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:
Invitation to Comment Redeliberations began June 2017

 

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 would 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
  • Public hearing and user forum held: April–May 2017
  • Task force meeting held: September 2017
Current Developments: The Board has been developing its proposal for recognition in governmental funds and redeliberating issues related to the presentation of governmental funds and a potential statement of cash flows for governmental funds.

Work Plan:
 
Board Meetings Topics to Be Considered
July 2018: Review draft of a Preliminary Views.
August 2018: Discuss preballot draft of a Preliminary Views.
September 2018 (T/C): Discuss ballot draft and consider a Preliminary Views for approval.
October 2018–January 2019: Comment period and field test.

Deliberate issues related to management’s discussion and analysis, presentation of debt service fund information, and definition and presentation of extraordinary and special items.
February 2019: Public hearings/user forums.
April 2019–January 2020: Redeliberate issues related to recognition approaches, government-wide financial statements, governmental fund financial statements, proprietary fund financial statements, fiduciary fund financial statements, and budgetary comparisons based upon due process feedback.
February 2020: Discuss first draft of the standards section of an Exposure Draft.
May 2020: Discuss preballot draft of an Exposure Draft.
June 2020: Discuss ballot draft and consider an Exposure Draft 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 and consider a final Statement for approval.

FINANCIAL REPORTING MODEL—RECENT MINUTES


Minutes of Teleconference, June 18, 2018
 
The Board continued deliberations on topics to be presented in the Preliminary Views. The Board discussed possible communication methods for information about major component units. The Board tentatively decided that when it is not feasible to present major component unit financial statements in a separate column in the reporting entity’s statements of net position and activities, the financial statements of the major component units should be presented as combining financial statements after the fund financial statements.

Minutes of Meetings, May 29–31, 2018
 
The Board continued deliberations on topics to be presented in the Preliminary Views. The Board first discussed possible communication methods for information about noncash investing, capital, and financing activities. The Board tentatively decided to propose that the information continue to be communicated as a schedule to the statement of cash flows.
 
The Board next considered the feedback received on the Invitation to Comment (ITC), Financial Reporting Model Improvements—Governmental Funds, regarding topics that have not been previously addressed. The Board tentatively decided to propose that governmental fund statements present financial information of nonmajor funds, as currently required.
 
The Board then considered whether there is an opportunity to develop governmental fund recognition guidance specific to small governments and whether there is an opportunity to provide a small government concession related to the reconciliation between governmental fund financial statements and government-wide financial statements. The Board tentatively decided that the Preliminary Views should not propose a concession for small governments to exclude the reconciliation between governmental fund financial statements and government-wide financial statements.

The Board also considered the ITC feedback related to small government concerns and discussed potential small government concessions. The Board tentatively decided that the tentative Board decisions reached to date do not provide opportunities to develop specific recognition-approach-related proposals for small governments. Additionally, the Board tentatively decided based on the additional feedback to the ITC that no tentative decisions for the Preliminary Views should be reconsidered for potential small government exceptions.
 
The Board also tentatively decided that the Preliminary Views should not propose a concession for small governments to allow the use of (1) a natural classification of expenditures in the governmental fund financial statements, (2) a natural classification of expenses in the government-wide statement of activities, and (3) a revenue/expense format in the statement of activities.
 
The Board then reviewed draft sections of the Preliminary Views and discussed clarifying edits.

Minutes of Meetings, April 17 and 18, 2018
 
The Board continued deliberations on topics to be presented in the Preliminary Views on the Financial Reporting Model. The Board first discussed the appropriate communication method for the reconciliations of information in governmental fund financial statements to information in the government-wide financial statements. The Board tentatively decided that those reconciliations should continue to be presented as part of the governmental fund financial statements. The Board also tentatively decided that the proprietary fund reconciliation of operating income to net cash flows from operating activities should continue to be presented as part of the proprietary statement of cash flows. Additionally, the Board tentatively decided that a notice should not be included at the bottom of the governmental and proprietary fund financial statements to alert readers to the location of the reconciliations. The Board then tentatively decided that the Preliminary Views would not propose a requirement to use standardized terminology for the reconciling items.
 
