Project Pages

Financial Reporting Model—Reexamination of Statements 34, 35, 37, 41, and 46 and Interpretation 6

Project Description: The objective of this project is to make improvements to the financial reporting model, including Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, and other reporting model-related pronouncements (Statements No. 35, Basic Financial Statements—and Management’s Discussion and Analysis—for Public Colleges and Universities, No. 37, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments: Omnibus, No. 41, Budgetary Comparison Schedules—Perspective Differences, and No. 46, Net Assets Restricted by Enabling Legislation, and Interpretation No. 6, Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements). The objective of these improvements would be to enhance the effectiveness of the model in providing information that is essential for decision-making and enhance the ability to assess a government’s accounting and address certain application issues, based upon the results of the pre-agenda research on the financial reporting model.

Status:
Added to Current Agenda: September 2015
Research results reported to the Board: July 2015
Added to Research Agenda: August 2013

FINANCIAL REPORTING MODEL—PROJECT PLAN

Background: Statement 34 was the culmination of 15 years of research, deliberation, and due process. In Statement 34, the GASB established the present blueprint for state and local government financial reporting—the format and measurement focus of the basic financial statements, certain related notes to the financial statements, and required supplementary information including management’s discussion and analysis (MD&A). Among its many features, Statement 34 introduced government-wide financial statements containing accrual information—which notably included the reporting of infrastructure, other capital assets, and long-term liabilities—for activities previously reported only on a modified accrual basis in the governmental funds. Statement 34 also required a narrative MD&A to precede the financial statements, added the presentation of the original budget to the budgetary comparison schedule, introduced major fund reporting in the governmental and enterprise funds, and added note disclosures related to capital asset and long-term liability activity during the reporting period.

Statement 34 was first effective for periods beginning after June 15, 2001. Most provisions of the Statement became effective in three phases, beginning with the largest governments. Up to an additional 4 years were allowed for Phase 1 (annual revenues of $100 million or more) and Phase 2 ($10 million to $100 million) governments to retroactively report existing infrastructure assets. Phase 3 governments (below $10 million) were allowed to report general infrastructure prospectively.

The financial reporting model has a pervasive influence over the effectiveness of financial reporting by state and local governments and the ability of that reporting to achieve the objectives of financial reporting. As a result, the GASB decided that it was important, as part of its commitment to maintaining the effectiveness of its standards, to reexamine the current financial reporting model now that it has been in place for a sufficient length of time. The pre-agenda research showed that most of the components of the financial reporting model are effective; however, a number of areas where improvements may be made were identified.

In conjunction with this project, the efforts of developing recognition concepts for information presented in governmental funds would be continued. The Board’s conceptual framework project on recognition was put on hold pending reexamination of the financial reporting model. Feedback to the Preliminary Views issued in June 2011 included recommendations that recognition concepts for governmental funds should be developed in conjunction with a reexamination of the financial reporting model.

Accounting and Financial Reporting Issues:

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 no longer necessary for understanding the financial reporting model, and 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 and consider whether a government-wide statement of cash flows should be required, and if so, how those cash flows should be presented.

Major Funds—Explore options for providing additional information about debt service funds, either individual or in aggregate.

Governmental Fund Financial Statements—Explore a conceptually consistent measurement focus and basis of accounting and develop a presentation format for governmental fund financial statements consistent with the measurement focus and basis of accounting. In conjunction with this project, the conceptual framework project on recognition of element of financial statements would be recommenced.

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 revenues and expenses.

Fiduciary Fund Financial Statements—Explore where the fiduciary fund financial statements should be presented in the basic financial statements.

Budgetary Comparisons—Explore 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.

Other Issues—As appropriate and in conjunction with other topics, explore options that would permit more timely financial reporting or that would reduce complexity overall.

