GASB to take deeper dive into financial statements

The Governmental Accounting Standards Board (GASB) will be taking a closer look at the financial reporting model for state and local government financial statements, including examining the complexity of the current model and the potential effects on the timeliness of financial reporting.

The goal of the project, which was added to the GASB’s technical agenda on Sept. 2, is to make improvements to the existing financial reporting model for government entities, which was established in 1999 through Statement No. 34,Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, and subsequent related pronouncements.

Among other benefits, any improvements would be meant to enhance the effectiveness of the financial reporting model in providing information essential for decision-making and assessing a government’s accountability, according to the GASB.

“The financial reporting model has a pervasive influence on the effectiveness of financial reporting of US state and local governments and the extent to which the objectives of financial reporting are achieved,” GASB Chairman David Vaudt said in a written statement. “However, the current model has been fully in effect for a decade. It is an important part of effective standards-setting to routinely seek to improve existing standards that have been in effect for some time.”

Statement No. 34 established the current structure for state and local government financial reporting, including the format and contents of the basic financial statements, certain related notes to the financial statements, and required supplementary information, such as management’s decision and analysis (MD&A).

One of the most significant additions to the reporting model that resulted from Statement No. 34 was the introduction of governmentwide financial statements containing accrual information, which includes the reporting of infrastructure, other capital assets, and long-term liabilities.

The re-examination will consider research GASB staff has conducted with users, preparers, and auditors of governmental financial statements over the past two years on how the financial reporting model is functioning in practice.

Six potential areas of improvement in the financial reporting model include:

  1. MD&A: options will be explored for enhancing the financial statement analysis section of MD&A and guidance clarified for presenting currently known facts, decisions, or conditions expected to have a significant effect on financial position or results of operations.
  2. Governmentwide financial statements: alternatives will be explored for the format of the statement of activities. The board will also assess whether the value of the information provided by a governmentwide statement of cash flows would outweigh the costs of providing that information.
  3. Major funds: options will be explored for providing additional information about debt service funds.
  4. Governmental fund financial statements: the GASB will explore a conceptually consistent measurement focus and basis of accounting, and develop a related presentation format for governmental fund financial statements.
  5. Proprietary fund financial statements: options will be explored for enhancing the consistency and usefulness of presenting operating and nonoperating revenues and expenses.
  6. Budgetary information: options will be explored for enhancing the consistency of the presentation method and value of budgetary information.

In each of these areas, the GASB will look for opportunities to reduce the complexity of financial statements, which could positively impact the timeliness of governmental financial reporting.

The GASB is scheduled to begin project deliberations next month and anticipates issuing an initial due process document for public comment by the end of 2016.

[cryout-button-color url=»» color=»#47AFFF»]Basic Financial Statements— and Management’s Discussion and Analysis—for State and Local Governments[/cryout-button-color]

Source: Accounting Web

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