The Board next considered the feedback received on the Invitation to Comment, Financial Reporting Model Improvements—Governmental Funds, as well as the feedback received from task force and Governmental Accounting Standards Advisory Council (GASAC) members regarding a statement of cash flows for governmental funds. Based on the feedback, the Board tentatively decided that the Preliminary Views should not include a proposal that a statement of cash flows for governmental funds be required.
 
The Board then considered the effect of its tentative decisions in relation to the short-term financial resources recognition approach for governmental funds on the reporting of permanent funds. The Board tentatively decided that the Board’s tentative decisions in relation to the short-term financial resources recognition approach applied by governmental funds should not change the classification of permanent funds.

The Board also tentatively decided that the notice at the top of the Short-Term Financial Resource Balance Sheet should be shortened to include only the first sentence: “This financial statement presents a short-term view of the governmental fund activities and excludes items of a long-term nature.”
 
The Board then provided editorial clarifications to the draft regarding (a) recognition concepts for governmental funds, (b) application of the recognition concepts to selected transactions and other events, and (c) illustrations of the recognition concepts.

Minutes of Meetings, March 7–8, 2018
 
The Board continued deliberations on topics to be presented in the Preliminary Views. The Board first considered feedback received on the Invitation to Comment (ITC), Financial Reporting Model Improvements—Governmental Funds, as well as feedback received from task force and Governmental Accounting Standards Advisory Council members regarding (a) the reconciliation of information in the governmental fund financial statements to information in the government-wide financial statements and (b) the terminology used in the governmental fund financial statements. The Board tentatively decided that the Preliminary Views should not propose that the reconciliation between information in governmental fund statements and government-wide information be presented on the same page. The Board also tentatively agreed that the communication method of the reconciliation should be evaluated before the Board makes any further tentative decisions on the presentation of the reconciliation.
Regarding the terminology used in the governmental fund financial statements, the Board tentatively decided that (a) the additional explanations after the governmental fund financial statement titles proposed in the ITC should be carried forward to the Preliminary Views, (b) the additional explanation after the governmental fund balance sheet should exclude the language referring to nonfinancial resources such as capital assets and long-term debt related to capital assets when carried forward to the Preliminary Views, (c) the element titles and line item descriptions proposed for the short-term approach in the ITC should be carried forward to the Preliminary Views, and (d) the governmental fund financial statement titles proposed for the short-term approach in the ITC should be carried forward to the Preliminary Views. The Board then discussed the feedback received to the ITC regarding the format of the governmental funds resource flows statement. The Board tentatively decided that the current and noncurrent (long-term) activity format should be proposed in the Preliminary Views and that the potential inconsistency in the usage of the term long-term should be resolved by describing the capital assets and long-term debt activity as noncurrent, rather than long-term, activity. The Board also tentatively decided that a practical expedient for small governments to report governmental funds resource flows information using the existing format instead of the current and noncurrent activity format should not be proposed.

Minutes of Meetings, January 23−24, 2018
 
The Board continued deliberations on topics to be presented in the Preliminary Views. The Board first considered proposed language that describes the messages conveyed by the recognition approach, the recognition concepts, features of the recognition approach, and the approach’s relationship with the objectives of financial reporting and a table that applies the recognition concepts to selected transactions, providing suggestions for clarifying the language. The Board tentatively decided that the recognition approach proposed in the Preliminary Views be should be referred to as short-term financial resources.
 
The Board then discussed tentative Board decisions reached to date on
(1) budgetary comparison information, (2) the format of proprietary fund financial statements, and (3) the format of the statement of activities and supplementary schedule of natural classifications for consideration of the financial reporting model within the context of small governments. The Board tentatively decided that these tentative Board decisions reached to date do not provide opportunities to develop specific proposals for small governments.
 