Project History:
  • Pre-agenda research approved: August 2013
  • Research results reported to the Board: July 2015
  • Added to current technical agenda: September 2015
  • Task force established? Yes
  • Deliberations began: October 2015
  • Task force meeting held: June 2016
Current Developments: In May through August 2016, the Board continued development of (1) the near-term financial resources, working capital, and total financial resources recognition approaches for governmental fund financial statements; (2) the existing and traditional format alternatives for the government-wide statement of activities; (3) the statement of cash flows for governmental funds for certain recognition alternatives; (4) and the existing format and current and long-term activity format for the governmental fund resource flows statement. Feedback on these issues was obtained from the project task force at the June 2016 meeting.

Board Meetings Topics to be considered
September 2016: Review draft Invitation to Comment.
October 2016: Discuss preballot draft of an Invitation to Comment.
December 2016: Discuss ballot draft and consider an Invitation to Comment for clearance.

Budgetary comparisons: method of communication.

Proprietary funds/BTA: operating indicator (operating/nonoperating presentation issue).
January–March 2017: Comment period, if necessary
January–March 2017: Budgetary comparisons: variances.

Proprietary funds/BTA: operating indicator (operating/nonoperating presentation issue).
April–May 2017: Public hearings/user forums, if necessary.
June 2017: Redeliberate issues based on due process feedback, if necessary.
August 2017: Task force meeting.
September 2017—March 2018: Redeliberate issues based on due process and task force feedback.
April 2018: Review draft of a Preliminary Views.
May 2018: Discuss preballot draft of a Preliminary Views.
July 2018: Discuss ballot draft and consider a Preliminary Views for approval.
August–November 2018: Comment period and field test.

Deliberate issues related to management’s discussion and analysis, presentation of debt service fund information, definition and presentation of extraordinary and special items.
January 2019: Public hearings/user forums.
March–November 2019: Redeliberate issues related to recognition concepts, government-wide financial statements, governmental fund financial statements, proprietary fund financial statements, fiduciary fund financial statements, and budgetary comparisons based upon due process feedback.
January 2020: Discuss draft of an Exposure Draft.
March 2020: Discuss preballot draft of an Exposure Draft.
April 2020 (T/C): Discuss ballot draft and consider an Exposure Draft for approval.
May–July 2020: Comment period.
August 2020: Public hearings.
September 2020–July 2021: Redeliberate issues related to recognition concepts, management’s discussion and analysis, government-wide financial statements, governmental fund financial statements, proprietary fund financial statements, fiduciary fund financial statements, budgetary presentations, and extraordinary and special items based upon due process feedback.
August 2021: Discuss draft of a final Statement.
September 2021: Discuss preballot draft of a final Statement.
November 2021: Discuss ballot draft and consider a final Statement for approval.


FINANCIAL REPORTING MODEL—RECENT MINUTES


Minutes of Meetings, August 10-12, 2016

The Board discussed feedback received on the draft Invitation to Comment from task force members at the June 2016 task force meeting held in New York City. The Board discussed issues raised at the meeting related to the three governmental funds recognition approaches, the format of the governmental funds resource flows statement, the proposed governmental funds statement of cash flows, and the format of the government-wide statement of activities.

The Board tentatively agreed not to object to the addition in Appendix B of more detail about the development of the three recognition approaches. The Board also tentatively agreed with the addition of the explanation of what is meant by the term normally as used in the context of the near-term recognition approach.

The Board tentatively agreed with relocating the presentation of the common benefits and challenges collectively in paragraphs before the introduction of the individual recognition approaches as presented in the draft ITC. The Board also tentatively agreed with the addition of examples of items both recognized and not recognized as assets and liabilities in the near-term and working capital approaches. The Board tentatively agreed with the modifications to common benefits and challenges to further explain fund balance and its usefulness in assessing the amount available for spending in the subsequent period for each recognition approach.

The Board tentatively agreed not to include examples related to permanent funds in Chapter 2 of the ITC that is being developed.

The Board tentatively agreed with retaining the elements terminology currently being used in the draft ITC and with the addition of a paragraph in the introduction of Chapter 2 to explain the meaning of and rationale for using those terms in the document and illustrations. The Board also tentatively agreed that the illustrations should continue to be presented as an appendix at the end of the draft ITC and that the illustrations will be referenced in the introduction to Chapter 2.

