Financial Reporting Model Reexamination

What Is the Financial Reporting Model Reexamination?

In September 2015, the GASB added a project to its agenda to reexamine the blueprint of state and local government financial reporting. The project is meant to result in 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 related pronouncements.

When it was issued in 1999, Statement 34 set the formats and measurement focuses of financial statements in place today, ushered in important innovations to general purpose external financial reporting, and made it possible to more fully assess a government’s overall financial health.

The Statement also introduced important changes to the content and appearance of the governmental annual financial report, including the additions of management’s discussion and analysis, government-wide financial statements, and major fund reporting.
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What Does the Exposure Draft Propose?

The Exposure Draft, Financial Reporting Model Improvements, presents the Board’s proposed improvements to key components of the blueprint for state and local government annual financial reports. The proposals are designed to:
  • Enhance the effectiveness of the financial reports in providing information essential for making decisions and assessing a government’s accountability, and
  • Address certain application issues..
The Exposure Draft includes proposals that would establish or modify existing accounting and financial reporting requirements related to:
  • Application of the short-term financial resources measurement focus and accrual basis of accounting in governmental funds (replacing the existing current financial resources measurement focus and modified accrual basis of accounting)
  • Management’s discussion and analysis
  • Presentation of governmental fund financial statements
  • Presentation of the proprietary fund statement of revenues, expenses, and changes in fund net position
  • Unusual or infrequent items
  • Budgetary comparison information.
The changes in the proposed Statement would improve financial reporting in a
variety of ways.
 
For example, the proposed short-term financial resources measurement focus
and accrual basis of accounting would improve the consistency of the
information in governmental fund financial statements.
 
The proposed changes to the presentation of governmental fund financial
statements would (1) make the short-term nature of their information more
evident and understandable and (2) more clearly differentiate them from the
long-term perspective of the government-wide financial statements.
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Why Did GASB Add the Financial Reporting Model Reexamination to the Agenda?

Reexamination of the model had become a high priority issue to GASB stakeholders. For a number of years, the Governmental Accounting Standards Advisory Council—the Board’s advisory group—has ranked reexamination of the financial reporting model as a top priority.

The Board added the topic to its slate of pre-agenda research activities in 2013. While the results of extensive research conducted over two years by the staff indicate that most components of the financial reporting model remain effective, they did highlight a number of areas that could benefit from improvements.

In September 2015, the GASB decided that based upon the research results 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 period of time.
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What is the Objective of the Reexamination?

The overall objective of the many improvements being considered is to enhance the effectiveness of the financial reporting model in providing information essential for decision-making and assessing a government’s accountability and to address application issues.

Throughout this project, a key part of the Board’s work will be to look for opportunities to reduce the complexity and the length of the financial statements. Over the course of the project, the GASB will keep a keen eye out for appropriate changes to the financial reporting model that could positively impact the timeliness of government financial reports.
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Share Your Views

Written comments should be emailed to the Director of Research and Technical Activities, Project No. 3-25 (Financial Reporting Model Improvements) at director@gasb.org.
 
Stakeholders are asked to review the proposals and provide input on the document by February 26, 2021.
 
A series of public hearings and user forums on the Exposure Draft tentatively have been scheduled for March and April 2021 to further enable stakeholders to share their views with the Board.
 
The deadline for written notice of intent to participate is February 26, 2021. Additional information about participating in the public hearings and user forums is available in the Exposure Draft.
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Videos

Financial Reporting Video Series

Introduction
Recognition Concepts in Governmental Funds

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