Project Pages

Interim Financial Reporting

Research Description: The objectives of this pre-agenda research are (1) to evaluate the importance of financial reporting in conformity with generally accepted accounting principles (GAAP) for a period less than a year—for instance, monthly, quarterly, or semiannually—to users of financial statements and (2) to assess the need for specific guidance related to such interim financial reports. The research will collect the information necessary for the Board to determine whether guidance is needed and, if so, to develop related standards.

Status:
Added to Research Agenda: August 2019

Interim Financial Reporting—Project Plan


Background: References to interim financial reporting in existing standards are limited to the following paragraphs from NCGA Statement 1, Governmental Accounting and Financial Reporting Principles, as amended by GASB Statement No. 34, Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments:
 
     Appropriate interim budgetary reports should be prepared during the fiscal period to facilitate management control and legislative oversight of governmental fund financial operations. Such reports are important both to revenue and expenditure control processes and to facilitate timely planning and budgetary revisions. [NCGAS 1, ¶93]

     Financial statements and schedules are derived from the accounts and related records. Interim financial statements cover periods of less than one year (e.g., a month or quarter) and traditionally have been prepared primarily for internal use. Annual financial statements are prepared for each fiscal year to serve information needs of both internal and external users. [NCGAS 1, ¶130]

     Interim financial reports are comprised principally of statements that reflect current financial position at the end of a month or quarter and compare actual financial results with budgetary estimates and limitations, for the month or quarter and/or for the year to date. Interim reports typically are prepared primarily for internal use. Thus, they usually are prepared on the budgetary basis and often do not include statements reporting general capital assets or general long-term debt. Further, they may properly contain budgetary or cash flow projections and other information deemed pertinent to effective management control during the year. [NCGAS 1, ¶133, as amended by GASBS 34, ¶80]

     The key criteria by which internal interim reports are evaluated are their relevance and usefulness for purposes of management control, which include planning future operations as well as evaluating current financial status and results to date. Continual efforts should be made to assure that accounting and related interim information properly serve management control needs. Because managerial styles and perceived information needs vary widely, however, appropriate internal interim reporting is largely a matter of professional judgment rather than one to be set forth in detail here. [NCGAS 1, ¶134]
 
In the course of developing Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, the Board considered incorporating APB Opinion 28, Interim Financial Reporting (now Accounting Standards Codification® 270, Interim Reporting). The preceding paragraphs from the GASB literature set forth general principles regarding the use of interim financial reporting by governments and the purpose of such reporting. The FASB and AICPA pronouncements that address interim financial reporting, however, provide specific guidance on the application of accounting principles and practices in financial reports prepared for periods less than one year.

The Board concluded, therefore, that the prescriptive nature of the provisions in APB Opinion 28 and related pronouncements conflicts with the general principles established in NCGA Statement 1. As a result, the Board decided to not to incorporate those FASB and AICPA provisions into the GASB literature. Instead, a potential standards-setting topic on interim financial reporting was added to the technical plan in April 2011.

At present, no government-specific guidance is available for GAAP financial reporting for periods less than a full fiscal year. Although the effective date provisions of most GASB pronouncements specify that the standards are applicable to periods, rather than only full years, those pronouncements do not provide guidance regarding how to apply the standards to periods of less than a year. Interim financial reporting by general purpose governments based on GAAP is relatively infrequent; however, certain business-type activities such as public hospitals often prepare quarterly financial statements.

Major Research Issues: The following issues will be considered:
  • What is current practice with respect to interim financial reporting and how has it changed since the descriptions in NCGA Statement 1 were developed?
  • Do interim GAAP financial reports of general purpose governments or business-type activities provide users with information that is valuable for making decisions and assessing accountability?
  • Should specific recognition and measurement standards be developed for interim GAAP reporting? Should separate reporting entity standards be developed for interim GAAP reporting?
History:
  • Pre-agenda research approved: August 2019
  • Consultative group appointed? No
Current Developments: A survey of preparers to evaluate current practice with respect to interim financial reporting concluded in December 2019. A survey of users regarding the usefulness of interim financial reporting will be conducted in the second quarter of 2020 and will inform the focus of follow-up telephone interviews with preparers.

Research Work Plan: The plan for the pre-agenda research includes the following activities:
 

Board Meetings

Research Activities

April–August 2020: Develop materials, pretest, and administer survey of users.
September–
November 2020:
Develop protocols and other materials and conduct interview of preparers.
December 2020–February 2021: Analyze results of research and draft research memorandum.
March 2021 (T/C): Discuss research memorandum with the Board.
April 2021: Discuss research results with GASAC.