Pandemic issues for government financial statement preparers and auditors

By Ken Tysiac

The coronavirus pandemic has presented state and local governments and their auditors with many significant changes and challenges that may need to be addressed in governments’ financial statements.

Work-from-home adjustments have led to changes in operations and internal controls. Tax payment deadline delays may have been provided, changing the timing of governments’ revenue receipts, and the general economic downturn has led to revenue shortfalls, valuation challenges, and numerous compliance concerns.

To assist preparers and auditors with these issues, the AICPA has published nonauthoritative guidance with answers to frequently asked questions (FAQs) for state and local government financial statement accounting and auditing matters related to the pandemic.

Some of the topics covered include:

  • Management discussion and analysis (MD&A). Governmental financial statements are required to include an MD&A. The pandemic will make the MD&A more challenging to develop. Preparers are required to include currently known facts that are expected to have a significant effect on financial position or results of operations. Forward-looking discussion, though, must be based on currently known facts and not speculation.
  • Noncompliance with contractual provisions. The current economic situation may cause governments to violate legal and contractual provisions, including debt covenants, minimum fund balance regulations, state investment regulations, and pension or other post-employment benefit (OPEB) funding requirements. GASB standards require disclosure of significant violations of finance-related legal and contractual provisions. “Governments have regulations and laws coming from every direction that they’ve got to comply with,” said Misty Brown, CPA, senior manager–Governmental Auditing and Accounting for the Association of International Certified Professional Accountants. “Governments have to make sure to disclose any significant violations arising from the pandemic and the actions taken to address the violations.”
  • Tax revenue delays. In some cases, governmental entities are providing a one-time delay of the due date for taxes. These delayed tax due dates are resulting in state and local governments’ receiving payments outside the typical 60-day availability period, which has raised questions about the timing of the related revenue recognition. “Under GASB standards, there may be justification for a period greater than 60 days because of the unusual circumstances of the pandemic and the delay of tax due dates,” Brown said. “However, governments will need to disclose that and the reasons for it.”
  • Termination benefits. As tax revenues decrease, governments may seek to cut costs through workforce reductions or early retirement programs. GASB Statement No. 47, Accounting for Termination Benefits, provides guidance on how termination benefits should be recognized.
  • Operating versus nonoperating for proprietary funds. The pandemic has preparers and auditors questioning whether certain transactions, such as federal funds received, should be classified as operating or nonoperating in the proprietary fund resource flows statement. The AICPA staff’s analysis found that the conclusions on this issue will vary based on facts and circumstances, and the FAQs direct preparers and auditors to recent staff guidance from GASB in Question 5 of Technical Bulletin 2020-1, Accounting and Financial Reporting Issues Related to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Coronavirus Diseases.
  • Auditor issues. Risk assessments are likely to be significantly affected in the changing environment. “Because of shutdowns and government employees working remotely, auditors are going to have to consider the effect that any changes in the government’s internal controls will have on the risk of material misstatement,” Brown said. Auditors of state and local governments should also consider risks related to the influx of federal funding relating to the CARES Act, both as it relates to the financial statement audit and to single audits performed.

The AICPA’s Governmental Audit Quality Center (GAQC) has been producing guidance and information on the impact of the pandemic on single audits and has been working to get answers to the many questions that auditors and recipients are raising. The GAQC communicates the latest information through alerts, web events, tools, and the GAQC’s COVID-19 section of its Uniform Guidance Resources webpage.

In addition to the FAQs, the following GAQC pandemic resources have been left open to the public:

Governmental auditors and financial statement preparers are encouraged to monitor the website for updates.

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the pandemic, visit the JofA’s coronavirus resources page.

Ken Tysiac ( is the JofA’s editorial director.

Where to find May’s flipbook issue

The Journal of Accountancy is now completely digital. 





Leases standard: Tackling implementation — and beyond

The new accounting standard provides greater transparency but requires wide-ranging data gathering. Learn more by downloading this comprehensive report.