GASB proposes targeted improvements, new concepts

By Ken Tysiac

GASB issued separate proposals Friday that are designed to deliver targeted improvements to the financial reporting model and advance new concepts to guide the board in developing standards on recognition in state and local government financial statements.

In one “preliminary views” document, Financial Reporting Model Improvements, GASB presents proposals for improvements to the financial reporting model. The proposals aim to make the model more effective in providing information necessary for decision-making and assessing a government’s accountability.

The document considers improvements in selected areas of the existing financial reporting model; a subsequent proposal will address enhancement of other areas of the model.

The proposed improvements include:

  • A short-term financial resources measurement focus for governmental funds that recognizes short-term transactions and other events when incurred and long-term transactions and other events when due.
  • A format for governmental fund financial statements that distinguishes between current and long-term resource flows.
  • Clarified explanations of operating and nonoperating revenues and expenses.
  • An additional subtotal in proprietary fund financial statements for operating income or loss, and noncapital subsidies.
  • Presentation of all budgetary comparison information as required supplementary information and required presentations of two variance columns.
  • Communication of major component unit information either in the governmentwide statements or in combining financial statements.
  • A new schedule of governmentwide expenses by natural classification as supplementary information in comprehensive annual financial reports.

The second preliminary views document, Recognition of Elements of Financial Statements, presents the board’s views on concepts related to recognition of elements of financial statements, such as assets and liabilities.

In state and local government financial statements, recognition concepts encompass two aspects:

  • The measurement focus of a specific financial statement determines what items should be reported.
  • The related basis of accounting determines when those items should be reported.

GASB is proposing that an item being considered for recognition in financial statements would be evaluated using a hierarchy for recognition of elements. The hierarchy would require the board to follow a specific order of elements when considering if an item should be recognized and as what element (for example, as an asset, deferred outflows of resources, or expense).

In addition, GASB is proposing a recognition framework for the short-term financial resources measurement focus (proposed for use in governmental fund financial statements in the other preliminary views document) and the economic resources measurement focus (used in governmentwide, proprietary fund, and fiduciary fund financial statements).

“What the board ultimately is trying to do through these companion projects is provide better information to financial statement users,” GASB Chairman David Vaudt said in a news release. “These proposals are designed to enhance both the value and clarity of the information reported in financial statements.”

GASB is seeking public comments on the proposals. Written comments can be emailed to director@gasb.org.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.

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