GASB Current Projects: Government Accounting Standards on the Horizon

The Role of GASB in Government Accounting

The Governmental Accounting Standards Board (GASB) establishes accounting and financial reporting standards for state and local governments in the United States. These standards affect thousands of governmental entities, including states, cities, counties, school districts, public utilities, and other special-purpose governments. For CPA candidates, governmental accounting appears on the FAR section of the exam, and understanding GASB standards is essential for answering questions about government financial statements and fund accounting.

GASB operates independently from FASB and follows a different conceptual framework tailored to the unique characteristics of government entities, including their reliance on taxation and intergovernmental revenues, their accountability to constituents, and their use of fund accounting to track resources restricted for specific purposes.

Revenue and Expense Recognition

GASB has been working on a comprehensive project to establish a single, cohesive framework for revenue and expense recognition for state and local governments. Currently, governmental accounting uses different recognition models for different types of transactions, including exchange transactions, nonexchange transactions (such as taxes and grants), and imposed nonexchange revenues. This fragmentation has led to inconsistencies and implementation challenges.

The proposed framework would establish a principles-based approach to revenue and expense recognition that considers the nature of the transaction and the performance obligations involved. For CPA candidates, this project reinforces the importance of understanding the current revenue recognition models for governmental entities and the conceptual differences between exchange and nonexchange transactions.

Financial Reporting Model Improvements

GASB has been considering improvements to the financial reporting model originally established by GASB Statement No. 34. These potential changes could affect the presentation of government-wide and fund financial statements, the reporting of budgetary information, and the use of management discussion and analysis (MD&A) as required supplementary information.

Specific areas under consideration include whether to modify the current requirement for government-wide financial statements to use the economic resources measurement focus and accrual basis of accounting, whether to change the presentation of governmental fund financial statements, and whether to revise the requirements for MD&A to make it more useful and less boilerplate.

Going Concern Considerations for Governments

Unlike private sector entities, governments generally do not go out of business. However, fiscal stress can significantly affect a government ability to provide services and meet its obligations. GASB has examined how to assess and disclose fiscal stress indicators, including whether and how to adapt the going concern concept for governmental entities. CPA candidates should understand that the going concern assumption operates differently in the governmental context.

Pension and OPEB Reporting

Pension accounting remains one of the most significant and complex areas of governmental accounting. GASB Statements No. 67, 68, 73, 74, and 75 established the current framework for reporting pension and other postemployment benefit (OPEB) obligations. GASB continues to monitor the implementation of these standards and may issue additional guidance to address practical challenges.

Key issues include the measurement of the total pension liability and total OPEB liability, the selection of the discount rate used in the measurement, the allocation of pension and OPEB costs among employer entities in cost-sharing arrangements, and the presentation of deferred outflows and deferred inflows of resources related to pensions and OPEB. These topics are heavily tested on the CPA exam.

Infrastructure Asset Reporting

GASB has examined how governments report infrastructure assets, which include roads, bridges, water systems, and other long-lived assets that are essential to public services. The current modified approach allows governments to report infrastructure assets without depreciation if they maintain the assets at a condition level established by the government and document their assessment of the condition of the assets. GASB has considered whether this approach provides sufficient information to financial statement users.

Subscription-Based IT Arrangements

GASB Statement No. 96, effective for fiscal years beginning after June 15, 2022, addresses the accounting for subscription-based information technology arrangements (SBITAs). Similar in concept to the lease accounting model under GASB 87, this standard requires governments to recognize a right-to-use subscription asset and a corresponding subscription liability for SBITAs that meet certain criteria. CPA candidates should understand the recognition, measurement, and disclosure requirements for SBITAs.

Key Takeaways for CPA Candidates

GASB sets standards for state and local government financial reporting, separate from FASB standards for private sector entities.
Pension and OPEB reporting is the most complex and heavily tested area of governmental accounting on the CPA exam.
Understand the fund accounting framework, including the differences between governmental, proprietary, and fiduciary funds.
Study the current financial reporting model under GASB 34, including government-wide and fund financial statements.
Monitor GASB projects for potential changes to revenue recognition and the financial reporting model.
Review GASB 87 (leases) and GASB 96 (SBITAs) for the recognition of right-to-use assets and corresponding liabilities.

Government accounting represents a significant portion of the CPA exam FAR section. Building a solid understanding of GASB standards, both current and emerging, will help you answer exam questions with confidence and prepare you for the specialized knowledge demanded in public sector accounting.