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:
Invitation to Comment issued: December 2016
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 time. The pre-agenda research showed that most of the components of the financial reporting model are effective; however, the research identified several areas for potential improvements.

In conjunction with this project, the efforts to develop 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: The project is considering the following 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 individually 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
  • Invitation to Comment cleared: December 2016
  • Comment period:  January–March 2017
  • Public hearing and user forum held: April 2017
Current Developments: The comment period for the Invitation to Comment, Financial Reporting Model Improvements—Governmental Funds, concluded on March 31, 2017. Public hearings and user forums will be held in April and May 2017. Outreach to relevant industries on the proprietary fund/BTA operating indicator (operating/nonoperating issue) was conducted.

Work Plan:

Board Meetings Topics to be considered
July–August 2017: Redeliberate issues based on due process feedback.

Discuss proprietary funds/BTA operating indicator (operating/nonoperating presentation issue).
September 2017: Task force meeting.
October  2017—March 2018: Redeliberate issues based on due process and task force feedback.

Address recognition/presentation of permanent funds.
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 approaches, 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 first draft of the standards section 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 approaches, 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, June 28–29, 2017

The Board continued deliberating a topic to be presented in the upcoming Preliminary Views—the classification of operating and nonoperating revenues and expenses in proprietary fund and business-type activity financial statements. The Board tentatively decided to propose a direct definition of nonoperating revenues and expenses and to derive the definition for operating revenues and expenses from the definition of nonoperating revenues and expenses. The Board tentatively decided to propose that the definition of nonoperating revenues and expenses include subsidies received and provided, revenues and expenses of financing, resources from the disposal of capital assets and inventory, and investment income and expenses. Sale of inventory held for resale in the ordinary course of operations is not considered a disposal of inventory for purposes of this definition. In addition, the Board tentatively agreed with the proposed schedule of discussing feedback from the Invitation to Comment, Financial Reporting Model Improvements—Governmental Funds, and developing a Preliminary Views.

Minutes of Meetings, May 23–25, 2017

The Board continued deliberations on topics to be presented in the Preliminary Views, specifically the industry outreach conducted by the project staff regarding the high-level alternatives for defining operating and nonoperating activities in proprietary fund and business-type activity financial statements.

The Board tentatively decided that the self-sustaining or subsidized alternative, with modifications, should be developed at a high level for the purposes of defining operating and nonoperating revenues and expenses. Specifically, the potential modifications include (1) whether additional subtotals should be required or allowed; (2) whether the definition of nonoperating activities should include financial, investing, and ancillary activities in addition to subsidies; and (3) whether operating activities should include certain taxes and grants that are closely associated with operating activities.

Minutes of Meetings, January 17-19, 2017

The Board continued deliberations on topics to be presented in the Preliminary Views, specifically the high-level alternatives for defining operating and nonoperating activities in proprietary fund and business-type activity financial statements. The general themes of the alternatives included (a) self-sustaining or subsidized, (b) financial performance, (c) recurring or nonrecurring, and (d) debt covenant compliance. The Board will not make a tentative decision on the approach to defining operating activities until additional outreach efforts with industry groups to gather feedback regarding the proposed alternatives has been completed.

Minutes of Meetings, December 5-8, 2016

The Board reviewed a ballot draft of the Invitation to Comment, Financial Reporting Model Improvements—Governmental Funds, and provided clarifying edits. After reviewing the Invitation to Comment and providing clarifying edits, the Board did not object to the issuance of the Invitation to Comment.

The Board then began deliberations of additional topics to be presented in the Preliminary Views. Two topics were introduced: (1) budgetary comparison reporting and (2) presentation and classification of operating and nonoperating revenues and expenses in proprietary fund and business-type activity financial statements.

First, the Board discussed the communication method for budgetary comparison information. Following discussion of alternatives, the Board tentatively agreed that budgetary comparison information should be proposed to be presented using a single primary method of communication and tentatively agreed that budgetary comparison information should be proposed to be presented in RSI.

