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 approved: May 2021
  • Comment period: May–August 2021
  • Redeliberations began: November 2021
Current Developments: The comment period for the Exposure Draft, Accounting Changes and Error Corrections, ended August 31, 2021. The Board discussed a summary of respondent feedback in October 2021 and redeliberated the accounting and financial reporting for each of the major categories in November 2021.

Work Plan:
 

Board Meetings

Topics to Be Considered

January 2022 Redeliberate issues related to display, note disclosures, and required supplementary information and supplementary information.
March 2022 Redeliberate remaining issues.
April 2022 Review preballot draft of a final Statement.
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, 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 of Meetings, April 6–7, 2021
 
The Board reviewed a preballot draft of an Exposure Draft of a proposed Statement, Accounting Changes and Error Corrections, and discussed clarifying edits. The Board then agreed to move forward with a ballot draft of an Exposure Draft of a proposed Statement.

Minutes of Meetings, February 2426, 2021
 
The Board continued deliberations on the Prior-Period Adjustments, Accounting Changes, and Error Corrections project by reviewing a draft of the Standards section of an Exposure Draft and discussing clarifying edits. The Board agreed that a preballot draft of an Exposure Draft should be prepared for discussion at the April 2021 Board meeting.
 
Additionally, the Board discussed considerations related to benefits and costs associated with the proposed requirements. The Board tentatively decided that the expected benefits associated with the proposed requirements justify the perceived costs of implementation and ongoing compliance with the resulting accounting and financial reporting standards.
 
Finally, the Board discussed the length of the comment period for an Exposure Draft. The Board tentatively agreed that the comment period should be approximately 90 days and should end on August 31, 2021.

Minutes of Meetings, January 1214, 2021
 
The Board continued deliberations on the Prior-Period Adjustments, Accounting Changes, and Error Corrections project by discussing issues related to the presentation of prior-period information in management’s discussion and analysis (MD&A), required supplementary information (RSI), and supplementary information (SI); definition of and requirements for the first-time adoption of generally accepted accounting principles (GAAP); and interim reporting requirements for a change in accounting principle.
 
The Board first discussed how prior-year information should be presented in MD&A, other RSI, or SI. For reporting periods that are included in the financial statements, the Board tentatively decided to propose that information for those periods be presented in MD&A, other RSI, and SI consistent with how that information is presented in the financial statements. For prior reporting periods that are not included in the financial statements but that are presented in MD&A, other RSI, or SI, the Board tentatively decided to propose that information for those prior periods not be restated in MD&A, other RSI, or SI for changes in accounting principle (including the implementation of a new pronouncement) or changes to or within the reporting entity. However, the Board tentatively decided to propose that information for those prior periods be restated in MD&A, other RSI, or SI for corrections of errors. The Board also tentatively decided to propose that if prior-year information presented in MD&A, other RSI, or SI is not comparable due to an accounting change, an explanation as to why the prior-year information is not comparable be included. The Board tentatively agreed that the explanation in MD&A should include a reference to the related note disclosure in the basic financial statements.
 
Next, the Board tentatively decided to propose that for changes in accounting principle that do not have an effect on net position or fund balance but do result in a reclassification of accounts, amounts be reclassified in prior periods presented, if practicable. Additionally, the Board tentatively decided to propose that for corrections of errors that do not have an effect on net position but do result in a reclassification of accounts, amounts also be reclassified in prior periods presented. For those reclassifications of accounts, the Board tentatively decided to propose that the relevant note disclosures for changes in accounting principle or error corrections, as applicable, include those reclassifications.
 
The Board then discussed the category of first-time adoption of GAAP. The Board tentatively decided to propose that a first-time adoption of GAAP include circumstances in which a government asserts for the first time that its basic financial statements are prepared in accordance with GAAP established by the GASB. The Board tentatively decided to propose that a clarification be provided to indicate that a first-time adoption of GAAP is not considered a change in accounting principle or the correction of an error. The Board also tentatively decided that further requirements pertaining to this category not be established within the context of this project.
 
Next, the Board discussed the relationship between the proposed requirements resulting from this project and interim reporting. The Board tentatively decided that requirements related to how a change in accounting principle should be reported in interim periods should not be established within the context of this project.
 
To conclude the deliberations, the Board discussed proposed requirements regarding effective date and transition provisions. The Board tentatively decided to propose that the proposed requirements resulting from this project be applied prospectively. Furthermore, the Board tentatively decided to propose that language be included in the transition provisions to clarify that existing transition provisions are not modified by the proposed requirements. Finally, the Board tentatively decided to propose that the proposed requirements become effective for accounting changes or error corrections made in reporting periods beginning after June 15, 2023, and that earlier application be encouraged.

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.
    • 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.
    • The scope of the circumstances proposed in paragraph 9a regarding additions or removals of funds within the primary government should be reconsidered at a later meeting.
    • 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.