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:
Preliminary Views issued September 2018

 

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.

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
  • 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 2019
Current Developments: A Preliminary Views was issued in September 2018. Topics covered include (1) recognition concepts and application for governmental funds, (2) presentation of governmental fund financial statements, (3) proprietary fund financial statements, (4) budgetary comparison information, (5) communication of major component unit information, and (5) government-wide schedule of expenses by natural classification. Deliberations were held on (1) management’s discussion and analysis and (2) presentation of debt service funds information—two of the additional topics to be included in the Exposure Draft.

Work Plan:
 
Board Meetings Topics to Be Considered
January–February 2019: Comment period and field test continue.
 
March 2019: Public hearings and user forums.

Continue to deliberate issues related to the definition and presentation of extraordinary and special items.
April 2019–January 2020: Redeliberate issues related to recognition approaches, governmental fund financial statements, proprietary fund financial statements, budgetary comparisons, major component units, and government-wide schedule of expenses by natural classification based on due process feedback.
February 2020: Discuss first draft of the standards section of an Exposure Draft.
May 2020: Discuss preballot draft of an Exposure Draft.
June 2020: Discuss ballot draft of an Exposure Draft and consider for approval.
July–September 2020: Comment period.
October 2020: Public hearings.
December 2020–September 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.
November 2021: Discuss draft of a final Statement.
December 2021: Discuss preballot draft of a final Statement.
February 2022: Discuss ballot draft of a final Statement and consider for approval.

FINANCIAL REPORTING MODEL—RECENT MINUTES


Minutes of Meetings, January 29—31, 2019
 
The Board considered amendments to paragraphs 8–11 of Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, as amended, based on the tentative decisions reached at the December 2018 meeting and tentatively agreed to propose various edits.  The Board tentatively decided that the illustration of management’s discussion and analysis (MD&A) in Appendix C of Statement 34 should be replaced using financial statements that reflect current circumstances. The Board also tentatively decided that the MD&A illustration should include figures such as charts, graphs, and tables when they can be used to meet an MD&A requirement.
 
Additionally, the Board considered changes to the current requirements for the separate presentation of special and extraordinary items. The Board tentatively decided to propose replacing the current guidance with a requirement to separately present at the bottom of resources flows statements inflows of resources and outflows of resources that are either unusual in nature or infrequent in occurrence or both. Additionally, the Board tentatively decided to propose that additional information about these items, including the program or function or identifiable activity to which it is related and whether the item is within the control of management, be disclosed.

Minutes of Meetings, December 17–19, 2018
 
The Board considered amendments to paragraphs 8–11 of Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, as amended, based on the tentative decisions reached at the November 2018 meeting. The Board also discussed whether current financial reporting requirements should be proposed to be changed to provide additional information about debt service funds.  The Board tentatively decided not to pursue any changes with regard to information about debt service funds because the expected benefits do not justify the perceived costs of providing and auditing the information.

Minutes of Meetings, November 14–16, 2018
 
The Board began initial deliberations on topics in addition to those presented in the Preliminary Views, Financial Reporting Model Improvements, that may be included in the upcoming Exposure Draft on the project, beginning with a discussion on management’s discussion and analysis (MD&A) requirements. The Board first discussed the target audience for the MD&A and tentatively decided that the users of MD&A are the broad types of users discussed in paragraph 63 of Concepts Statement No. 1, Objectives of Financial Reporting. The Board also tentatively decided that the requirement to present a brief discussion of the basic financial statements, including the relationships of the statements to each other and the significant differences in the information they provide, should continue to be required to be included as part of MD&A with the proposal to be presented in a way that adds more structure and clarity to the requirement.

Additionally, the Board tentatively decided to address concerns regarding the thoroughness of the analysis of year-to year changes through a combination of proposed amendments to the current guidance, further consideration of modifications to implementation guidance, and educational efforts. The Board then tentatively decided that amended guidance for the MD&A should be proposed to indicate that the analysis should be presented in a manner that avoids unnecessary duplication. The Board next considered the location of the discussion of significant variations between the original and final budget amounts and between the final budget amounts and actual results for the general fund. The Board tentatively decided that to assist users in locating the information, the Exposure Draft should include a proposal that such information should be located as notes to budgetary comparison information, which is proposed to be presented as required supplementary information. The Board also tentatively decided to propose removing the requirement to present information about infrastructure assets accounted for using the modified approach.