The Board next discussed the differences between the recognition concepts in the 2011 Preliminary Views, Recognition of Elements of Financial Statements and Measurement Approaches, and the recognition approach that the Board has tentatively agreed to propose in the financial reporting model reexamination Preliminary Views. The Board tentatively decided that the differences are sufficiently significant to reissue a Preliminary Views related to recognition concepts for governmental funds. The Board also tentatively decided that the Preliminary Views on recognition concepts should be issued as a separate document.

Minutes of Meetings, December 12−14, 2017
 
The Board continued deliberations on topics to be presented in the Preliminary Views. The Board first considered feedback received on the Invitation to Comment, Financial Reporting Model Improvements—Governmental Funds, relating to the overall focus of governmental fund financial statements. The Board tentatively decided to propose that governmental fund financial statements present information that reflects a shorter time perspective than information in the government-wide financial statements and that facilitates comparison with a government’s budgetary information.
 
The Board then discussed the feedback received relating to the recognition approaches presented in the Invitation to Comment. The Board tentatively decided that the long-term financial resources approach neither as proposed in the Invitation to Comment nor with the columnar presentation of capital assets and debt or other alternatives should be pursued further in developing a Preliminary Views. The Board then tentatively decided that the near-term and short-term financial resources recognition approaches as proposed in the Invitation to Comment should not be pursued further.
 
The Board next discussed suggested modifications to the near-term and short-term approaches. The Board tentatively decided that the recognition approach for governmental funds presented in the Preliminary Views should be based on a combination of the near-term and short-term recognition approaches with the following characteristics:
  • One-year (operating cycle) period of availability
  • Accrued interest will be recognized when payable and normally due within one year, which may not necessarily align with the recognition of principal payments on the related debt
  • Recognition of tax and revenue anticipation notes as liabilities
  • Exclusion of the recognition of the current portion of long-term assets and liabilities.
Minutes of Meetings, October 31−November 2, 2017

The Board continued deliberations on topics to be presented in the Preliminary Views (PV). The Board considered feedback received on the Invitation to Comment (ITC), Financial Reporting Model ImprovementsGovernmental Funds, regarding recognition approaches for governmental funds other than the three proposed in the ITC (near-term financial resources, short-term financial resources, and long-term financial resources) or modifications to any of those three approaches. The Board discussed whether the current financial resources recognition approach with modifications, the economic resources recognition approach, or presentation outside of the basic financial statements should be pursued further in developing the PV. The Board tentatively decided that none of those alternatives should be pursued during the development of the next due process document.

The Board then deliberated the definition of financial resources that should be presented in the PV. The Board tentatively decided to propose the following definition of financial resources— “cash, resources that are expected to be converted to cash, and resources that are consumable in lieu of cash.”

Minutes of Meetings, September 27 and 28, 2017

The Board continued deliberations on topics to be presented in the Preliminary Views, specifically the proposals related to the format of the government-wide statement of activities and presentation of information about natural classification of expenses. The Board discussed four alternatives and tentatively decided to propose that the existing format of the government-wide statement of activities be presented with a schedule of natural classification of expenses by function or program. The Board then tentatively decided to propose that the information conveyed in a schedule of natural classification of expenses be presented in general purpose external financial reports as supplementary information.

Minutes of Task Force Meeting, September 26, 2017

The task force discussed feedback received on the Invitation to Comment (ITC), Financial Reporting Model Improvements—Governmental Funds, and provided input to the Board on developing preliminary views on the major issues in the ITC.

The task force first discussed the feedback related to the shorter term and budgetary perspective that has been the focus of governmental funds. Many task force members supported governmental fund financial statements continuing to present information that (1) reflects a shorter time perspective than the information presented in the government-wide financial statements; (2) focuses on financial, rather than economic resources; and (3) facilitates comparisons with a government’s budgetary information.

The task force then discussed the feedback on the definition of financial resources, specifically with respect to inventory and prepaid items. Some task force members expressed that this discussion would be more appropriate after the Board selects one of the three recognition approaches.

