Project Pages

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

Project 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 : Exposure Draft Redeliberations

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
  • Added to the current technical agenda: December 2019
  • Deliberations began: February 2020
  • Exposure Draft issued: May 2021
  • Comment period: May–August 2021
  • Redeliberations began: November 2021
Current Developments : Since the end of the comment period (August 31, 2021), the Board has redeliberated proposed requirements related to classification, accounting, note disclosure, and required supplementary information and supplementary information, based on respondent feedback to the Exposure Draft, Accounting Changes and Error Corrections. At its April 2022 meeting, the Board reviewed a preballot draft of a final Statements and discussed cost-benefit considerations.

Work Plan :
 
Board Meetings Topics to Be Considered
June 2022 Review ballot draft of a final Statement and consider for approval.

 

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


Minutes of Meeting, April 19–21, 2022

The Board reviewed a preballot draft of a final Statement, Accounting Changes and Error Corrections, and discussed clarifying edits. As part of that review, the Board tentatively decided that for the implementation of a new pronouncement, the pronouncement that was implemented should be disclosed in notes to financial statements.

Next, the Board discussed considerations related to benefits and costs associated with the proposed requirements. The Board tentatively decided that the expected benefits of the requirements proposed for a final Statement justify the perceived costs.

Finally, the Board discussed the characteristics of the accounting and financial reporting information that will result from the provisions of a final Statement. The Board tentatively agreed that the information meets all the characteristics of Group 1 information and, therefore, is within the scope of the GASB’s authority.

The Board directed the project staff to prepare a ballot draft of a final Statement for discussion at the June 1–3, 2022 Board meetings.

Minutes of Meeting, March 28, 2022

The Board continued redeliberations on the Exposure Draft, Accounting Changes and Error Corrections. The Board specifically discussed (1) the proposed effective date and transition provisions, (2) broader considerations with respect to effective date language used in GASB pronouncements, (3) implications of the requirements of a final Statement on transition provisions of future pronouncements, including those currently being developed, and (4) nonauthoritative illustrations that should be included in a final Statement.

First, the Board discussed the transition provisions that were proposed in the Exposure Draft. The Board tentatively decided that the proposed transition provisions to apply the requirements prospectively at transition should be carried forward to a final Statement. That is, the requirements of a final Statement would be effective for accounting changes and error corrections made in reporting periods beginning after the effective date.

Next, the Board discussed the default language for effective dates for GASB pronouncements. The Board tentatively decided that fiscal years beginning after [date] and all reporting periods thereafter should be the default language for effective dates used in GASB pronouncements, unless specific circumstances warrant otherwise.

The Board then discussed the effective date proposed in the Exposure Draft. The Board tentatively decided that the effective date of June 15, 2023, should be carried forward to a final Statement. However, the Board tentatively decided that the requirements should be effective for accounting changes and error corrections made in fiscal years beginning after June 15, 2023, and all reporting periods thereafter, rather than periods beginning after June 15, 2023, as proposed in the Exposure Draft.

Next, the Board discussed the effects of a final Statement on transition provisions in future pronouncements. The Board tentatively decided that transition provisions for future pronouncements that are intended to be the same as the change in accounting principle requirements refer to the Accounting Changes and Error Corrections Statement.

The Board then reviewed and provided feedback on nonauthoritative illustrations that should be included in a final Statement. Lastly, the Board agreed to proceed to a preballot draft of a final Statement, Accounting Changes and Error Corrections.

Minutes of Meeting, March 8–10, 2022

The Board continued redeliberations by discussing stakeholder feedback in response to the Exposure Draft, Accounting Changes and Error Corrections. Specifically, the Board continued redeliberating paragraph 9a of the Exposure Draft regarding the events that constitute a change to or within the financial reporting entity. The Board also discussed stakeholder feedback related to the proposed requirements regarding (1) the first-time adoption of U.S. generally accepted accounting principles (GAAP) established by the GASB financial reporting framework and (2) reclassifications resulting from changes in accounting principle or error corrections.
 
The Board first discussed paragraph 9a of the Exposure Draft, which proposed that the addition or removal of a fund that results from the movement of resources within the primary government, including its blended component units, be considered a change to or within the financial reporting entity. The Board tentatively decided to modify paragraph 9a such that the addition or removal of funds that results from the movement of continuing operations within the primary government is considered a change to or within the financial reporting entity. 
 
