Back to Square One: Six Questions About GASB’s Financial Reporting Model Project
- Contributor
- Dean Michael Mead
Oct 4, 2023
What is the financial reporting model and why is the gasb reexamining it, why is the gasb reexamining the reporting model.
- Whether the standards were functioning as expected.
- Whether any unexpected changes had occurred because of them.
- Whether the information they required was valuable to financial statement users.
- The costs and benefits of the standards.
What did GASB think was wrong with the governmental funds?
What happened next.
- An Invitation to Comment (ITC) in 2016 that laid out the areas of improvement identified by stakeholders and potential improvements to those standards
- A Preliminary Views (PV) in 2018 that, based on the feedback on the ITC, first proposed a short-term financial resources and accrual MFBA for the governmental funds
- An ED of a proposed Statement in 2020 that retained the PV’s MFBA with improvements reflecting stakeholder input on the PV.
Why did the GASB decide to drop governmental funds from the project?
What will happen with the project now.
- Unusual or infrequent items (called special and extraordinary items at present)
- Structure of the proprietary fund financial statements
- Definitions of operating and nonoperating
- Reporting major component units in financial statements, and
- Presenting budgetary comparisons as required supplementary information.
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- FINANCIAL REPORTING
Lessee accounting for governments: An in-depth look
State and local governments can comply with gasb statement no. 87 with the help of these practical illustrations..
- Governmental Auditing
- GASB Accounting Requirements
- Accounting & Reporting
- FASB Financial Accounting & Reporting
Following FASB's issuance of Accounting Standards Update (ASU) No. 2016 - 02 , Leases (Topic 842) , in 2016, GASB issued Statement No. 87, Leases , in June 2017, to become effective for reporting periods beginning after Dec. 15, 2019.
In the United States, lease accounting standards have historically been in alignment for governmental entities and nongovernmental entities. Indeed, under National Council on Governmental Accounting (NCGA) Statement 5, Accounting and Financial Reporting Principles for Lease Agreements of State and Local Governments , governmental units were required to follow the tenets of FASB Statement No. 13, Accounting for Leases .
But when GASB released GASB 87, it broke with that tradition by adopting a standard that more closely resembles the International Accounting Standards Board's IFRS 16, Leases . While FASB ASU Topic 842, Leases , continues to divide leases into the categories of operating and finance leases on meeting any one of five criteria or not, GASB 87 shares with IFRS 16 the notion of a single model that all leases represent financings. As discussed in greater detail below, GASB 87 provides for three accounting treatments: short - term leases, contracts that transfer ownership, and contracts that do not transfer ownership — a catchall for all remaining leases of nonfinancial assets.
Without the need to distinguish between operating and finance leases, the new GASB standard, like IFRS 16, is somewhat different from Topic 842, while still improving the recognition of leased assets and related liabilities and improving the comparability of financial statements among governmental entities.
SHORT-TERM LEASES
Under GASB 87, the identification of a short - term lease hinges entirely on the length of the maximum possible noncancelable lease term. If the lease agreement specifies a noncancelable term, after considering the effects of potential extensions (regardless of their likelihood of being exercised), of 12 months or less, the lease is deemed a short - term lease.
Lessee accounting for short - term leases is functionally identical to the accounting for operating leases under FASB 13, requiring entries to be posted only to account for the outflow of resources during each period. For governmentwide and proprietary fund financial statements (accounted for using economic resources measurement focus), these payments will be recognized as a rent expense, while for modified accrual fund financial statements, the rent payments will be recorded as expenditures. Short - term leases require no additional disclosures.
CONTRACTS THAT TRANSFER OWNERSHIP
Lease contracts that transfer ownership are treated explicitly as sales of the asset by the lessor and a purchase of the asset on credit by the lessee. To qualify for such treatment, the lease contract has to transfer ownership of the asset to the lessee by the end of the contract and cannot contain termination options. It should be noted that GASB allows contracts to contain fiscal funding or cancellation clauses and be treated as a sale as long as it is reasonably certain the clauses will not be exercised.
