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 approved: June 2020

 

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
Current Developments: An Exposure Draft of a proposed Statement was approved in June 2020. The comment period ends February 26, 2021. Public hearings and user forums are scheduled for March and April 2021.

Work Plan:
 
Board Meetings Topics to Be Considered
September 2020–February 2021: Comment period continues.
March–April 2021: Public hearings and user forums.
May 2021–January 2022: Redeliberate issues based upon due process feedback.
March 2022: Discuss first draft of a final Statement.
April 2022: Discuss preballot draft of a final Statement.
June 2022: Discuss ballot draft of a final Statement and consider for approval.

FINANCIAL REPORTING MODEL—RECENT MINUTES


Minutes of Videoconference Meeting, June 30, 2020

The Board reviewed the codification instructions associated with the ballot draft of an Exposure Draft of a proposed Statement, Financial Reporting Model Improvements, and provided clarifying additional edits to the Exposure Draft. The Board then voted to approve the issuance of the Exposure Draft.

Minutes of Meetings, June 16–18, 2020

The Board reviewed a ballot draft of the Exposure Draft, Financial Reporting Model Improvements, excluding the Codification instructions, and provided clarifying edits.
The Codification instructions will be discussed by the Board at the June 30, 2020 special Board meeting.

Minutes of Videoconference Meeting, May 26, 2020

The Board reviewed changes to various draft sections of an Exposure Draft of proposed Statement, Financial Reporting Model Improvements. and after providing clarifying edits, tentatively agreed on the proposed approach to describing the short-term measurement focus and accrual basis of accounting.
 
While reviewing those changes, the Board discussed the application of the recognition concepts of the short-term financial resources measurement focus and accrual basis of accounting to transactions such as on-behalf payments for fringe benefits and salaries and direct vendor financing, such as leases. The Board tentatively agreed to identify such transactions as examples of inflows of resources and outflows of resources in the proposed Statement. 
 
The Board then tentatively decided that certain language regarding the short-term financial resources measurement focus and accrual basis of accounting from the proposed Statement also should be included in a ballot draft of an Exposure Draft of a proposed Concepts Statement, Recognition of Elements of Financial Statements, which will be discussed at the June 2020 Board meeting.
 
Finally, the Board also reviewed selected sections of the Codification, marked up to reflect the proposed standards and suggested clarifying edits.

Minutes of Meetings, May 6–8, 2020

The Board reviewed a preballot draft of the Exposure Draft, Financial Reporting Model Improvements, and provided clarifying edits.
 
While reviewing the preballot draft of the Exposure Draft, the Board tentatively agreed to clarify in the Exposure Draft a previous tentative Board decision that accrued interest related to a long-term transaction should be accounted for as a long-term transaction. The Board also tentatively decided that in MD&A, governments should include the relative magnitude of reasons for changes in their analysis of year-to-year changes.
 
In addition, the Board requested that the definitions of certain terms from other due process documents and Board pronouncements be considered for inclusion in the Exposure Draft.  The Board will discuss those potential modifications at the May videoconference.
 
The Board then agreed to move forward with a ballot draft of an Exposure Draft, which will be discussed at the June 2020 Board meeting.

Minutes of Meetings, March 24–26, 2020

The Board discussed whether any modifications should be made to the tentatively agreed upon exception to the application of the short-term financial resources measurement focus and accrual basis of accounting for long-term debt issued for short-term purposes. The Board tentatively decided to retain the exception and to link usage of the term “debt” to the definition in Statement No. 88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements. Therefore, wages payable would not be proposed as an example of the exemption.
 
The Board then reviewed a comprehensive illustration including management’s discussion and analysis, government-wide financial statements, fund financial statements, combining financial statements, certain disclosures, and required supplementary information and provided clarifying edits.
 
Finally, the Board reviewed various sections of the codification that reflected terminology changes based on the tentative decisions made by the Board to date. The Board tentatively agreed to refer to “special revenue funds” as “special resources funds” based on the proposed governmental funds terminology changes.
 
The Board voted to proceed with a pre-ballot draft of the Exposure Draft, which will be discussed at the May 2020 Board meeting.

Minutes of Meetings, February 11–13, 2020
 
The Board began by reviewing proposals for the descriptions of the governments required to implement in each of the two implementation periods—the approach that was tentatively agreed to at the February 2020 meeting. First, the Board tentatively decided to propose that the determination of which governments are in the first and second implementation periods be based on total annual revenues. The Board then considered when component units should implement the financial reporting model improvements relative to their primary governments and tentatively agreed to propose that all component units implement no later than the same year as their primary government, regardless of the amount of each component unit’s total annual revenues. Additionally, the Board tentatively decided to propose that total annual revenues be described as all revenues of the primary government’s governmental and enterprise funds, except for extraordinary and special items, and to clarify that special-purpose governments engaged only in fiduciary activities should use total annual additions, rather than revenues, to determine the appropriate implementation date. The Board then considered when the measurement of a government’s total annual revenues for purposes of determining the appropriate implementation period should take place and tentatively agreed to propose a measurement date for a government’s total annual revenues of the first fiscal year ending after June 15, 2022. Lastly, the Board tentatively decided to propose that governments with total annual revenues of $75 million or more be required to implement the financial reporting model improvements for fiscal years beginning after June 15, 2024, and governments with total annual revenues of less than $75 million should be allowed to implement the financial reporting model improvements for fiscal years beginning after June 15, 2025.
 
The Board then reviewed the draft Standards section of the proposed Exposure Draft and provided clarifying edits.
 