Next, the Board discussed the proposals related to the first-time adoption of U.S. GAAP established by the GASB (paragraph 14 of the Exposure Draft). The Board tentatively decided that paragraph 14 should not be carried forward to a final Statement. Instead, the Board tentatively agreed that the scope and applicability section of a final Statement should indicate that the accounting changes and error corrections requirements do not apply to the initial application of U.S. GAAP established by the GASB as a new financial reporting framework in circumstances in which a government asserts for the first time that its basic financial statements are prepared in accordance with U.S. GAAP established by the GASB.

Finally, the Board discussed the proposed requirements regarding reclassifications resulting from changes in accounting principles or error corrections (paragraphs 29 and 30 of the Exposure Draft). The Board tentatively decided to carry forward those proposed requirements to a final Statement.

Minutes of Meeting, January 25–27, 2022

The Board continued redeliberations on the Prior-Period Adjustments, Accounting Changes, and Error Corrections project by discussing the Exposure Draft, Accounting Changes and Error Corrections. Specifically, the Board discussed stakeholder feedback related to (1) the proposed requirement to disclose the quantitative effects of accounting changes and error corrections on beginning balances in a tabular format, (2) the proposed requirements for display in the financial statements, and (3) the presentation of information affected by accounting changes or error corrections in required supplementary information (RSI) or supplementary information (SI).
 
The Board first discussed the proposed tabular format and display requirements. The Board tentatively decided to carry forward the proposal to disclose the quantitative effects of each change in accounting principle, change to or within the financial reporting entity, and error correction in a tabular format that reconciles the beginning balances as previously reported and beginning balances as adjusted or restated by reporting unit. The Board then tentatively decided to carry forward the requirement to display the aggregate amount of adjustments and restatements to beginning balances in the financial statements. The Board also decided to carry forward the proposal in paragraph 32 of the Exposure Draft that permits the quantitative effects of each accounting change or error correction to be displayed in the financial statements in place of disclosure in notes to financial statements. 
 
Next, the Board discussed the proposed requirements for presentation in RSI and SI. For reporting periods that are presented in both the basic financial statements and RSI or SI, the Board tentatively decided to carry forward the proposed requirement in paragraph 35 of the Exposure Draft to present information in RSI or SI consistent with how the information is presented in the basic financial statements. For reporting periods earlier than those presented in the basic financial statements, the Board tentatively decided (1) to carry forward the proposed requirement to not restate information in RSI or SI for changes in accounting principles but (2) to modify the proposal in the Exposure Draft by requiring that prior periods affected by an error be restated if practicable.
 
The Board then discussed the explanations that should accompany RSI and SI affected by accounting changes and error corrections. The Board tentatively decided that information in RSI or SI that has been affected by an error should be identified as restated or not restated, as appropriate, and that an explanation about the nature of the error should be provided in the notes to RSI or SI. For information that is not restated, the Board tentatively decided that an explanation of why it is not practicable to restate that information should be provided.
 
The Board also tentatively decided to modify the proposed requirement in paragraph 37 of the Exposure Draft by limiting the explanations about inconsistent information to inconsistencies that result from changes in accounting principles or changes to or within the financial reporting entity. The Board then tentatively decided that additional clarification about the content of the proposed explanation regarding changes in accounting principles and changes to or within the financial reporting entity should not be provided in a final Statement but that a discussion of the Board’s considerations of the intent of the explanation should be included in the Basis for Conclusions. The Board also tentatively decided to provide clarification regarding the location of the proposed explanations in RSI or SI.
 
Lastly, the Board discussed other stakeholder feedback related to concerns expressed about the applicability of the RSI and SI proposals in certain circumstances. The Board tentatively decided that no modifications should be made in response to those stakeholder comments.

Minutes of Meeting, November 22, 2021
 
The Board began redeliberations on the Exposure Draft, Accounting Changes and Error Corrections, by discussing the stakeholder feedback related to the four primary categories proposed in the Exposure Draft: (1) change in accounting principle, (2) change in accounting estimate, (3) change to or within the financial reporting entity, and (4) correction of an error in previously issued financial statements (error corrections).
 