The Board tentatively agreed that a comparison schedule of the statements of net position and resources flows statement for each of the recognition approaches and additional illustrations of other types of governments should not be provided.

The Board tentatively agreed that the draft ITC should note that a specified single period of time following the end of the reporting period will be selected as part of development of the near-term recognition approach, if such an approach were further developed. The Board also tentatively agreed that the near-term approach should not be modified at this time to recognize certain anticipation notes (for example, TANs) as fund liabilities.

The Board tentatively agreed that the length of the discussion and number of challenges related to the working capital recognition approach should not be modified for comparability to the other two recognition approaches; however, the Board did agree that work on simplifying language to enhance the understandability of the working capital recognition approach section should continue.

The Board tentatively agreed that the classification of current and long-term activities should be clarified in Chapter 3, paragraph 4 of the draft ITC. The Board also tentatively agreed that additional language should be added to Chapter 3, paragraph 4, of the draft ITC to clarify the distinction between current and long-term transfers.

The Board tentatively agreed that a question should be included in the draft ITC that addresses the classification of cash inflows and cash outflows. The Board also reaffirmed that a statement of cash flows should not be included for the near-term recognition approach in the draft ITC; however, the Board tentatively agreed that the explanation of this position should be further clarified in Chapter 3, paragraph 7, of the draft ITC.

The Board tentatively agreed that in developing a statement of cash flows for the general fund under the working capital and total financial resources recognition approaches, the separation of restricted and unrestricted cash flows should not be explored further at this time. The Board also tentatively agreed that a discussion of the purpose of a cash flows statement should be added to Chapter 3, paragraph 8, of the ITC.

The Board tentatively agreed that clarifications are necessary in Chapter 4, paragraph 5, regarding the benefits of the presentation of a total revenues amount in the statement of activities. The Board also tentatively agreed with the inclusion of a revised schedule of business-type activities expenses by function and natural classification in the draft ITC.

The Board tentatively agreed that discretely presented component units should not be included in the illustrations presented in the draft ITC.

Minutes of Task Force Meeting, June 23, 2016

The task force provided feedback on the Board’s tentative decisions to date for the Financial Reporting Model Reexamination project, which were presented in a draft Invitation to Comment (ITC). The task force provided comments on how the discussion and illustrations in each section of the ITC can be made more clear and complete.

The task force first discussed the three general approaches to the recognition of elements of financial statements and presentation for the governmental fund financial statements that would be proposed in the ITC. These approaches are: total financial resources, working capital, and near-term financial resources. For each approach, the task force members provided feedback on the explanation of the recognition concepts, potential benefits and challenges, illustrations, and explanations of the application of the recognition approach to certain transactions. Some task force members recommended that the ITC provide additional discussion around how these three approaches were developed and selected for inclusion in the ITC and how they differ from the existing model. In addition, some task force members suggested that the discussion of each recognition model explain which assets and liabilities will not be recognized in addition to the existing discussion of which assets and liabilities are included for each recognition model. Some task force members also expressed concern about changing terms and definitions used in the models due to the uncertainty and confusion that it may cause in practice.

The task force members also provided feedback on the discussion of the two alternatives for the format of the governmental funds resource flows statement. Some task force members suggested that a definition for and additional explanation of current activity and long-term activity be provided. Some task force members also asked that variations in this section be highlighted to better identify differences between the two formats.

The task force members also expressed their thoughts on how the sections discussing and illustrating the statement of cash flows for governmental funds can be made more clear and complete. Some task force members expressed support for a governmental funds statement of cash flows, while others questioned its utility.

The task force then provided feedback on the two alternatives for the format of the government-wide statement of activities. Some task force members expressed their support for the existing statement of activities format, and other task force members favored the traditional format with the presentation of a total for all revenues. Some task force members also supported presenting information about program expenses by function and by natural classification.