Finally, the Board discussed considerations related to the benefits and costs of the project, as well as considerations related to the scope of the GASB’s authority. The Board tentatively decided that the expected benefits of the proposed financial reporting model improvements justify the perceived costs of implementation and ongoing compliance. The Board also tentatively agreed that the proposed requirements to be included in the Exposure Draft meet all of the characteristics of Group 1 and, therefore, are within the scope of the GASB’s authority.

Minutes of Meetings, January 7–9, 2020

The Board concluded redeliberations based on feedback received on the proposals in the Preliminary Views, Financial Reporting Model Improvements. First, the Board considered whether any modifications should be made to the proposals in the Exposure Draft for small governments as a result of the feedback received on the Preliminary Views. The Board tentatively decided not to modify any of the proposals in the Exposure Draft for small governments based on that feedback. The Board then considered whether any opportunities to develop specific proposals for small governments exist in the proposals of the Exposure Draft, including the proposals being carried forward from the Preliminary Views to the Exposure Draft and the tentative decisions reached to date related to the proposed measurement focus and basis of accounting for governmental fund financial statements, MD&A, and items that are unusual in nature or infrequent in occurrence. The Board tentatively determined that no opportunities exist to develop specific proposals for small governments during further development of the Exposure Draft.
 
The Board then reviewed proposed language for application of the short-term financial resources measurement focus and provided clarifying edits.
 
Finally, the Board discussed proposals for the effective date and transition requirements to be included in the Exposure Draft. First, the Board tentatively decided to propose transition provisions that (a) require retroactive application; (b) allow that if retroactive application is not practicable for all periods presented, the cumulative effect at the beginning of the earliest period presented should be restated; and (c) require disclosure of any restatement and, if applicable, the reason for not restating prior periods. The Board then discussed effective date considerations. First, the Board tentatively decided that early implementation of the proposals should be permitted. Next, the Board tentatively decided that a phased-in implementation with small governments implementing the proposals one year later than large governments should be developed. Finally, the Board tentatively decided to propose an effective date of fiscal years beginning after June 15, 2024 for larger governments. The Board will deliberate the classification parameters at a future meeting.

Minutes of Meetings, November 20–22, 2019

The Board continued redeliberations based on feedback received on the proposals in the Preliminary Views, Financial Reporting Model Improvements, related to the short-term financial resources measurement focus. First, the Board deliberated whether to propose an exception for the recognition of certain long-term debt or an exception for the presentation of transactions related to certain long-term debt in governmental funds. The Board tentatively decided that an exception from the recognition concepts of the short-term financial resources measurement focus should be proposed in the application of the measurement focus, and that exception should be for long-term debt issued for short-term purposes. The Board then discussed the treatment of effective hedging derivative instruments and accrued interest. The Board tentatively decided that effective hedging derivative instruments and accrued interest should be illustrated as long-term transactions.

Minutes of Meetings, October 15–17, 2019

First, the Board discussed proposed language describing the application of the proposed short-term financial resources measurement focus, providing various clarifying edits.
 
The Board then continued redeliberations based on feedback received on the proposals in the Preliminary Views, Financial Reporting Model Improvements, with consideration of the presentation of governmental fund financial statements. The Board tentatively decided to carry forward the proposed format for the governmental fund resource flows statement, the proposed current and noncurrent terminology for the governmental fund resource flows statement, and the proposed governmental fund financial statement titles from the Preliminary Views to the Exposure Draft. The Board tentatively decided to not carry forward the proposed governmental fund financial statement element titles from the Preliminary View to the Exposure Draft. Instead, the Board tentatively decided to illustrate the element headings “assets,” “deferred outflows of resources,” “liabilities,” “deferred inflows of resources,” “fund balances,” “inflows of resources for current activities,” “outflows of resources for current activities,” and “net flows of resources for noncurrent activities” in the Exposure Draft. Additionally, the Board tentatively decided that the additional explanation at the top of the governmental fund financial statements proposed in the Preliminary Views should not be carried forward to the Exposure Draft.
 
Finally, the Board considered feedback received on the alternative views proposal to require a government-wide statement of cash flows. The Board tentatively decided to not propose that requirement in the Exposure Draft.

Minutes of Meetings, August 27–28, 2019
 
The Financial Reporting Model Reexamination project and the Conceptual Framework: Recognition project were discussed in conjunction. The Board continued redeliberations based on feedback received on the proposals in the Preliminary Views, Financial Reporting Model Improvements, and the Preliminary Views, Recognition of Elements of Financial Statements, related to the measurement focus of governmental funds. The Board tentatively decided that the measurement focus for governmental fund financial statements should have the following characteristics:
  • The term used to classify short-term transactions or other events and long-term transactions or other events should be established by the specific applicable contractual (or statutory) terms of the transaction or other event or estimated payments when there are no contractual terms
  • Items arising from long-term transactions or other events should be recognized when due—the date at which payment is scheduled or, if not scheduled, expected to be made in accordance with the recognition terms
  • The recognition period should be one year.
Minutes of Meetings, July 16–18, 2019
 
The Board continued redeliberations based on feedback received on the proposals in the Preliminary Views, Financial Reporting Model Improvements, related to the measurement focus of governmental funds [in conjunction with the discussions of the Conceptual Framework: Recognition project]. The three topics discussed include whether (a) the measurement focus for governmental funds should determine recognition by contractual terms (or expected payment dates) or what is normal for governments in general, (b) long-term assets and liabilities should be accrued to the extent that they are due within the given recognition period or recognized when due, and (c)  the recognition period should be one year or near-term. No tentative decisions were reached.

Minutes Archive

FINANCIAL REPORTING MODEL—TENTATIVE BOARD DECISIONS TO DATE


The Exposure Draft of a proposed Statement, Financial Reporting Model Improvements, was approved in June 2020.