Next, the Board discussed the requirement to include in MD&A a description of currently known facts, decisions, or conditions that are expected to have a significant effect on the financial position or results of operations. The Board tentatively decided to propose that the description of the requirement include examples of specific types of information. The Board tentatively decided that the following examples should be proposed:
  • Economic data, including population growth and unemployment rates
  • Details of the subsequent year’s adopted or approved budget, including
    (1) the change in total amount available for appropriation with reference narratively to the types of revenues (taxes and fees) and changes in rates and bases; (2) the changes in planned spending with reference to sources such as inflation, labor contracts with unions, adjustments, and whether new programs were added; and (3) expected changes in fund balance
  • Information related to actions the government has taken related to postemployment benefit plans, capital improvement plans, and long-term debt
  • Information related to actions other parties have taken that affect the government, such as legislative changes, litigation, and new regulations or standards imposed on the government.
Minutes of Teleconference, September 12, 2018
 
The Board reviewed and provided suggested edits to a ballot draft of the Preliminary Views, Financial Reporting Model Improvements, which included the alternative views of two Board members. The Board approved the issuance of the Preliminary Views in a four to three vote.

Minutes of Meetings, August 22–24, 2018

The Board reviewed and provided clarifying edits to a preballot draft of the Preliminary Views, Financial Reporting Model Improvements. The Board then agreed that the project staff should present a ballot draft for consideration at the September 2018 teleconference meeting.

Minutes of Meetings, July 10–12, 2018

The Board reviewed and discussed the alternative views of two Board members and the position of another Board member related to the draft Preliminary Views, Financial Reporting Model Improvements.  The Board then tentatively decided that the comment deadline for the Preliminary Views will be February 15, 2019. The Board reviewed the draft Preliminary Views, discussed clarifying edits, and agreed to consider a preballot draft of the Preliminary Views, including the alternative views of the two Board members, for discussion at the August 2018 meeting.

Minutes of Teleconference, June 18, 2018
 
The Board continued deliberations on topics to be presented in the Preliminary Views. The Board discussed possible communication methods for information about major component units. The Board tentatively decided that when it is not feasible to present major component unit financial statements in a separate column in the reporting entity’s statements of net position and activities, the financial statements of the major component units should be presented as combining financial statements after the fund financial statements.

Minutes of Meetings, May 29–31, 2018
 
The Board continued deliberations on topics to be presented in the Preliminary Views. The Board first discussed possible communication methods for information about noncash investing, capital, and financing activities. The Board tentatively decided to propose that the information continue to be communicated as a schedule to the statement of cash flows.
 
The Board next considered the feedback received on the Invitation to Comment (ITC), Financial Reporting Model Improvements—Governmental Funds, regarding topics that have not been previously addressed. The Board tentatively decided to propose that governmental fund statements present financial information of nonmajor funds, as currently required.
 
The Board then considered whether there is an opportunity to develop governmental fund recognition guidance specific to small governments and whether there is an opportunity to provide a small government concession related to the reconciliation between governmental fund financial statements and government-wide financial statements. The Board tentatively decided that the Preliminary Views should not propose a concession for small governments to exclude the reconciliation between governmental fund financial statements and government-wide financial statements.

The Board also considered the ITC feedback related to small government concerns and discussed potential small government concessions. The Board tentatively decided that the tentative Board decisions reached to date do not provide opportunities to develop specific recognition-approach-related proposals for small governments. Additionally, the Board tentatively decided based on the additional feedback to the ITC that no tentative decisions for the Preliminary Views should be reconsidered for potential small government exceptions.
 
The Board also tentatively decided that the Preliminary Views should not propose a concession for small governments to allow the use of (1) a natural classification of expenditures in the governmental fund financial statements, (2) a natural classification of expenses in the government-wide statement of activities, and (3) a revenue/expense format in the statement of activities.
 
The Board then reviewed draft sections of the Preliminary Views and discussed clarifying edits.

Minutes of Meetings, April 17 and 18, 2018
 
The Board continued deliberations on topics to be presented in the Preliminary Views on the Financial Reporting Model. The Board first discussed the appropriate communication method for the reconciliations of information in governmental fund financial statements to information in the government-wide financial statements. The Board tentatively decided that those reconciliations should continue to be presented as part of the governmental fund financial statements. The Board also tentatively decided that the proprietary fund reconciliation of operating income to net cash flows from operating activities should continue to be presented as part of the proprietary statement of cash flows. Additionally, the Board tentatively decided that a notice should not be included at the bottom of the governmental and proprietary fund financial statements to alert readers to the location of the reconciliations. The Board then tentatively decided that the Preliminary Views would not propose a requirement to use standardized terminology for the reconciling items.
 
The Board next considered the feedback received on the Invitation to Comment, Financial Reporting Model Improvements—Governmental Funds, as well as the feedback received from task force and Governmental Accounting Standards Advisory Council (GASAC) members regarding a statement of cash flows for governmental funds. Based on the feedback, the Board tentatively decided that the Preliminary Views should not include a proposal that a statement of cash flows for governmental funds be required.
 
The Board then considered the effect of its tentative decisions in relation to the short-term financial resources recognition approach for governmental funds on the reporting of permanent funds. The Board tentatively decided that the Board’s tentative decisions in relation to the short-term financial resources recognition approach applied by governmental funds should not change the classification of permanent funds.