ALL OTHER LEASES
All leases that do not fall into the two categories listed above are treated with the new single - model approach. Lessees will be required to concurrently recognize a right - of - use asset (reported as an expenditure on modified accrual fund financials, like a capital asset purchase) and the related lease liability (other financing source on modified accrual fund financials). The lease liability, as was standard under FASB 13, will be measured at the present value of effectively fixed minimum lease payments, while the asset's initial balance will equal the liability plus additional payments for initial direct costs made to the lessor on or before the start of the lease term. As the right - of - use asset is classified as an intangible, lessees will be required to amortize the value of the asset in a systematic manner over the shorter period of the lease term or the useful life of the asset. Consistent with the lease liability's treatment as a financing, lessees will also recognize interest expense (expenditures on modified accrual fund financials) over time based on the current balance of the lease and the implicit interest rate charged to the lessee.
Lessee disclosures under the GASB 87 single - model approach will be functionally similar to the disclosures required of lessees with capital leases under the FASB 13 requirements, including a description of leasing arrangements, a summary of lease assets' historical cost and accumulated amortization by type of asset, and a delineation of principal and interest payments required over each of the next five years and beyond, grouped in five - year increments. Special lease transactions, such as subleases and sale - leaseback transactions, will require separate disclosures.
RETROSPECTIVE APPLICATION
Retrospective application is required for prior years under GASB 87 by restating financial statements for all periods presented, unless it would be impractical to do so, as in the case where the required information could no longer be obtained. For example, prior - period information about expired contracts might be unavailable from a lessor that no longer exists. Therefore, in cases where full restatement is not practicable, GASB 87 provides a practical expedient. Under this expedient, governments should adjust fund net position, fund balance, or beginning net position, where appropriate, for the cumulative effect of applying the new statement for the earliest year presented on the financial statements. If a lessee government claims that full restatement is not practicable, it must disclose the reason.
ILLUSTRATIONS
The illustrations in the tables with this article demonstrate the basics of how lessees will be required to account for short - term and long - term ownership transferring and non - ownership - transferring leases and how to present them on their financial statements under GASB 87.
Table 1 illustrates a short - term lease, including the calculations and required journal entries under both accrual and modified accrual accounting.
Table 1: Illustration of lessee accounting for a short-term lease
Table 2 i llustrates a long - term ( non - ownership - transferring ) lease for Pike Township, including the present value calculations and an amortization table. Large organizations with adequate budgets can purchase sophisticated leasing software to automatically calculate the present value of future lease payments. Organizations too small to afford such software can either obtain the present value of an annuity of future lease payments using free calculators available on websites (e.g., the Investopedia present value calculator available at investopedia.com or calculate it using the Excel PV function, entered as =PV(interest rate, number of periods, payment amount, future or residual value, payment time end of period=0 or beginning of period =1) . A final option is to obtain the appropriate present value factor from annuity tables provided in most accounting and finance textbooks and multiply it by the annual lease payment.
Table 2: Illustration of lessee accounting for a long-term (non-ownership-transferring) lease
The Excel PV formula displayed in Table 2 contains a few subtleties. First, the lease payment amount of $10,000 must be entered as a negative number because it represents a cash outflow. The next element in the formula is zero, indicating the lessee receives no future or residual value. If so, it would be entered as a positive number to represent a future inflow. The final element in the formula is zero, indicating this is an ordinary annuity where payments occur at the end of each period. If payments were made at the beginning of each period (an annuity due), the final element in the formula would be 1.
The Excel ROUND function is useful with the PV function because it rounds a number to a specified number of digits. It is entered as =ROUND(the number you want to round, the number of digits to which to round) . Table 2 shows how these two functions can be nested together. To avoid decimals in the amortization table in Table 2, all formulas used the ROUND function with the number of digits set to zero.
Table 3 shows the journal entries required by the illustration in Table 2.
Table 3: Journal entries for illustration in Table 2(non-ownership-transferring) lease
For comparison with Table 2, Table 4 illustrates a long - term ownership - transferring lease.
Table 4: Illustration of lessee accounting for a long-term(ownership-transferring) lease
Table 5 presents the journal entries for both accrual accounting and modified accrual accounting for Pike Township based on the illustration in Table 4.
Table 5: Journal entries for the illustration in Table 4 (ownership-transferring) lease
Tables 6 and 7 display the presentation of lease accounts on the lessee governmentwide statement of net position and statement of activities, assuming the same facts as in Tables 1, 2, and 3. For the statement of net position, the right-of-use asset is presented similarly to other intangibles, with a delineation of the gross amount, the accumulated amortization, and the net amount. The lease liability is split between current liabilities and long-term liabilities.
