The financial reporting model of the governmental accounting standards board (GASB) is undergoing its periodic review, with the next update expected in 2022. The purpose of the review is to ensure that the model remains relevant and useful to users while also providing improved comparability and transparency.

One of the key areas being considered in the update is the implementation of new generally accepted accounting principles (GAAP). The GASB has been working with the Financial Accounting Standards Board (FASB) to develop a single set of GAAP that both state and local governments could use.

While the FASB has been working on this project for several years, the GASB is now considering how best to implement the new GAAP in its own reporting model. The GASB formed an Implementation Task Force to study the issue and make recommendations. This task force issued its report in early 2021. The GASB also issued an exposure draft of the proposed changes to the model, which was open to the public for comments.

The proposed changes to the GASB model significantly changed how state and local governments report their financial information. For example, the proposed changes now require state and local governments to disclose their use of special purpose entities. The proposed changes have also changed how state and local governments report their pension and other post-employment benefits liabilities.

Read on to explore the GASB implementation guide further and discover the key changes if the proposed changes are adopted.

1. Disclosure of Special Purpose Entities

Under the current GASB reporting model, state and local governments are not required to disclose their use of special purpose entities (SPEs). However, the exposure draft of the proposed changes would require state and local governments to disclose their use of SPEs in their financial statements.

SPEs are legal entities created for a specific purpose, such as financing a project or managing risk. SPEs are often used by state and local governments to finance infrastructure projects or to manage the risks associated with certain activities.

The proposed disclosure requirements would apply to all SPEs, regardless of whether they are created by the government or by a third party. The disclosure requirements would also apply to SPEs not consolidated with the government for financial reporting purposes.

2. Reporting of Pension and Other Post-Employment Benefits Liabilities

The proposed changes to the GASB reporting model would also change how state and local governments report their pension and other post-employment benefits (OPEB) liabilities. Currently, state and local governments report their pension liabilities on a pay-as-you-go basis.

Under the proposed changes, state and local governments would be required to report their pension and OPEB liabilities on an accrual basis. The change would bring the GASB reporting model in line with how private companies report their pension and OPEB liabilities.

The proposed changes would also require state and local governments to disclose their pension and OPEB liabilities in their financial statements. The disclosure requirements would apply to all governments, regardless of whether they participate in a pension or OPEB plan.

3. Classification of Revenues and Expenditures

As part of the proposed changes, the GASB is considering two options for classifying revenues and expenditures. Under the first option, all revenues and expenditures would be classified as operating or nonoperating.

Under the second option, revenues and expenditures would be classified as operating, nonoperating, or capital. The GASB is seeking feedback on both options and will decide which option to adopt later.

4. Governmental Funds

The proposed changes to the GASB reporting model would significantly change how governmental funds are reported. The most significant change would be the elimination of the General Fund. According to the GASB, governmental funds “account for most general government activities financed primarily through taxes, intergovernmental revenues, user charges, and other non-exchange revenues.”

The proposed changes would also change how other governmental funds are reported. For example, the proposed changes would require reporting governmental funds on a budgetary basis.

The GASB is seeking feedback on the proposed changes to the reporting of governmental funds.

5. Proprietary Funds

The proposed changes to the GASB reporting model would also change how proprietary funds are reported. Proprietary funds account for activities that are most like those of private businesses.

The GASB is seeking feedback on the proposed changes to reporting proprietary funds. The proposed changes would require reporting proprietary funds on a budgetary basis. Also, the GASB is considering whether to require accrual accounting for proprietary funds.

6. Fiduciary Funds

Fiduciary funds are used to report the activities of state and local government trusts and similar entities. The proposed changes to the GASB reporting model would significantly change how fiduciary funds are reported.

Besides changing how fiduciary fund activities are reported, the proposed changes would also require disclosing fiduciary fund information in government-wide financial statements. The GASB is seeking feedback on the proposed changes to reporting fiduciary funds.

7. Non-GAAP Financial Measures

The proposed changes to the GASB reporting model would prohibit the use of non-GAAP financial measures. Non-GAAP financial measures are financial measures that are not prepared following generally accepted accounting principles.

The GASB is seeking feedback on the proposed prohibition of non-GAAP financial measures. The GASB will decide whether to adopt the proposed prohibition later.

8. Effective Date

The proposed changes to the GASB reporting model would be effective for financial statements for periods beginning after December 15, 2022. The GASB is seeking feedback on the proposed effective date. The GASB will decide whether to adopt the proposed effective date later. However, the GASB is considering delaying the effective date for certain provisions. But, the GASB has not proposed any specific delays at this time.

Conclusion

The GASB proposes significant changes to how state and local governments report their financial information. The proposed changes would affect all state and local governments. Moreover, the proposed changes would significantly impact how state and local governments prepare their financial statements. Lastly, the GASB is still seeking feedback on the proposed changes and will decide whether to adopt the proposed changes later.