Minutes of Meetings, May 10-11, 2016

The Board discussed three general approaches to the recognition of elements of financial statements and presentation for governmental fund financial statements: near-term financial resources, working capital, and total financial resources. For each approach, the Board discussed messages conveyed by financial statements, recognition concepts, potential benefits and challenges, and illustrative financial statements.

The Board also reviewed initial sections of a draft Invitation to Comment that describe alternatives pursuant to the format of the resources flows statement for governmental funds, a statement of cash flows for governmental funds, and the format of the government-wide statement of activities. After the discussion, the Board tentatively decided to obtain feedback on all three recognition approaches and the related issues tentatively presented in the draft Invitation to Comment from the task force at the June 2016 meeting.

Minutes of Meetings, March 29-31, 2016

The Board discussed three general approaches to the recognition of elements of financial statements and presentation for governmental fund financial statements: near-term financial resources, working capital, and total financial resources. For each approach, the Board discussed the relationship with the objectives of financial reporting, messages conveyed by financial statements, recognition concepts, potential benefits and challenges, recognition of specific transactions, and pre-agenda research. After the discussion, the Board tentatively decided to further develop all three approaches.

The Board also discussed two alternatives for the presentation of the governmental funds resource flows statement: the existing format of the statement of revenues, expenditures, and changes in fund balances and a format that separates short-term (or current) activities from long-term activities. The Board tentatively decided to present both alternatives in an Invitation to Comment.

The Board considered three alternatives related to the appropriateness of a reconciliation between the statements of cash flows and the resource flows statements of governmental fund financial statements. The three alternatives discussed were (1) reconciliation of net change in net position to net change in cash, (2) no reconciliation, and (3) reconsideration of the cash flows classifications for governmental funds. The Board tentatively decided that a reconciliation should not be presented in an Invitation to Comment.

The Board then discussed the appropriate presentation for cash flows from purchases and sales of investments of an internal investment pool if a statement of cash flows for governmental funds were to be required. The four options considered were (1) designation to a single fund, (2) allocation to each participating fund, (3) disclosure of the amounts in the notes, and (4) retention of the existing guidance. The Board tentatively decided to retain the existing guidance that cash flows from purchases and sales of pooled investments should be neither reported in statements of cash flows for individual funds nor disclosed.

The Board continued by deliberating whether fiduciary activities should be reported in the government-wide financial statements and tentatively decided that they should continue to be reported only as fund financial statements in the basic financial statements.

Finally, the Board discussed issues related to presenting functional or programmatic expenses by natural classification, tentatively agreeing to use the Invitation to Comment to gather additional feedback on whether certain natural classifications should be required to be presented.

Minutes of Meetings, February 16-18, 2016

The Board continued discussion of two general approaches to the recognition of elements of financial statements and presentation for governmental fund financial statements. The two approaches discussed by the Board include: near-term financial resources and working capital. The working capital approach included two different versions: working capital with past-due compensation liabilities and working capital with current shortfall in compensation liabilities. For each approach, the Board discussed the relationship with the objectives of financial reporting, messages conveyed by financial statements, recognition concepts, potential benefits and challenges, recognition of specific transactions, and pre-agenda research. After the discussion, the Board tentatively decided to further develop the near-term financial resources approach and the version of the working capital approach with past-due compensation liabilities. In addition, the Board tentatively agreed to develop a total financial resources approach.
The Board discussed four alternatives for the presentation of the governmental funds resource flows statement and tentatively decided to further explore the existing format of the statement of revenues, expenditures, and changes in fund balances and a format that separates short-term (or current) activities from long-term activities (for example, capital outlays).

In addition, the Board considered three alternatives for the presentation of the government-wide statement of activities and tentatively decided to further explore the existing format for the statement of activities and a traditional format with expenses presented by function or program. The Board directed the staff to further consider communication methods for presenting functional expenses by natural classification.

