In September 2015, the Governmental Accounting Standards Board (GASB) added a major project to its agenda to re-examine the financial reporting model used to prepare governmental financial statements. The objective of the project is twofold:
- Enhance the effectiveness of the financial reporting model in providing information for decision making
- Assess a government’s accountability for its financial resources
Phase one focused on potential changes being considered to the measurement focus, basis of accounting, and presentation and format of the governmental fund financial statements. In December 2016, the GASB issued an Invitation to Comment (ITC) on this first phase of the project.
The ITC is the first opportunity that governments and users of governmental financial statements will have to provide feedback to the GASB to shape the overall direction of the project. Comments on the ITC are due by March 31, 2017.
The GASB’s ITC is requesting input on its preliminary decision to change how governments would account for activities in governmental fund financial statements. It proposed to eliminate the use of two items: current financial resources as the measurement focus and modified accrual as the basis of accounting.
The ITC is requesting input on three alternative recognition approaches to governmental fund financial reporting. These approaches include:
- Near-term financial resources. This approach generally would include receivables and payables due within the near-term (generally 60 to 90 days) and would be relatively close to a cash measurement focus.
- Short-term financial resources. This approach would focus on a government’s one-year operating cycle.
- Long-term financial resources (total financial resources). This approach would recognize all assets and liabilities except for capital assets and capital-related debt.
The ITC also addresses other potential improvements to governmental fund financial reporting, including:
- Updating the format of the governmental funds statement of resource flows
- Updating the reconciliation to the government-wide statements
- Potentially including a statement of cash flows for certain recognition approaches
The GASB will utilize the feedback it receives to shape a preliminary views document, followed by an exposure draft, and then several rounds of public comment before any final guidance is issued. Final issuance of an updated Reporting Model Statement may be ready by November 2021, with an effective date sometime after this date, according to the GASB Web site.
Although the focus of this ITC is on governmental funds, future phases of the project will likely include additional proposed changes in these areas:
Management’s Discussion and Analysis (MD&A)
- Explore options for enhancing the financial statement analysis component
- Consider the elimination of requirements that are boilerplate and unnecessary for understanding the financial reporting model
- Clarify guidance for presenting currently known facts, decisions, or conditions that are expected to have a significant effect on financial position or results of operations
Government-Wide Financial Statements
- Explore alternatives for the format of the statement of activities
- Consider whether a government-wide statement of cash flows should be required, and if so, how those cash flows should be presented
- Explore options for providing additional information about debt service funds, either individually or in the aggregate
Proprietary Fund and Business-Type Activity Financial Statements
- Evaluate operating indicator alternatives in conjunction with evaluating the guidance for the separate presentation of operating and nonoperating revenue and expenses
Fiduciary Fund Financial Statements
- Explore where the fiduciary fund financial statements should be presented in the basic financial statements
- Explore the appropriate method of communication (either as basic financial statements or required supplementary information) for budgetary comparison information
- Consider which budget variances should be required to be presented
- As appropriate and in conjunction with other topics, explore options that would permit more timely financial reporting or that would reduce complexity overall
GASB Issues Final Statement on Fiduciary Activities
On February 1, 2017, the GASB issued Statement No. 84—Fiduciary Activities. The statement establishes new criteria for identifying fiduciary activities and clarifies and changes the types of fiduciary funds reported, among other changes. The statement also clarifies that stand-alone statements issued for business-type activities should present fiduciary funds, when applicable. The statement is effective for periods beginning after December 15, 2018.
We're Here to Help
If you have questions about the ITC or Statement No. 84—Fiduciary Activities, contact your Moss Adams professional. You can also contact:
Jim Lanzarotta, National Practice Leader
Tasha Repp, National Practice Leader
Tribal & Gaming Practice
Jim and Tasha each serve as representatives to the Governmental Accounting Standards Advisory Council—Jim for the American Institute of Certified Public Accountants and Tasha for the Native American Finance Officers Association.