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.
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).