The Board first discussed the proposals related to changes in accounting principles. The Board tentatively decided to carry forward the proposed description for changes in accounting principles. The Board also tentatively decided to carry forward the proposed requirement to restate all prior periods presented, if practicable, and the related note disclosures for changes in accounting principles. Additionally, the Board tentatively decided not to include examples of changes in accounting principles in the Standards section of a final Statement.
 
Next, the Board discussed the proposals related to changes to accounting estimates. Regarding the proposed description of accounting estimates and changes in accounting estimates, the Board tentatively decided to carry forward the proposals in the Exposure Drat to a final Statement, including the provision requiring that a change in measurement methodology be justified on the basis that it is preferable. The Board also tentatively decided to include examples of changes in measurement methodologies in the Standards section of a final Statement. Additionally, the Board discussed the proposed note disclosure requirements for changes in accounting estimates. The Board tentatively decided to carry forward the proposed disclosure requirements to a final Statement and to clarify that the disclosures apply when a change to the input itself has a significant effect on the accounting estimate.
 
The Board then discussed the proposals related to changes to or within the financial reporting entity. Regarding the circumstances that constitute a change to or within the financial reporting entity, the Board tentatively decided to carry forward the circumstances described in paragraphs 9b–9d of the Exposure Draft (including a change in fund presentation) as changes to or within the financial reporting entity. However, the Board tentatively decided to reconsider the scope of the circumstances described in paragraph 9a regarding additions and removals of funds within the primary government at a later meeting. The Board also tentatively decided to carry forward the proposed requirement to report a change to or within the financial reporting entity by adjusting beginning net position, fund balance, or fund net position, as applicable, for the effect of the change as if the change occurred as of the beginning of the reporting period.
 
The Board then discussed the note disclosure requirements for changes to or within the financial reporting entity. The Board tentatively decided to carry forward the proposed requirements to disclose the nature of each change to or within the financial reporting entity and the effects on beginning net position, fund balance, or fund net position, as applicable. The Board tentatively decided that the reason should be disclosed for each change to or within the financial reporting entity except for when a change in fund presentation is due to meeting or not meeting the quantitative threshold for major funds in GASB Statement No. 34, Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments. The Board also tentatively decided to clarify the applicability of the note disclosure requirements to changes that occur entirely within the nonmajor fund column.
 
Next, the Board discussed the proposals related to error corrections. The Board tentatively decided to carry forward to a final Statement the proposed description for error corrections. The Board also tentatively decided to carry forward the proposed requirement to retroactively restate all prior periods presented and the related note disclosures for error corrections.
 
Finally, the Board discussed the differences between a change in accounting estimate and an error correction. The Board tentatively decided not to clarify that point further in the Standards section of a final Statement, but it tentatively agreed to include a more robust discussion of its considerations in the Basis for Conclusions.

Minutes of Meeting, October 11, 2021
 
The Board discussed stakeholder feedback received on the Exposure Draft, Accounting Changes and Error Corrections. No formal redeliberations took place and no tentative Board decisions were reached.

Minutes of Meetings, May 20­–21, 2021
 
The Board reviewed a ballot draft of the Exposure Draft of a proposed Statement, Accounting Changes and Error Corrections, and discussed clarifying edits. The Board then voted unanimously to approve the issuance of the Exposure Draft.