The Board then discussed presentation of budget variances as part of budgetary comparison information. The Board tentatively agreed to propose that governments present specific budget variances and that governments should report the variance between:
  • Final budget and actual amounts
  • Original budget and final budget amounts.
Finally, the Board discussed presentation and classification of operating and nonoperating revenues and expenses for proprietary fund and business-type activity financial statements. The Board tentatively decided to propose that financial statements for business-type entities continue to distinguish between operating and nonoperating revenues and expenses. Additionally, the Board tentatively agreed to propose that both the resource flows statement and the statement of cash flows be presented using the same definition of operating activities and to develop a new definition for operating activities.

Minutes of Meetings, October 25-27, 2016

The Board reviewed the preballot draft of the Invitation to Comment, Financial Reporting Model Improvements—Governmental Funds. In conjunction with this review, the Board tentatively decided that it is not necessary for the Invitation to Comment to present a single definition of financial resources consistently applied to all recognition approaches. Rather, the Invitation to Comment will be used to solicit feedback on the definitions of financial resources and the issues related to assessing whether prepaid items and inventory are considered financial resources. Additional language explaining this issue will be added to the end of Chapter 2.

In conjunction with reviewing the illustrations in Appendix D and the discussion of selected transactions in Appendix E, the Board tentatively decided to remove the service concession arrangement transaction from the illustrations.

Additionally, the Board proposed various clarifying edits throughout the document.
The Board did not object to moving forward with a ballot draft of an Invitation to Comment for discussion at the December 2016 meeting.

Minutes of Meetings, September 13-15, 2016

The Board discussed a proposal to change the name of the working capital recognition approach to the short-term financial resources recognition approach. In addition to tentatively deciding to use the term short-term financial resources in the forthcoming Invitation to Comment, the Board also tentatively decided to rename the total financial resources recognition approach as the long-term financial resources recognition approach to more clearly convey the differences in the recognition approaches.

The Board then discussed whether to reaffirm its previous tentative decision that governmental fund financial statements should present a short-term view of a government’s financial position and flows of resources. The Board tentatively decided to describe the information in governmental fund financial statements as having a shorter duration than information in the government-wide financial statements.

The Board also tentatively decided to remove from the Invitation to Comment the materials related to the government-wide statement of activities to focus the feedback on governmental funds. The proposed title of the Invitation to Comment was tentatively changed to Financial Reporting Model Improvements—Governmental Funds. The potential improvements to the government-wide statement of activities will be included in the Preliminary Views phase.

Additionally, the Board discussed the first full draft of the Invitation to Comment and proposed various clarifying edits.

The Board did not object to moving forward with a preballot draft of an Invitation to Comment.

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 Archive


FINANCIAL REPORTING MODEL—TENTATIVE BOARD DECISIONS TO DATE


The Invitation to Comment, Financial Reporting Model Improvements—Governmental Funds, was issued in December 2016.

With respect to topics to be included in a Preliminary Views document, the Board tentatively decided to propose that:
  • Budgetary comparison information be presented using a single primary method of communication.
  • Budgetary comparison information be reported as required supplementary information.
  • Governments present specific budget variances as part of budgetary comparison information.
  • Governments report the variances between:
    • Final budget and actual amounts
    • Original budget and final budget amounts.
  • Financial statements for business-type entities continue to distinguish between operating and nonoperating revenues and expenses.
  • Both the resource flows statement and the statement of cash flows be presented using the same definition of operating activities and a new definition for operating activities will be developed.
  • The definitions of operating and nonoperating revenues and expenses be based on the self-sustaining or subsidized approach, with modifications. Specifically, the potential modifications include (1) whether additional subtotals should be required or allowed; (2) whether the definition of nonoperating activities should include financial, investing, and ancillary activities in addition to subsidies; and (3) whether operating activities should include certain taxes and grants that are closely associated with operating activities.
  • The definition of nonoperating revenues and expenses be directly defined and to derive the definition of operating revenues and expenses from the definition of nonoperating revenues and expenses.
  • The definition of nonoperating revenues and expenses include (1) subsidies received and provided, (2) revenues and expenses of financing, (3) resources from the disposal of capital assets and inventory, and (4) investment income and expenses.