GASB to Look at Disclosures on Going Concern and Debt for Governmentsby
The Governmental Accounting Standards Board (GASB) on April 23 voted to begin examining how to make improvements to going concern and debt disclosure guidance for state and local governments.
The board also voted to remove a project on economic condition reporting from its current technical agenda.
Based on feedback it received from stakeholders, the GASB decided to initiate research on going concern disclosures, specifically the relevance of the “going concern” concept as it applies to governments and government organizations.
The research will focus on whether existing standards under US Generally Accepted Accounting Principles (GAAP) provide state and local government financial statement preparers with sufficient guidance about management’s responsibilities for evaluating and disclosing uncertainties associated with severe financial stress.
Last August, the GASB’s sister organization, the Financial Accounting Standards Board (FASB), released an Accounting Standards Update that defines management’s responsibility to evaluate whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern for a period of one year from the date the financial statements are issued.
The FASB guidance also provides principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes.
The GASB on Thursday also approved research on potential improvements to debt disclosure guidance. With state and local governments diversifying their debt-issuance practices – increasingly seeking direct bank loans rather than issuing municipal bonds – disclosures in this area have been inconsistent, according to the GASB.
The research on potential improvements to debt disclosure guidance will focus on whether notes to the financial statements currently provide sufficient debt information to financial statement users for decision making and assessments of accountability.
Both going concern and debt disclosure guidance were identified as high priorities by the members of the Governmental Accounting Standards Advisory Council (GASAC) at their March meeting. Based on the outcomes of the research and feedback from stakeholders, including the GASAC, the GASB will decide whether to add projects to the current technical agenda to consider amending the existing standards.
The economic condition project – which contemplated financial reporting requirements related to financial projections – was put on hold in 2012 and has not been subject to deliberations since that time.
“The input and feedback we received from stakeholders on the Preliminary Views on economic condition reporting was highly valuable and will likely serve to inform our work in the future – including the research the board has called for regarding going concern disclosures,” GASB Chairman David Vaudt said in a written statement.