Minutes Archive
 

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


The Board tentatively decided the following:
  • For changes in accounting principles:
    • The description and accounting and note disclosure requirements proposed in the Exposure Draft should be carried forward to a final Statement.
    • For the implementation of a new pronouncement, the pronouncement that was implemented should be disclosed in notes to financial statements.
    • No examples of changes in accounting principles should be provided in a final Statement. 
  • For changes in accounting estimates:
    • The description of accounting estimates and changes in accounting estimates proposed in the Exposure Draft, including the provision requiring that a change in measurement methodology be justified on the basis that it is preferable, should be carried forward to a final Statement.
    • Examples of changes in measurement methodologies should be provided in a final Statement.
    • The proposed disclosure requirements for a change in accounting estimate should be carried forward to a final Statement, and it should be clarified that the disclosures apply when a change to the input itself has a significant effect on the accounting estimate.
  • For changes to or within the financial reporting entity:
    • The circumstances proposed in paragraphs 9b–9d of the Exposure Draft should be carried forward to a final Statement as changes to or within the financial reporting entity.
    • Paragraph 9a regarding additions or removals of funds should be modified such that the addition or removal of funds that results from the movement of continuing operations within the primary government
      is considered a change to or within the financial reporting entity.
    • The accounting requirements proposed in the Exposure Draft that a change to or within the reporting entity should be reported by adjusting beginning net position, fund balance, or fund net position, as applicable, for the effect of the change as if the change occurred as of the beginning of the reporting period should be carried forward to a final Statement.
    • The requirements proposed in the Exposure Draft to disclose the nature of each change to or within the financial reporting entity and the effects on beginning net position, fund balance, or fund net position, as applicable, should be carried forward to a final Statement.
    • The reason for each change to or within the financial reporting entity should be disclosed except when a change in fund presentation is due to meeting or not meeting the quantitative threshold for major funds in GASB Statement No. 34, Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments.
    • The applicability of the note disclosure requirements to changes that occur entirely within the nonmajor fund column should be clarified.
  • For corrections of errors in previously issued financial statements (error corrections):
    • The description and accounting and note disclosure requirements proposed in the Exposure Draft should be carried forward to a final Statement.
  • There should be a more robust discussion of the differences between a change in accounting estimate and an error correction in the Basis for Conclusions of a final Statement.
  • For the first-time adoption of U.S. generally accepted accounting principles (GAAP) established by the GASB financial reporting framework:
    • Paragraph 14 of the Exposure Draft should not be carried forward to a final Statement.
    • The scope and applicability section of a final Statement should indicate that the accounting changes and error corrections requirements do not apply to the initial application of U.S. GAAP established by GASB as a new financial reporting framework in circumstances in which a government asserts for the first time that its basic financial statements are prepared in accordance with U.S. GAAP established by the GASB.
  • The proposed requirements regarding reclassifications resulting from changes in accounting principles or error corrections should be carried forward to a final Statement.
  • The proposed requirement to display the aggregate amount of adjustments or restatements to beginning balances in the financial statements should be carried forward to a final Statement.
  • The proposed requirement to disclose the quantitative effects of each change in accounting principle, change to or within the financial reporting entity, and error correction in a tabular format that reconciles beginning balances as previously reported and beginning balances as adjusted or restated by reporting unit should be carried forward to a final Statement.
  • The proposal that permits the quantitative effects for each accounting change or error correction to be displayed in the financial statements in place of disclosure in notes to financial statements should be carried forward to a final Statement.
  • For required supplementary information (RSI) and supplementary information (SI):
    • The proposed requirement to present information in RSI or SI consistent with how the information is presented in the basic financial statements for periods that are presented in both the basic financial statements and RSI or SI should be carried forward to a final Statement.
    • The proposed requirement to not restate information in RSI or SI for changes in accounting principles for reporting periods that are earlier than those presented in the basic financial statements should be carried forward to a final Statement.
    • Modify the proposal in paragraph 36 of the Exposure Draft related to error corrections by requiring that prior periods affected by an error that are earlier than those included in the basic financial statements be restated, if practicable.
    • Information in RSI or SI that is affected by an error should be identified as restated or not restated, as appropriate, and an explanation about the nature of the error should be provided.
    • If it is not practicable to restate information in RSI or SI that is affected by an error, an explanation of why it is not practicable to restate the information affected by errors should be provided.
    • The proposed requirement in paragraph 37 of the Exposure Draft for an explanation of why information is not consistent in RSI or SI should be limited to explanations about inconsistencies resulting from changes in accounting principles or changes to or within the financial reporting entity.
    • A discussion of the Board’s intent for the explanation proposed in paragraph 37 should be included in the Basis for Conclusions.
  • Clarification regarding the location of the explanations should be provided in a final Statement.
  • The proposed requirements should be effective for accounting changes and error corrections made in fiscal years beginning after June 15, 2023, and all reporting periods thereafter.
  • The expected benefits resulting from requirements proposed to be included in a final Statement justify the perceived costs.
  • The accounting and financial reporting information that will result from the provisions of a final Statement meets all the characteristics of Group 1 information and, therefore, is within the scope of the GASB's authority.
 
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