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 to address certain application issues, based upon the results of the pre-agenda research on the financial reporting model.

Status:
Exposure Draft Redeliberations

 

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 will 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.

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 was 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.

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, such as presentation of special and extraordinary items and major component unit information.

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
  • Deliberations on new issues for Preliminary Views began: December 2016
  • Public hearings and user forums held: April–May 2017
  • Task force meeting held: September 2017
  • Redeliberations began: October 2017
  • Preliminary Views approved: September 2018
  • Comment period: September 2018–February 2019
  • Deliberations on new issues for Exposure Draft began: October 2018
  • Public hearings and user forums held: March 2019
  • Redeliberations began: June 2019
  • Exposure Draft approved: June 2020
  • Comment period: July 2020–February 2021
  • Public hearings and user forums held: March and April 2021
  • Redeliberations began: May 2021
Current Developments: In July and August 2021, the Board considered alternatives to a short-term approach for governmental funds and major characteristics of the short-term approach.  

Work Plan:
 
Board Meetings Topics to Be Considered
September–
November 2021:
Redeliberate issues related to recognition in governmental fund financial statements.
December 2021: Review example transactions and flow chart for recognition in governmental fund financial statements.
January 2022: Redeliberate presentation of governmental fund financial statements including terminology.
March 2022: Redeliberate issues related to management’s discussion and analysis.
April 2022: Redeliberate issues related to unusual and infrequent items.
May/June 2022: Redeliberate issues related to presentation of proprietary fund financial statements.
July 2022: Redeliberate issues related to presentation of budgetary comparison information
August 2022: Redeliberate issues related to presentation of major component unit information.
October 2022: Redeliberate issued related to effective date and transition.
November 2022: Review comprehensive illustrations.
January 2023: Discuss first draft of a final standards section.
February 2023: Discuss preballot draft of a final Statement.
April 2023: Discuss ballot draft of a final Statement and consider for approval.

FINANCIAL REPORTING MODEL—RECENT MINUTES


Minutes of Meetings, August 10–12, 2021

The Board continued redeliberations on the short-term financial resources measurement focus and accrual basis of accounting (short-term method) to be used in presenting governmental fund financial statements. The Board first discussed whether the recognition terms for the short-term method should be (1) the terms of the binding arrangement (or estimated payments if there is no binding arrangement or the binding arrangement does not include specific payment terms) as proposed in the Exposure Drafts, Recognition of Elements of Financial Statements, and Financial Reporting Model Improvements, or (2) the terms that are normal for governments. The Board tentatively decided to retain the terms proposed in the Exposure Drafts.
 
The Board then discussed whether the recognition method for long-term transactions and events used in the short-term method should be based on (1) the inception date of the transaction as proposed in the Exposure Drafts or (2) the balance sheet date. The Board tentatively decided that the recognition method for such transactions should be based on the inception date of the transaction (that is, transactions and other events for which the period from inception to conclusion is greater than the recognition period should be recognized when payments are due).
 
Lastly, the Board discussed whether the recognition period for the short-term method should be one year as proposed in the Exposure Drafts or a shorter “near-term” period. The Board tentatively decided that the recognition term should be one year.

Minutes of Meetings, June 30–July 2, 2021

The Board continued deliberations by discussing approaches to governmental fund financial statements suggested by stakeholders other than a conceptually based short-term approach.

First, the Board discussed stakeholder feedback recommending that governmental fund financial statements be excluded from the basic financial statements. The Board tentatively decided that the governmental fund financial statements should continue to be presented as part of the basic financial statements.

The Board then discussed stakeholder feedback recommending that governmental fund financial statements be presented applying a government’s budgetary basis of accounting. The Board tentatively decided that governmental fund financial statements should not be presented applying a government’s budgetary basis of accounting.

Next, the Board discussed stakeholder feedback recommending that governmental fund financial statements be presented applying the economic resources measurement focus and accrual basis of accounting. The Board tentatively decided that a short-term perspective should be retained in governmental fund financial statements, rather than the economic resources measurement focus.

Lastly, the Board discussed stakeholder feedback recommending retaining and modifying the current financial resources measurement focus and modified accrual basis of accounting rather than establishing a conceptual basis for recognition in governmental fund financial statements. The Board tentatively decided that the current financial resources measurement focus and modified accrual basis of accounting should not be retained and modified.

Minutes of Meetings, May 20–21, 2021

The Board reviewed and discussed feedback from comment letters, public hearings, and user forums related to the Exposure Drafts, Financial Reporting Model Improvements, and Recognition of Elements of Financial Statements. The Board agreed to redeliberate overarching topics related to recognition in governmental funds before addressing coordination and timing with the Revenue and Expense Recognition project. No tentative Board decisions were made regarding the substantive issues of either Exposure Draft.

Minutes Archive

FINANCIAL REPORTING MODEL—TENTATIVE BOARD DECISIONS TO DATE


The Board tentatively decided the following:
  • Governmental funds should continue to be presented as part of the basic financial statements.
  • Governmental fund financial statements should not be presented applying a government’s budgetary
  • The economic resources measurement focus and accrual basis of accounting should not be applied to the governmental fund financial statements.
  • The current financial resources measurement focus and modified accrual basis of accounting should not be retained and modified.  
  • The recognition terms for the short-term financial resources measurement focus and accrual basis of accounting for governmental funds (short-term method) should be the terms of the binding arrangement (or estimated payments if there is no binding arrangement or the binding arrangement does not include specific payment terms).
  • The recognition method for long-term transactions or events in the short-term method should be based on the inception date of the transaction.
  • The recognition period of the short-term method should be one year.