Finally, the Board considered issues related to presenting statements of cash flows and tentatively decided to further develop a statement of cash flows for governmental funds that could be presented as part of the working capital approach or the total financial resources approach.

Minutes of Meetings, January 5-6, 2016

The Board continued discussion of three general approaches to the recognition of elements of financial statements and presentation for governmental fund financial statements. The three approaches discussed by the Board include near-term financial resources, near-term financial resources with current-period operating liabilities, and working capital (formerly referred to as short-term accrual). For each approach, the Board discussed the relationship with the objectives of financial reporting, messages conveyed by financial statements, recognition concepts, potential benefits and challenges, recognition of specific transactions, and pre-agenda research. After the discussion, the Board tentatively decided to further develop the near-term financial resources approach, working capital approach, and a working capital approach with a variation to recognition of post-employment benefits and compensated absences. The Board also tentatively decided to further explore the following four presentation alternatives for resources flows: statement of revenues, expenditures, and changes in fund balances (current format); cash flows statement categories; recurring transactions separated from one-time and limited-time transactions; and short-term (or current) activities separated from long-term activities.

Minutes of Meetings, November 18-20, 2015

The Board considered five general approaches to the recognition of elements of financial statements and presentation for governmental fund financial statements. The five potential approaches discussed by the Board include near-term financial resources, near-term financial resources with current-period operating liabilities, working capital (formerly referred to as short-term accrual), cash basis, and multiple measurement focuses/bases of accounting. The Board discussed the general features of each approach as well as the potential benefits and challenges that are associated with each approach. After the discussion, the Board tentatively decided to further develop the near-term financial resources, near-term financial resources with current-period operating liabilities, and working capital approaches.

Minutes of Meetings, October 6-8, 2015

In its initial deliberations of the project, the Board discussed the conclusions related to users of financial statements and the objectives of financial reporting that serve as the foundation of the financial reporting model introduced by Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments. The Board generally agreed that these foundational viewpoints remain valid, although details about the meaning of certain language, such as current financial resources and short-term, may be reconsidered during the course of the project. The Board also generally reconfirmed its previous tentative decision that the messages that should be conveyed in current financial resources financial statements should at a minimum include:
  • The current financial resources and claims against current financial resources of the entity at the reporting date
  • The balance of current financial resources at the reporting date that is available for spending in future periods
  • The amounts and sources of inflows and outflows of current financial resources during the reporting period.
Minutes Archive


FINANCIAL REPORTING MODEL—TENTATIVE BOARD DECISIONS TO DATE

The Board tentatively decided that:
  • The conclusions related to users of financial statements and the objectives of financial reporting that serve as the foundation of the financial reporting model introduced by Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, remain valid, although details about the meaning of certain language, such as current financial resources and short-term, may be reconsidered during the course of the project.
  • Governmental fund financial statements should present a short-term view of a government’s financial position and flows of resources should retain the existing fund structure to maintain an appropriate linkage to budgetary reporting.
  • The near-term financial resources approach, working capital approach, and total financial resources approach will be presented in the Invitation to Comment.
  • The following two presentation alternatives for resources flows will be presented in the Invitation to Comment: the existing format of the statement of revenues, expenditures, and changes in fund balances and current and long-term activity format.
  • A governmental funds statement of cash flows in conjunction with both the working capital and total financial resources recognition approaches will be presented in the Invitation to Comment.
  • A reconciliation between the governmental funds statement of cash flows and the resource flows statements will not be presented in the Invitation to Comment.
  • The current guidance regarding balances in cash management pools should be applied to the statement of cash flows for governmental funds.
  • Fiduciary activities should continue to be recorded only as fund financial statements in the basic financial statements.
  • The following alternatives for the presentation of the government-wide statement of activities will be presented in the Invitation to Comment: the current format and a traditional format with expenses presented by function or program.
  • The Invitation to Comment will be used to obtain feedback on the value of additionally presenting information about functional or programmatic expenses by natural classification and related issues, such as the cost of presenting that information and whether certain natural classifications should be prescribed.