Up Close with the Big Three

The GASB is making progress on three projects that together take a comprehensive look at financial reporting for state and local governments.

The “big three” projects are:
  • Financial Reporting Model Reexamination
  • Revenue and Expense Recognition, and
  • Conceptual Framework: Disclosure Framework.

The Financial Reporting Model


GASB research found that the financial reporting model remains effective in most respects, but stakeholders identified several opportunities for improvement. For example, the measurement focus and basis of accounting for governmental funds financial statements is inconsistent and does not provide guidance for more complex transactions such as derivative instruments. The research also found that management’s discussion and analysis is well received but would benefit from clarifying current provisions, and that there was variation in practice related to distinguishing between operating and nonoperating revenues and expenses for business type activities.

The Board issued an Invitation to Comment (ITC) in late 2016, which drew more 100 comment letters, almost 50 testifiers at 5 public hearings, and 30 participants in 3 user forums. Then, in September 2018, the GASB issued a Preliminary Views (PV) that also drew over 100 specific comment letters and dozens of participants in public hearings and user forums. The Board is currently redeliberating project issues based on that stakeholder feedback.

One of the key issues the Board is working through is the measurement focus and basis of accounting for governmental funds. The existing model under Statement 34 introduced major fund reporting, but it did not make changes related to the types of information reported in governmental funds. The Board is attempting to address existing conceptual inconsistencies and has tentatively decided to propose a short-term focus for governmental funds that elaborates on the proposal in the PV.

An Exposure Draft (ED) is planned for mid-2020 with public hearings and user forums to follow in the second half of the year. The ED also will address other aspect of the financial reporting model, including budget-to-actual presentations, proprietary fund financial statements, and management’s discussion and analysis.

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Revenue and Expense Recognition


The Revenue and Expense Recognition project aims to develop a comprehensive accounting and financial reporting model for transactions that result in revenues and expenses.

GASB research identified two major issues around the existing exchange/nonexchange model. First, existing guidance on exchange transactions is limited. Second, guidance in the existing literature on nonexchange transactions could be improved and clarified.

The GASB issued an ITC in January 2018 and received more than 50 comment letters from stakeholders. Three public hearings were conducted to solicit stakeholder feedback on the ITC, at which more than 30 individual testified. Since then, the Board has been redeliberating the project topics in light of the issues raised in that feedback.

In its work toward a PV, the Board has tentatively concluded that a different approach to revenue and expense recognition that classifying them as exchange or nonexchange would be better suited to governments. The PV is expected to propose an improved method of classifying transactions, as well as recognition criteria and measurement guidance, for the revenue- and expense-based transactions within the scope of the project.

The Board anticipates issuing a PV in mid-2020.

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The Disclosure Framework


The Disclosure Framework focuses on developing a conceptual framework for evaluating what information is essential to a financial statement user’s understanding of governmental financial statements and, therefore, is a candidate for disclosure in notes to financial statements. The Board believes that GASB Concepts Statement No. 3, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements, could be enhanced to provide clearer guidance for determining what is essential.

The Board has tentatively developed criteria for evaluating essentiality, which it will issue for public comment in an Exposure Draft of a proposed Concepts Statement toward the end of February. After receiving stakeholder feedback via comments letters and public hearings (scheduled for May 2020), the Board will consider that input during the development of a final Concepts Statement. If the criteria become part of the GASB’s conceptual framework, the Board would subsequently use them to reexamine existing disclosures and to assess potential new disclosures.

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