Table 6: Statement of net position presentation for leases for the long-term (non-ownership-transferring) lease based on the fact pattern in Tables 2 and 3
The statement of activities in Table 7 has three accounts: rent expense on the short - term lease from Table 1, amortization expense on the right - of - use asset from Table 2, and interest expense on the lease liability from Table 2. Each is an operating expense.
Table 7: Statement of activities presentation based on the fact patterns in Tables 1, 2, and 3
In the governmental funds balance sheet, there are no lines specific to lease accounting, as the short - term lease is treated as an expenditure for rent, while the long - term non - ownership - transferring lease is treated as both an expenditure and an "other financing source." As a result, the only fund financial statement impacted by lease reporting is the "Statement of Revenues, Expenditures, and Changes in Fund Balances," as shown in Table 8.
Table 8: Statement of revenues, expenditures, and changes in fund balances based on the fact patterns in Tables 1, 2, and 3
TRANSITIONING TO THE NEW STANDARD
Starting early is important because governments will need to complete a time - consuming process to be ready for implementation for reporting periods beginning after Dec. 15, 2019. First, governments must identify the population of all existing leases and gather the relevant contracts. As part of this effort, government units will have to ensure their financial system's chart of accounts can support recording assets, liabilities, and expenses under the new standard, and that recordkeeping systems can meet the data - gathering demands of identifying all leases and lease terms as well as the appropriate amortization of the resulting balances. Governments must also review lease agreements to create a schedule of key data points (e.g., interest rate, lease term, lease payments, and renewal dates, just to name a few) to ensure that amounts can be properly calculated.
After gathering the data, governments must develop accounting policy statements to outline the process for making specific judgments with a significant impact on the measurement of the right - of - use assets and related obligations, such as the likelihood of exercising an optional lease extension or the likelihood of using a fiscal funding or cancellation clause to terminate a lease early. Once the policies have been developed, governments will have to determine whether it is practicable to retrospectively adjust their financial statements for prior periods or whether they will have to use the practical expedient discussed above and write the additional disclosure statements explaining their rationale.
One survey provides evidence that some government units still have a significant amount of work to do to prepare for implementing the new standard. Cherry Bekaert LLP, in its April 2018 Annual State and Local Government Benchmarking Survey regarding GASB 87 assessments (available at media.cbh.com , slide 48) indicates 22% of authorities, 25% of schools, 41% of municipalities, and 50% of counties surveyed had not yet ascertained whether GASB 87 would impact their financial statements nor begun the process to adjust for the potential effects on the financial statements and footnotes. Lessee governments should keep a close eye on GASB's process for developing implementation guidance for the new standard; the board issued an exposure draft for its implementation guide in February, and a final version is expected to be published by the end of the second quarter in 2019.
Although the new GASB standard on lease accounting differs in a few significant ways from the FASB approach, it still achieves the same goal of improving financial reporting by requiring entities to record long - term leased assets and liabilities on their financial statements that were previously recorded as operating leases, which avoided financial statement presentation. This article illustrates only the basics of lessee accounting under GASB 87, and additional analysis will be required for leases with variable payments, contracts with multiple components, lease modifications, sale - leasebacks , leasebacks, intra - entity leases, and subleases. However, for governments with traditional fixed - term leases, hopefully this article will make the main features of the new standard a little easier to understand and enable a smoother, less stressful transition.
About the authors
Robert L. Paretta, CPA, Ph.D. , is associate professor of accounting and management information systems at the Alfred Lerner College of Business and Economics at the University of Delaware in Newark, Del. James V. Celia, CPA, M.S. , is a student in the Ph.D. program at The Ohio State University.
To comment on this article or to suggest an idea for another article, contact Ken Tysiac, the JofA 's editorial director, at [email protected] or 919-402-2112.
AICPA resources
- " GASB Issues Proposed Lease Accounting Implementation Guide ," JofA , Feb. 28, 2019
- " GASB Establishes New Approach for Reporting Leases ," JofA , June 28, 2017
Publication
- State and Local Governments — Audit and Accounting Guide (#AAGSLG18P, paperback; #AAGSLG18E, ebook; #WGG-XX, online subscription)
CPE self-study
- Governmental Accounting and Auditing Update (#736489, text; #156487, online access)
- Governmental Accounting and Auditing Update, Aug. 12—13, Washington, D.C. (#GAAC)
For more information or to make a purchase or register, visit aicpastore.com or call the Institute at 888-777-7077.
