Joel Black, CPA, replaced David Vaudt, CPA, as chairman of GASB at the beginning of July, shortly after the coronavirus pandemic plunged state and local governments into a chasm of concerns about financial shortages mounting as citizens’ need for services increased.
A former partner in charge of the audit practice at Mauldin & Jenkins LLC in Atlanta, Black has a deep understanding of the difficulties governments are facing in their operations and financial reporting. He is leading GASB as the board is providing temporary relief from standards implementation and guidance on how to apply GASB’s standards in the unusual current environment.
In the longer term, Black and GASB will continue to work on three significant standards that have the potential to change the basis for government financial reporting, revenue and expense reporting, and footnote disclosures.
Black shared his thoughts on these and other issues in this edited Q&A with the JofA.
Your firm did a lot of work for a diverse group of government clients under your supervision. Can you talk about how that work prepared you for this job?
As an auditor of governments of all types and sizes, I have a unique perspective that I bring to the GASB. Having audited a state government comprehensive annual financial report and seeing the process a state has to go through and the challenges involved in putting together a statewide report, I have that perspective. I also have the perspective of working with large cities and counties, and airports, transit authorities, and economic development authorities — I understand all the various challenges these different types of governments encounter in their financial reporting. But I also audited very small cities and towns, so I do understand the burden that our standards place on really small governments as well. That diverse perspective, as you say, does give me a unique perspective to understand how we affect all governments.
Can you talk about the improvements that you’ve seen in government accounting over the last many years? GASB was established just 36 years ago, and it’s still an evolving organization, but certainly a lot of progress has been made to tailor government accounting to government-specific entities.
Since its inception, GASB has done a great job of keeping a focus in government financial reporting on the accountability characteristic of state and local government financial reporting. Having that need for accountability to all the various users is really what makes governments unique. GASB’s Statement 34 [Basic Financial Statements — and Management’s Discussion and Analysis — for State and Local Governments, issued in 1999] was a giant shift and improvement to government financial reporting, bringing infrastructure in for the first time and having the overall presentation of both short-term and long-term perspectives. And then, over the years since GASB 34, the board has continued to improve financial reporting by addressing things like pension and OPEB [other post-employment benefit] liabilities, and the new lease standards. So, it has continued to refine and grow government financial reporting.
Now the entire financial reporting model for state and local governments would change under a proposal that really was just issued, with the application of a short-term financial resources measurement focus replacing the existing current financial resources measurement focus. The accrual basis of accounting would underpin the model. What effect would this have on government accounting and financial statements?
For the most part, the board’s financial reporting model project will make targeted improvements to the overall financial reporting model of state and local governments. But the one particular aspect of the new proposed standard that you mentioned, changing to a short-term financial resources measurement focus, and away from the current financial resources measurement focus and modified accrual, will bring more consistency to the governmental financial statements. The current financial resources measurement focus is really a series of accounting conventions that, if you didn’t grow up with them over the years, can be hard to learn for new government accountants. It can also sometimes lead to inconsistent reporting of similar transactions. I believe the new, proposed measurement focus and basis of accounting will provide more consistency. It will be easier to understand how every transaction runs through the government and governmental funds, and it will also provide more consistency in reporting from government to government.
How concerned are you about the state of government finances in general, because of the current economic crisis?
All state and local governments are facing challenging economic times, and they’re being asked to provide more services with fewer resources. I think it’s important for many people to understand that the negative financial impact and subsequent recovery for governments doesn’t happen as immediately as it does for many corporations and other industries. Instead, it tends to happen over time. So I think we’re going to be seeing the repercussions of this crisis over the next several years, and the subsequent recovery will take equally long.
What added pressure do you think we’ll see specifically on government finance departments, as a result of the pandemic?
The finance departments, similar to my last answer, are going be asked to do more with less. They will need to provide more timely information to try to help all the various users make decisions, whether that’s administrators, legislative bodies, investors, or citizens, or any user, really. This may include projecting information and providing more updated and continuous disclosure information. Finance departments are going to be stretched to provide even more information but sometimes with fewer resources. Governments are having to cut budgets, and finance departments aren’t immune to that, and I think that’s going be a real challenge.
As an aside to that, GASB’s role in all of this is really to make sure the story is told in the most accurate way, and maybe user-beneficial way, as possible.
I think it is. Our mission is to create standards that allow for decision-useful information to be provided within the government financial report. Now, as much as any time ever, that useful financial information, essential financial information, will be very important to be presented in government financial reports.
GASB delayed certain implementation requirements as a result of the pandemic. Is there anything else the board can do, related to the pandemic, to improve financial reporting without stressing out the system?
We have also recently issued a technical bulletin on the accounting for the CARES Act [Coronavirus Aid, Relief, and Economic Security Act, P.L. 116-136] funding. We believe that the technical bulletin is really helpful to both preparers and auditors because it answers common questions we were getting and it provides easy access to those answers. We also, on our website, have what we call the emergency toolbox, which is a listing of accounting issues that governments may not routinely encounter, but in the current situation, may encounter for the first time or first time in many years. The toolbox provides references to the appropriate guidance for those transactions, and I think that’s a very useful tool as well. We do continue to have dialogue with all of our stakeholders, government financial reporting preparers, auditors, and users about their challenges and what they’re facing, so that we can determine if there is additional guidance we can provide that would be helpful. Or whether there is potentially any future relief we can provide that would be helpful as well to all those different constituency groups.
Do you have ideas on what future standard-setting issues are most important for the board?
We have what we call the “big three” projects — the financial reporting model we talked about earlier; the revenue and expense recognition project; and the disclosure framework project. They are all very significant projects that are in various stages of progress. Two of them, the financial reporting model and revenue and expense recognition, have significant due process documents out right now — an exposure draft for the financial reporting model and a preliminary views document on revenue and expense recognition. We look forward to getting feedback on those documents and future deliberations. In addition to those big three, one of the more significant topics we are beginning to undertake is revisiting capital assets, in particular infrastructure. This will be an important topic for us to consider for potentially improving how those assets are accounted for and presented in financial reports. I look forward to what our research efforts uncover, and I think the board is very interested in that topic.
You talked earlier about the financial reporting model project; can you summarize the other two of the big three, the revenue and expense recognition and then the disclosure framework?
The revenue and expense recognition project is another one that will allow for more consistency. That seems to be a common theme throughout the big three is to allow for more consistent, easy application. Many of the challenges that governments and government accountants face with revenue and expense recognition are being revisited. Based on the preliminary views, I think there will be a significant improvement in how, from government to government, revenues and expenses are recognized that will improve consistency. On the footnote disclosures project, there are a significant amount of disclosures in the statements right now, and that bears revisiting. The first step in revisiting those footnote disclosures was the board revisiting the concepts statement related to what should be disclosed in government financial reports. And I think that the exposure draft that we are redeliberating right now is an improvement to really lay out, for future boards, what footnote disclosures need to have, in order to be required in government financial reports.
Do you have any specific goals, as you begin your tenure?
My main goal is for us, as an organization, to evolve and make necessary changes. As state and local governments change and evolve related to their financial reporting, and as users evolve in how they consume government financial reports, I want us as a board and an organization to be in a good position to evolve to our appropriate place in that process. I routinely use a Bill Gates quote, where he said that we often overestimate how much change will occur in the next two years but underestimate how much change will occur in the next 10 years — don’t be lulled into inaction. My goal is for us not to be inactive, but to be very observant and to have dialogue with all the different stakeholders in government financial reporting, so that we’re changing and evolving as the world changes and evolves, so that we have our appropriate place as a standard setter for government financial reporting.
— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.