The task force also discussed the common recognition suggestions in the feedback to the ITC focusing on identifying fatal flaws in the approaches and which one(s) they would suggest the Board consider for the Preliminary Views (PV). The commonly suggested approaches included:
  • Near-term financial resources as presented in the ITC
  • Near-term financial resources with changes to accrued interest and tax and revenue anticipation notes
  • Short-term financial resources as presented in the ITC
  • Short-term financial resources without certain liabilities (capital debt and postemployment benefits, for example)
  • Long-term financial resources as presented in the ITC
  • Long-term financial resources with columnar presentation of capital assets and debt
  • Current financial resources with modifications
  • Economic resources.
Many task force members were not in support of the Board further considering:
  • Near-term financial resources as presented in the ITC
  • Short-term financial resources as presented in the ITC
  • Long-term financial resources as presented in the ITC
  • Long-term financial resources with columnar presentation of capital assets and debt
  • Economic resources.
Support was expressed by those task force members for the Board further considering (1) near-term financial resources with modifications, (2) short-term financial resources with modifications, or (3) current financial resources with modifications. Some task force members believe that there is not a persuasive argument to abandon the current financial resources measurement focus and that, instead, the GASB should be focusing on fixing the conceptual inconsistencies within the existing measurement focus. It is important to note that (1) and (3) are similar because the near-term financial resources approach was the closest to the current financial resources approach and included modifications to increase the conceptual consistency. Additional modifications to the current financial resources approach suggested by task force members included:
  • Specifying a single period of availability
  • Recognition of prepaid items and inventory (as discussed above)
  • Recognition of debt principal payments or just short-term debt principal payments
  • Recognition of long-term receivables.
The task force members then discussed the feedback on a same-page reconciliation of the governmental fund financial statements to the government-wide financial statements. Although many task force members were supportive of a reconciliation between the government-wide financial statements and the governmental fund financial statements, those task force members were not supportive of it being on the same page.

The task force members next discussed the feedback received on a statement of cash flows for governmental funds. Many task force members stated that a statement of cash flows for governmental funds would not be necessary if the funds retain a shorter term focus (for example, the near-term or current financial resources recognition approach) in the PV. Some task force members stated that the cost of preparing the statement of cash flows would exceed the benefits of the information conveyed in the statement. If a statement of cash flows is to be presented in the PV, some task force members expressed that the statement should be prepared only for certain governmental funds or for all governmental funds in the aggregate.

The task force members also discussed the appropriateness of the four categories of cash flows currently used in the statement of cash flows for proprietary funds (operating activities, noncapital financing activities, capital and related financing activities, and investing activities). Some task force members believed that the four categories would be appropriate for governmental fund cash. Other task force members stated that three categories (operating, investing, financing) should be used to classify governmental fund cash flows. However, some task force members stated that if the classifications were changed, they should be changed for proprietary funds and business-type activities as well, to provide consistency.

Minutes of Meetings, June 28–29, 2017

The Board continued deliberating a topic to be presented in the upcoming Preliminary Views—the classification of operating and nonoperating revenues and expenses in proprietary fund and business-type activity financial statements. The Board tentatively decided to propose a direct definition of nonoperating revenues and expenses and to derive the definition for operating revenues and expenses from the definition of nonoperating revenues and expenses. The Board tentatively decided to propose that the definition of nonoperating revenues and expenses include subsidies received and provided, revenues and expenses of financing, resources from the disposal of capital assets and inventory, and investment income and expenses. Sale of inventory held for resale in the ordinary course of operations is not considered a disposal of inventory for purposes of this definition. In addition, the Board tentatively agreed with the proposed schedule of discussing feedback from the Invitation to Comment, Financial Reporting Model Improvements—Governmental Funds, and developing a Preliminary Views.

Minutes Archive

FINANCIAL REPORTING MODEL—TENTATIVE BOARD DECISIONS TO DATE


The Invitation to Comment, Financial Reporting Model Improvements—Governmental Funds, was issued in December 2016.

