GASB to consider governmental going concern standards

By Ken Tysiac

GASB is undertaking a major project on going concern uncertainties and severe financial distress, as well as pre-agenda research activity on subsequent events, as part of its technical plan for the first four months of this year.

Reporting of going concern uncertainties and severe financial stress has long been a challenge for state and local governments because the concept of going concern uncertainties was not specifically developed or significantly modified for the government environment when it was incorporated into GASB's current literature.

Going concern uncertainties affect governments differently from other entities because, as GASB's pre-agenda research has shown, severe financial stress causes few governments to dissolve or cease operations, according to GASB's pre-agenda research.

Although GASB's current guidance establishes financial statement preparers' responsibility to evaluate a government's ability to continue as a going concern, this evaluation can pose challenges and has resulted in diversity in practice, according to GASB. The challenges include determining whether or when governments have a responsibility to evaluate and disclose their exposure to severe financial stress.

Through its project on this issue, GASB is seeking to consider:

  • Improvements to existing guidance for going concern considerations, including the definition of a going concern, to address diversity in practice and clarify the circumstances under which disclosure is appropriate;
  • Developing a definition of severe financial stress and criteria for identifying when governments should disclose their exposure; and
  • What information about a government's exposure to severe financial stress is necessary to disclose.

Subsequent events

The pre-agenda research item on subsequent events is designed to:

  • Evaluate the effectiveness of the existing guidance for identifying and reporting subsequent events; and
  • Consider the need for revisions to those standards.

If the board determines that additional guidance is needed, it would consider developing revised standards for subsequent events accounting and reporting.

GASB also considered adding to its technical plan a project on interim financial reporting and pre-agenda research on related-party transactions, but it chose not to add those topics to its plan for the first four months of 2022.

— To comment on this article or to suggest an idea for another article, contact Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com).

Where to find January’s flipbook issue

Starting this month, all Association magazines — the Journal of Accountancy, The Tax Adviser, and FM magazine (coming in February) — are completely digital. Read more about the change and get tips on how to access the new flipbook digital issues.

SPONSORED REPORT

Get your clients ready for tax season

Upon its enactment in March, the American Rescue Plan Act (ARPA) introduced many new tax changes, some of which retroactively affected 2020 returns. Making the right moves now can help you mitigate any surprises heading into 2022.