Project Pages

Prior-Period Adjustments, Accounting Changes, and Error Corrections—Reexamination of Statement 62

Research Description: The objective of this project is to improve the accounting and financial reporting for prior-period adjustments, accounting changes, and error corrections in Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. The project will fully reexamine the existing standards to address issues related to (1) inconsistency in practice, (2) confusion about and difficulty applying regarding the requirements, and (3) the usefulness of the related disclosures.

Status:
Added to Agenda: December 2019

Prior-Period Adjustments, Accounting Changes, and Error Corrections—Project Plan


Background: Guidance on accounting for prior-period adjustments, accounting changes, and error corrections historically has been based on several sources of accounting literature, including APB Opinion No. 9, Reporting the Results of Operations, Part 1—Net Income and the Treatment of Extraordinary Items and Prior Period Adjustments; FASB Statement No. 16, Prior Period Adjustments; APB Opinion No. 20, Accounting Changes; and FASB Interpretation No. 20, Reporting Accounting Changes under AICPA Statements of Position—an interpretation of APB Opinion No. 20. That disparate guidance was brought into the GASB literature by Statement 62 and remains largely unchanged.
 
Statement 62 establishes accounting and financial reporting requirements for prior-period adjustments broadly. Statement 62 also stipulates the treatment of changes in (1) accounting principle, (2) accounting estimate, and (3) the reporting entity. Lastly, Statement 62 requires that corrections of errors in previously issued financial statements should be reported as prior-period adjustments.
 
The results of the pre-agenda research and the review of relevant technical inquiries indicate that prior-period adjustments, accounting changes, and error corrections generally are widespread among governments. This issue is relevant to a broad number of governments because those changes, such as in accounting principle or estimate, occur in the regular course of accounting and financial reporting. The magnitude of prior-period adjustments, accounting changes, and error corrections vary, but they have the potential to be significant. The pre-agenda research also indicated inconsistencies in practice in the accounting and financial reporting for prior-period adjustments, accounting changes, and error corrections by preparers and auditors.
 
Information about prior-period adjustments, accounting changes, and error corrections is used by financial statement users in performing analyses and making decisions. In the pre-agenda research, user interviews were conducted to evaluate how users currently use or would use information related to this topic. Many users who were interviewed reported that this information is used to better understand and explain the nature of the changes that have occurred and to make adjustments to facilitate comparability of prior-year financial statements and comparability across governments. Some users indicated that the information is a direct input into quantitative analyses, and others reported using it for qualitative assessments of management, risk, and overall financial health. Based on the manner in which users utilize the information, the pre-agenda research indicated that users would benefit from greater comparability and consistency.

Accounting and Financial Reporting Issues. The following issues would be considered:

  • Consideration of the types of events that constitute the different types of prior-period adjustments, accounting changes, and error corrections
  • Consideration of the relationship between the existing requirements for prior-period adjustments, accounting changes, and error corrections and other GASB requirements; for example, with requirements for changes in assumptions associated with postemployment benefit measurements and with requirements in Statement No. 69, Government Combinations and Disposals of Government Operations
  • Clarification of terminology regarding reporting of accounting changes and error corrections (for example, terms including “restatement,” “reclassification,” and “prior-period adjustment”)
  • Usefulness of the disclosure requirements associated with each type of accounting change and error correction
  • Interaction between the general requirements for accounting changes and the specific transition provisions for implementation of individual pronouncements
  • Consideration of whether display requirements should be established.
Project History:
  • Pre-agenda research approved: August 2018
  • Consultative group appointed? No
  • Research results reported to the Board: November 2019
  • Proposed for addition to the current technical agenda: December 2019
Work Plan: The plan for the pre-agenda research includes the following activities:
 

Board Meetings

Topics to Be Considered

February–May 2020: Classification of types of accounting changes and error corrections.
June–July 2020: Accounting for accounting changes and error corrections.
September–October 2020: Methods of reporting: display and disclosure
November 2020 (T/C): Effective date and transition; other issues; cost-benefit
December 2020: Review first draft of standards section of a proposed Statement.
January 2021: Review preballot draft of an Exposure Draft of a proposed Statement.
February 2021: Review ballot draft of an Exposure Draft of a proposed Statement and consider for approval.
March–May 2021: Comment period.
June–November 2021: Redeliberate issues based on respondent feedback.
December 2021: Review preballot draft of a final Statement.
January 2022: Review ballot draft of a final Statement and consider for approval.
 

Prior Period Adjustments, Accounting Changes, and Error Corrections—Recent Minutes

 
 

Prior Period Adjustments, Accounting Changes, and Error Corrections—Tentative Board Decisions to Date