Archived web event
- "GASB Leases: What Preparers & Auditors Need to Know to Be Ready for Implementation," audio playback and slides available at aicpa.org
Governmental Audit Quality Center
The Governmental Audit Quality Center (GAQC) is a firm membership center that helps member firms achieve the highest standards in Yellow Book, not-for-profit, HUD, or government audits through targeted email alerts, resources, and teleconferences. Visit the GAQC at aicpa.org/GAQC .
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March 18, 2021
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:
- Introduction
- Financial Summary
- Detailed Analyses
- Significant Capital Assets and Long-Term Debt Activity
- 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
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Home » Guidance » Navigating GASB 100: Accounting Changes and Error Corrections
Navigating GASB 100: Accounting Changes and Error Corrections
Contributors: DeWanna Coleman
Governmental Accounting Standards Board (“GASB”) Statement No. 100, Accounting Changes and Error Corrections—an amendment of GASB Statement No. 62, is in effect for fiscal years beginning after June 15, 2023. This accounting pronouncement is intended to streamline the reporting of accounting changes and error corrections and the related disclosures in governmental financial reporting.
One of the challenges with the prior period adjustment guidance in GASB 62 was that financial statement preparers were unsure how to apply the guidance in certain situations, which led to a lack of consistency across governments. The differences in application meant governmental entities were reporting similar restatements in different ways. One government might report an accounting change, while another government might report a similar change as an error correction. GASB 100 clarifies the accounting change categories and provides guidance for reporting and disclosing those changes.
GASB 100 will apply to all governmental entities and will impact how entities define an accounting error or change. The standard clarifies what represents an accounting change or an error correction and guides how these changes should be presented in the financial statements. Below are the four distinct categories, along with a description and an example of each:
Change in Accounting Principles
A change in accounting principle is a change from one generally accepted accounting principle to another generally accepted accounting principle on the basis that it will improve financial reporting. This category also includes the implementation of new accounting pronouncements. A recent example includes the adoption of GASB Statement No. 96, Subscription-Based Information Technology Arrangements, which many have only just adopted or are now adopting. Most accounting pronouncements include transition guidance in their last couple of paragraphs. Going forward, however, accounting pronouncements will only have transition guidance if they are different from the guidance in GASB 100.
You may have noticed that in GASB Statement No. 101, Compensated Absences , the transition guidance provides the effective date and then references to GASB 100 for further transition guidance. GASB Statement No. 102, Certain Risk Disclosures , is limited to only the effective date. GASB Statement No. 100 requires changes in accounting principles to be applied retroactively by restating the beginning net position, fund balances or fund net position, with the exception of Required Supplementary Information (“RSI”) or Supplementary Information (“SI”), which should only be restated for the periods presented in the basic financial statements. Periods that are not included in the basic financial statements should not be restated.
Changes in Accounting Estimates
Accounting estimates are defined as amounts subject to measurement uncertainty that are recognized or disclosed in the basic financial statements. There are two parts to calculating an accounting estimate: (1) methodology and (2) inputs. A change in an accounting estimate applies only to the change in inputs. A change to the methodology is considered a change in accounting principle. For example, a capital asset is depreciated over 35 years using the straight-line method. A change from the straight-line method to the double-declining balance method, assuming the change is justifiable in terms of the qualitative characteristic of financial reporting, would be a change in accounting principle.
However, if, after receiving new information that wasn’t originally available, the useful life is changed to 25 years, that would be a change in accounting estimate. That distinction is important because, unlike a change in accounting principle, which requires a retroactive change, GASB 100 requires that changes in accounting estimates be reported prospectively by recognizing the change in accounting estimate in the reporting period in which the change occurred.
