GASB Exposure Draft of Financial Reporting Model Improvements

With an eye towards improving the financial reporting model used by governments, the GASB issued an exposure draft, Financial Reporting Model Improvements, which aims to enhance the effectiveness and comparability of financial reporting for financial statement users. The proposal eliminates conceptual inconsistencies and provides additional guidance in areas that were previously lacking. The most notable updates include: 

Management’s Discussion and Analysis (MD&A)

Although the objective of the MD&A remains unchanged, the proposal limits the MD&A to the following sections to avoid unnecessary repetition and remove “boilerplate” language:

  1. Introduction
  2. Financial Summary
  3. Detailed Analyses
  4. Significant Capital Assets and Long-Term Debt Activity
  5. Currently Known Facts, Decisions or Conditions

The information should present comparisons between the current year and prior year to users with a description of why balances and results changed. 

Unusual or Infrequent Items

Transactions and events that are unusual in nature or infrequent in occurrence will be reported as the last presented flow of resources prior to the net change in resource flows in the financial statements. 

Presentation of the Proprietary Fund Statement of Revenues, Expenses, and Changes in Fund Net Position

Revenues and expenses will continue to be classified as operating and nonoperating. Nonoperating revenues and expenses include:

  • Subsidies received and provided
  • Revenues and expenses related to financing
  • Resources from the disposal of capital assets and inventory
  • Investment income and expenses 

Operating revenue and expenses include all others. Additionally, proprietary fund financial statements will include a subtotal for “Operating income (loss) and noncapital subsidies” above the line for other nonoperating revenues and expenses. 

Application of the Short-Term Financial Resources Measurement Focus and Accrual Basis of Accounting in Governmental Funds 

Governments will prepare financial statements using a short-term financial resources measurement focus using an accrual basis, replacing the existing current financial resources measurement focus and the modified accrual basis of accounting.  The proposed change in accounting whereby short-term transactions will be recognized when related events occur and long-term transactions will be recognized when payment is due. The proposal includes a hierarchy to help determine if transactions should be recognized in the financial statements.

Presentation of Governmental Fund Financial Statements

The short-term financial resource flow statement will be presented using a current and noncurrent activity format. The financial statements will be renamed to “Short-Term Financial Resources Balance Sheet” and “Statement of Short-Term Financial Resource Flows”. Additionally, the financial statements will reflect when the fund balance is available for use in the next reporting period.

Budgetary Comparison Information

Within the required supplementary information (RSI), governments will present the variances between:

  • Final budget and actual amounts
  • Original and final budgeted amounts

Notable budget variances will be explained in the notes to the RSI.

Proposed Effective Date

If adopted, the exposure draft’s effective date depends on the government’s total annual revenues for its first fiscal year beginning after 06.15.22:

  • $75 million or more – Fiscal years beginning after 06.15.24
  • Less than $75 million – Fiscal years beginning after 06.15.25

A series of public hearings and user forums are tentatively scheduled for March and April 2021.

For more information, the GASB published a fact sheet to assist with questions on the proposed standard. 

Questions on how any of this impacts your organization? Facing new challenges and need a new perspective? We are here to help. Please feel free to reach out

Carrie Rice
Carrie Rice | Partner