The Board also tentatively decided that the notice at the top of the Short-Term Financial Resource Balance Sheet should be shortened to include only the first sentence: “This financial statement presents a short-term view of the governmental fund activities and excludes items of a long-term nature.”
 
The Board then provided editorial clarifications to the draft regarding (a) recognition concepts for governmental funds, (b) application of the recognition concepts to selected transactions and other events, and (c) illustrations of the recognition concepts.

Minutes of Meetings, March 7–8, 2018
 
The Board continued deliberations on topics to be presented in the Preliminary Views. The Board first considered feedback received on the Invitation to Comment (ITC), Financial Reporting Model Improvements—Governmental Funds, as well as feedback received from task force and Governmental Accounting Standards Advisory Council members regarding (a) the reconciliation of information in the governmental fund financial statements to information in the government-wide financial statements and (b) the terminology used in the governmental fund financial statements. The Board tentatively decided that the Preliminary Views should not propose that the reconciliation between information in governmental fund statements and government-wide information be presented on the same page. The Board also tentatively agreed that the communication method of the reconciliation should be evaluated before the Board makes any further tentative decisions on the presentation of the reconciliation.
Regarding the terminology used in the governmental fund financial statements, the Board tentatively decided that (a) the additional explanations after the governmental fund financial statement titles proposed in the ITC should be carried forward to the Preliminary Views, (b) the additional explanation after the governmental fund balance sheet should exclude the language referring to nonfinancial resources such as capital assets and long-term debt related to capital assets when carried forward to the Preliminary Views, (c) the element titles and line item descriptions proposed for the short-term approach in the ITC should be carried forward to the Preliminary Views, and (d) the governmental fund financial statement titles proposed for the short-term approach in the ITC should be carried forward to the Preliminary Views. The Board then discussed the feedback received to the ITC regarding the format of the governmental funds resource flows statement. The Board tentatively decided that the current and noncurrent (long-term) activity format should be proposed in the Preliminary Views and that the potential inconsistency in the usage of the term long-term should be resolved by describing the capital assets and long-term debt activity as noncurrent, rather than long-term, activity. The Board also tentatively decided that a practical expedient for small governments to report governmental funds resource flows information using the existing format instead of the current and noncurrent activity format should not be proposed.

Minutes Archive

FINANCIAL REPORTING MODEL—TENTATIVE BOARD DECISIONS TO DATE


The Preliminary Views, Financial Reporting Model Improvements, was approved in September 2018.

With respect to topics to be included in an Exposure Draft, the Board tentatively decided to propose the following:
  • The users of MD&A should be the broad type of users discussed in paragraph 63 of Concepts Statement 1, Objectives of Financial Reporting.
  • The requirement to present a brief discussion of the basic financial statements, including the relationships of the statements to each other, and the significant differences in the information they provide, should continue to be required with additional clarification and structure.
  • The requirement and illustrations for the analysis of year-to-year changes should be amended to emphasize the level of thoroughness of the analysis.
  • The requirements should be amended to indicate that the analysis should be presented in a manner that avoids unnecessary duplication.
  • The discussion of significant variations between the original and final budget amounts and between the final budget amounts and actual results for the general fund should be presented as notes to budgetary comparison information, which is proposed to be presented as required supplementary information.
  • The requirement to present information about infrastructure assets accounted for using the modified approach should be removed.
  • The requirement to include a description of currently known facts, decisions, or conditions that are expected to have a significant effect on financial position or results of operations should be amended to include in the description examples, if applicable, of the following:
    • Trends in economic data, including population growth, customer base, and unemployment rates
    • Details of the subsequent year’s adopted or approved budget, including (1) the change in total amount available for appropriation with reference narratively to the types of revenues (taxes and fees) and changes in rates and bases; (2) the changes in planned spending with reference to sources such as inflation, labor contracts with unions, adjustments, and whether new programs were added; and (3) expected changes in fund balance
    • Information related to actions the government has taken related to postemployment benefit plans, capital improvement plans, and long-term debt
    • Information related to actions other parties have taken that affect the government, such as legislative changes, litigation, and new regulations or standards imposed on the government.
  • The current financial reporting requirements for debt service funds should not be changed to provide additional information because the expected benefits do not justify the perceived costs of providing and auditing the information.
  • A new MD&A illustration should be developed based upon a set of financial statements that is more up to date.
  • The MD&A illustration should include figures such as charts, graphs, and tables when appropriate to demonstrate MD&A requirements.
  • The current financial reporting requirement to separately present special and extraordinary items should be replaced with a requirement to separately present at the bottom of a resource flows statements inflows of resources and outflows of resources that are either unusual in nature or infrequent in occurrence or both.
  • Additional information about items that are either unusual in nature or infrequent in occurrence or both, including the program or function or identifiable activity to which the item is related and whether the item is within the control of management, should be disclosed.