Changes to or Within the Reporting Entity
The guidance on changes within the reporting entity is new guidance rather than a clarification of the old guidance in GASB 62, which only addressed changes to the reporting entity. Changes to the reporting entity typically result in the addition or removal of component units, while changes within the reporting entity usually result from the movement of funds from major or non-major or changes in a component unit’s presentation as blended or discretely presented. Changes to or within the financial reporting entity should be reported by adjusting the current reporting period’s beginning balances for the effect of the change as if the change occurred as of the beginning of the reporting period. This may result in a somewhat awkward presentation in the year that a fund moves from major to non-major due to the requirement to show the beginning fund balance as previously stated. This may deter governments from ever demoting funds to non-major. When making changes to RSI or SI, entities should restate for all periods presented in the basic financial statements. The entity should not make changes to the RSI or SI presented for reporting periods prior to those presented in the basic financial statements.
Error Correction
Error corrections come from mistakes found in financial reporting. According to GASB 100, mistakes are derived from calculation errors, errors in implementations of standards, or oversight or misuse of facts. Considering our previous example, an error might be manually inputting 35 years as the useful life when 25 years was intended or inputting 35 years when clear historical data was available that concluded that specific class of asset only lasted 25 years. Error corrections should be reported retroactively by restating all prior periods presented. When making error corrections, the entity is required to make changes to any RSI previously reported and included in the report for all prior periods impacted.
Formatting Considerations
In addition to clarifying the accounting changes category, the guidance also prescribes how such changes are presented in the basic financial statements. GASB 100 requires that changes be disclosed in a tabular format in the notes while also presenting the aggregate amount of adjustments on the impacted balances in the financial statements. The restatement disclosure should reconcile the beginning balances as previously reported to the beginning balances as adjusted. The new format is intended to standardize the reporting of accounting errors, changes within the financial reporting entity, and changes in accounting principles to make it easier for users of the financial statements to understand the effect.
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GASB 96 Disclosure Requirements for Governments Explained with an Example
by Ben Belk | Apr 24, 2023
1. Qualitative disclosures
Requirements
2. Quantitative disclosures
Subscription asset disclosure
Outflow of resources, subscription liability disclosure and maturity analysis, future sbita commitments, impairment loss.
3. Presentation on financial statements
5. Related articles
Government agencies are entering into more and more subscription‐based contracts granting them the right to use vendor-provided information technology ( IT ). These contracts are often for more than one year at a time, which creates a financial liability for the government agency extending further into the future than one year’s statement of activities will properly reflect. The GASB ’s primary concern was that the old financial statement presentation did not reflect these future obligations which could result in incorrect assumptions being made by users of the financial statements.
GASB Statement No. 96, Subscription-Based Information Technology Arrangements , is new guidance issued by the governmental accounting standards board which is largely based on GASB 87 and applies to subscriptions for software.
The new standard will, for the first time, require a subscription asset and a corresponding liability to be recognized on the statement of financial position for any SBITA arrangements a government has with software vendors. Because of this, additional quantitative and qualitative disclosures are required.
Here is the link to the full text of Statement No. 96 issued by the GASB.
Qualitative disclosures
In addition to the quantitative disclosures outlined below, GASB 96 requires the government to disclose a general description of its SBITAs, which includes the basis, terms, and conditions on which variable payments not included in the measurement of the subscription liability are determined.
Similar to GASB 87, some types of variable payments are included in the subscription liability, such as variable payments fixed in substance, and others are not, such as customer support fees. All variable subscription payments will need to be tracked and disclosed. Still, a distinction between those included in the liability and those captured solely as inflows/outflows exists, and governments must explain their distinction between these two types of payments as part of their qualitative disclosure.
Quantitative disclosures
Paragraph 60 of GASB 96 outlines all disclosure requirements for SBITAs other than those considered short-term. They are listed and expanded upon below.
GASB 96 requires governments to recognize a subscription asset associated with their SBITA agreements. Therefore, one of the required disclosures is the total amount of subscription assets, and the related accumulated amortization, disclosed separately from other capital assets. See below for an example of this disclosure:
Along with the subscription asset, GASB 96 requires governments to recognize a subscription liability associated with their SBITA’s, measured as the present value of the remaining subscription payments.
Governments may also make other variable and additional payments not included in the subscription liability. GASB 96 requires disclosure of the amount of outflows of resources recognized in the reporting period for variable payments not previously included in the measurement of the subscription liability, and disclosure of other one-off payments such as termination penalties also not previously included in the measurement of the subscription liability, except for those related to short-term SBITAs.
