaudt went on to note that while it will be critical for GASB to have input at the “Exposure Draft” stage as well, “in terms of having a big impact,” he said that participation at the PV stage is “essential.”

“This particular GASB project may not appear to be as directly related to public plans as have been GASB’s pension accounting and financial reporting efforts, or their more recent OPEB undertakings, but it is still important in ensuring that plan participants have a clear understanding of their employers’ financial health,” explained Maureen Westgard, NCTR’s Executive Director.

Also, she pointed to the comments made by the California State Teachers’ Retirement System (CalSTRS) in submitting a response to the GASB ITC. CalSTRS noted that although it does not administer any governmental funds, pension and other post-employment benefit (OPEB) information from CalSTRS audited financial statements is incorporated into approximately 1,800 contributing employer governmental fund financial statements. “Given the reliance individuals place upon the employer financial statements information, CalSTRS would like to provide its perspective and responses to the questions within the lTC,” their letter stated.

Westgard also noted that she had discussed this project and other GASB activities with Chairman Vaudt personally in a meeting with him in Washington, DC, on September 11. “I think it is important that NCTR have the opportunity to share our perspectives with GASB on this and a number of other undertakings that they may have,” she continued. “I am often concerned that GASB may not appreciate how their actions can be miscast and used by our opponents, and I asked them to please keep in mind this potential misuse in their deliberations,” she concluded.