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 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.

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 2018
  • Public hearings and user forums held: March 2019
Current Developments: Public hearings and user forums on the proposals in the Preliminary Views issued in September 2018 were held in March 2019. Deliberations were held on unusual and infrequent items, the final additional topic to be included in the Exposure Draft. In April 2019, the Board will redeliberate issues related to major component unit information and government-wide schedule of expenses by natural classification. The Board also will review field test results.

Work Plan:
 
Board Meetings Topics to Be Considered
July–August 2019: Redeliberate measurement focus for governmental fund financial statements.
October–November 2019: Recognition of specific classes of transactions in governmental fund financial statements.
January 2020: Redeliberate presentation of governmental fund financial statements, government-wide statement of cash flows, small government issues, and remaining other issues raised in due process.
February 2020: Discuss first draft of the standards section of an Exposure Draft and illustrations.
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, 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. 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 of Meetings, June 5–6, 2019
 
The Board continued redeliberations based on feedback received on the proposals in the Preliminary Views, Financial Reporting Model Improvements, discussing the following topics: approaches to recognition in governmental funds other than the short-term financial resources measurement focus, the presentation of proprietary fund financial statements, and budgetary comparison information. The Board first discussed approaches to recognition in governmental funds other than the short-term financial resources measurement focus, tentatively deciding that governmental fund financial statements should continue to be presented as part of the basic financial statements for governments. The Board also tentatively decided that the current financial resources measurement focus should not be retained for use in governmental fund financial statements. The Board tentatively decided that neither the total financial resources measurement focus nor the economic resources measurement focus should be proposed for use in governmental fund financial statements. Additionally, the Board tentatively decided that once feedback received on the Preliminary Views in relation to the short-term financial resources measurement focus including the modification suggested by the alternative views has been redeliberated, the Board should then consider how its tentative decisions related to information to be presented in governmental funds relate to the near-term financial resources measurement focus.
 
The Board next considered feedback received on the proposals related to the reporting of operating and nonoperating revenues and expenses in proprietary fund financial statements. The Board tentatively decided that research need not be conducted at this time to assess whether flexibility in financial statement presentation should be allowed for stand-alone business entities. The Board also tentatively decided that the proposed definition of operating revenues and expenses and the proposed description of nonoperating revenues and expenses should not be changed to specifically address interest expense, payments in lieu of taxes, landfill closure costs, litigation and insurance costs, endowments and spending from endowments, grants (including Pell grants), transfers, assessments, contributed services, and healthcare reimbursements. Furthermore, the Board tentatively decided to propose that nonroutine and nonrecurring items not be included in the description of nonoperating revenues and expenses. Additionally, the Board decided to propose that when investing or financing activities are the primary purpose of a proprietary fund, those revenues and expenses be excluded from nonoperating revenues and expenses.
 
Next, the Board tentatively decided that rental income (and other ancillary items) should not be included in the description of nonoperating revenues and expenses. The Board also tentatively decided to carry forward in the proposal the approach of providing a description of nonoperating revenue and expenses and defining operating revenue and expenses as those that are not nonoperating. Additionally, the Board tentatively decided to propose that the definition of a subsidy be modified to clarify that a subsidy includes both resources received from or provided to another party. Furthermore, the Board tentatively decided to propose that capital contributions, additions to permanent and term endowments, and transfers are subsidies and should be reported as part of nonoperating revenues and expenses and that only unusual and infrequent items should continue to be reported outside of operating and nonoperating revenues and expenses. The Board also tentatively decided to propose that the proprietary fund statement of revenues, expenses, and changes in net position include a subtotal for operating income (loss) and noncapital subsidies.
 
Finally, the Board considered feedback received on the proposals related to the reporting of budgetary comparison information. The Board tentatively decided to propose that required supplementary information be the single communication method for budgetary comparison information. Lastly, the Board tentatively decided to propose that the variances between the (a) final budget and actual amounts and (b) original budget and final budget amounts be required as part of the budgetary comparison schedule.

Minutes of Meetings, April 22–24, 2019

The Board reviewed the results of the field test and began redeliberations based on stakeholder feedback received on the Preliminary Views, Financial Reporting Model Improvements, discussing the following topics: major component unit information and the government-wide schedule of expenses by natural classification. The Board tentatively decided to carry forward to the Exposure Draft the preliminary view that if it is not feasible to present major component unit financial statements in a separate column(s) in the reporting entity’s statement of net position and statement of activities, the financial statements of the major component units should be presented in the reporting entity’s basic financial statements as combining financial statements after the fund financial statement. Additionally, the Board tentatively decided that the benefits of presenting a government-wide schedule of expenses by natural classification as supplementary information do not justify the costs of presenting that schedule and, therefore, the preliminary view regarding the schedule for governmental activities and business-type activities should not be carried forward to the Exposure Draft.

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 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.
  • If it is not feasible to present major component unit financial statements in a separate column(s) in the reporting entity’s statement of net position and statement of activities, the financial statements of the major component units should be presented in the reporting entity’s basic financial statements as combining financial statements after the fund financial statement.
  • The benefits of presenting a government-wide schedule of expenses by natural classification as supplementary information do not justify the costs of presenting that schedule.
  • The definition of operating revenues and expenses and  description of nonoperating revenues and expenses should not be changed with respect to interest expense, payments in lieu of taxes, landfill closure costs, litigation and insurance costs, endowments and spending from endowments, grants (including Pell grants), transfers, assessments, contributed services, and healthcare reimbursements. 
  • Nonroutine and nonrecurring items should not be included in the description of nonoperating revenues and expenses.
  • When investing or financing activities are the primary purpose of a proprietary fund, those revenues and expenses should be excluded from nonoperating revenues and expenses.
  • Rental income (and other ancillary items) should not be included in the description of nonoperating revenues and expenses.
  • The approach of providing a description of nonoperating revenue and expenses and defining operating revenue and expenses as those that are not nonoperating should be carried forward.
  • The definition of a subsidy should be modified to clarify that a subsidy includes both resources received from or provided to another party.
  • Capital contributions, additions to permanent and term endowments, and transfers are subsidies and should be reported as part of nonoperating revenues and expenses, and only unusual and infrequent items should continue to be reported outside of operating and nonoperating revenues and expenses.
  • The proprietary fund statement of revenues, expenses, and changes in net position should include a subtotal for operating income (loss) and noncapital subsidies.
  • Required supplementary information should be the single communication method for budgetary comparison information.
  • Variances between the (1) final budget and actual amounts and (2) original budget and final budget amounts should be required as part of the budgetary comparison schedule.
In addition, the Board tentatively included that:
  • Governmental fund financial statements should continue to be presented as part of the basic financial statements for governments.
  • The current financial resources, total financial resources, and economic resources measurement focuses should not be used in governmental fund financial statements.
  • Once the Board has redeliberated feedback received on the Preliminary Views in relation to the short-term financial resources measurement focus, including the modification suggested by the alternative views, the Board will consider how its tentative decisions related to information to be presented in governmental funds relate to the near-term financial resources measurement focus. 
  • Research need not be conducted at this time to assess whether flexibility in financial statement presentation should be allowed for stand-alone business entities.