In developing a Preliminary Views document, the Board tentatively decided to propose that:
  • Budgetary comparison information be presented using a single primary method of communication.
  • Budgetary comparison information be reported as required supplementary information.
  • Governments present specific budget variances as part of budgetary comparison information.
  • Governments report the variances between:
    • Final budget and actual amounts
    • Original budget and final budget amounts.
  • For business-type activities and proprietary funds:
    • Financial statements for business-type entities continue to distinguish between operating and nonoperating revenues and expenses.
    • Both the resource flows statement and the statement of cash flows be presented using the same definition of operating activities
    • The definition of nonoperating revenues and expenses be directly defined and to derive the definition of operating revenues and expenses from the definition of nonoperating revenues and expenses.
    • The definition of nonoperating revenues and expenses include (1) subsidies received and provided, (2) revenues and expenses of financing, (3) resources from the disposal of capital assets and inventory, and (4) investment income and expenses.
    • Subsidies be defined as “resources provided by another party or fund for the purpose of keeping the rates lower than otherwise would be necessary for the level of goods and services to be provided.”
    • Resources provided for the purchase of capital assets meet the definition of subsidies.
    • A subtotal for operating income (loss) and noncapital subsidies be presented.
  • The existing format of the government-wide statement of activities be presented with a schedule of natural classification of expenses by function or program.
  • The information conveyed in a schedule of natural classification of expenses be presented in general purpose external financial reports as supplementary information.
  • Three recognition alternatives proposed in the feedback received to the Invitation to Comment (current financial resources recognition approach with modifications, the economic resources recognition approach, or presentation outside of the basic financial statements) not be pursued.
  • Financial resources be defined as “cash, resources that are expected to be converted to cash, and resources that are consumable in lieu of cash.”
  • Governmental fund financial statements present information that:
  • Reflects a shorter time perspective than information in the government-wide financial statements
  • Facilitates comparison with a government’s budgetary information.
  • The recognition approach for governmental funds be a based on a combination of the near-term and short-term recognition approaches with the following characteristics:
    • One-year (operating cycle) period of availability
    • Accrued interest will be recognized when payable and normally due within one year, which may not necessarily align with the recognition of principal payments on the related debt
    • Recognition of tax and revenue anticipation notes as liabilities
    • Exclusion of the recognition of the current portion of long-term assets and liabilities.
  • The recognition approach be referred to as short-term financial resources.
  • The tentative Board decisions reached to date on (1) budgetary comparison information, (2) business-type activities and proprietary funds, (3) the format of the statement of activities and supplementary schedule of natural classifications not provide opportunities to develop specific proposals for small governments in the Preliminary Views, and (4) the format of the governmental funds resources flows statement do not provide opportunities to develop specific proposals for small governments in the Preliminary Views.
  • An explanation that the statement presents a short-term view of the governmental fund activities and excludes items of a long-term nature be presented after the governmental fund financial statement titles
  • The element titles and line item descriptions proposed for the short-term approach in the ITC be carried forward.
  • The governmental fund financial statement titles proposed for the short-term approach in the ITC be carried forward.
  • The current and noncurrent (long-term) activity format be proposed in the Preliminary Views and that the potential inconsistency in the usage of the term long-term be resolved by describing the capital assets and long-term debt activity as noncurrent, rather than long-term, activity.
  • The Preliminary Views not propose that the reconciliation between information in governmental fund statements and government-wide information be presented on the same page.
  • The reconciliations of the information in governmental fund financial statements to information in government-wide statements continue to be communicated with the governmental fund financial statements.
  • The reconciliation of operating income to net cash flows from operating activities continue to be communicated with the proprietary fund statement of cash flows.
  • A statement of cash flows not be required for governmental funds.
  • The tentative decisions made in relation to the short-term financial resources recognition approach applied by governmental funds not change the classification of permanent funds as governmental funds.
  • The information about noncash investing, capital, and financing activities continue to be communicated as a schedule to the statement of cash flows.
  • The governmental fund financial statements present the financial information of nonmajor funds, as currently required.
  • When it is not feasible to present major component unit financial statements in a separate column in the reporting entity’s statements of net position and activities, the financial statements of the major component units be presented as combining financial statements after the fund financial statements.
  • The tentative Board decisions reached to date not provide opportunities at this time to develop specific recognition-approach-related and presentation proposals for small governments in the Preliminary Views.