The government must also present a maturity analysis of its subscription liability balance as part of the required quantitative disclosures. This disclosure reports both the discounted and undiscounted future cash flows related to SBITAs. Per GASB 96, this disclosure shows principal and interest requirements to maturity, presented separately, for the subscription liability for each of the five subsequent fiscal years and in five-year increments thereafter.
Below is an example of a maturity analysis of the government’s subscription liability:
Governments must also disclose commitments under SBITAs not yet commenced. This quantitative disclosure presents future cash commitments for SBITAs not yet commenced as of the reporting period that the government is contractually obliged (i.e. a contract has been executed but commences after the reporting period).
Over a subscription term, circumstances may lead to a change in the government’s manner or duration of use of the underlying asset, and the asset may be impaired. If the government impairs a subscription asset during the reporting period, the components of the impairment loss and any change in the subscription liability must be disclosed.
Short-term SBITA’s: Exempt from capitalization
GASB 96 provides an exemption for short-term SBITAs, defined as a subscription with a maximum possible noncancellable term of 12 months or less, including any options to extend, regardless of their probability of being exercised. Like the treatment of short-term leases under GASB 87, the GASB only requires subscription payments for short-term SBITAs to be recognized as outflows of resources when incurred.
Immaterial SBITA’s: Exempt from capitalization and disclosure
At the end of Statement no. 96 is a comment which reads “The provisions of this Statement need not be applied to immaterial items.” As with GASB 87, GASB 96 does not provide an explicit materiality threshold for governmental entities to apply to their SBITA portfolio, but it does allow for the exemption of immaterial SBITAs. Fortunately, governments making policy elections for GASB 96 can adopt methodology and thresholds similar to their determinations for lease or asset capitalization.
Presentation on financial statements
If we take a step back into the GASB 34 guidance for consolidation into the ACFR, all information disclosed on the statement of net position should be divided into major classes of capital assets, including a separate presentation of GASB 96 totals for subscription assets arising from subscription-based information technology arrangements.
A government’s total subscription asset balance is considered intangible, and presented separately from other intangible assets on the statement of net position. The subscription liability will mirror this as an intangible liability, also on the statement of net position.
If a SBITA is expected to be paid from general government resources, the SBITA should be accounted for and reported on a basis consistent with governmental fund accounting principles. An expenditure and other financing source should be reported in the period the subscription asset is initially recognized. Subsequent governmental fund subscription payments should be accounted for consistently with principles for debt service payments on long-term debt.
GASB 96 requires new qualitative and quantitative disclosures which did not previously exist for subscription-based information technology arrangements. These disclosures require more detailed information and can be cumbersome to prepare, especially for government entities with a large number of subscription assets.
Using a software solution can facilitate the preparation of the necessary quantitative disclosures and mitigate the risk of material misstatement from the manual manipulation required if using Excel. A system like LeaseQuery can assist with these quantitative disclosures through its software solution.
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The FASB board is overseen by a board of trustees called the Financial Accounting Foundation or FAF. This board is made up of tax preparers, auditors, government officials, academics, regulators and more.
GASB: The Governmental Accounting Standards Board
Established in 1984, the Governmental Accounting Standards Board (GASB) is an independent, private-sector organization that develops and issues accounting and financial reporting standards for federal agencies and the U.S. state and local government. Interestingly, the GASB was actually formed out of concerns that FASB standards were not sufficient for the needs of local and state governments. That said, GASB also follows GAAP standards.
The GASB is also overseen by the Financial Accounting Foundation (FAF). It is also advised by the Governmental Accounting Standards Advisory Council (GASAC) , an organization that was established by the FAF’s Board of Trustees to advise the GASB on its agenda, priorities and procedural matters.
The collective mission of the GASB, the FASB and the FAF, according to the FASB website, is, “to establish and improve financial accounting and reporting standards to provide useful information to investors and other users of financial reports and educate stakeholders on how to most effectively understand and implement those standards."
Who They Apply To: The Application of GASB vs FASB Standards
When it comes to the scope and applicability of GASB and FASB objectives:
- GASB applies to governments, which means the underlying principle is to ensure that government organizations properly conduct their accounting activities so they can provide accurate and reliable information to the U.S. public, which includes taxpayers, public officials, investors and others who use financial reports.
- The underlying principle behind FASB is to ensure that public companies properly conduct their financial and accounting reporting activities to provide accurate and reliable information to their shareholders and investors.
Here, the primary difference is in the end users. For GASB, the end user is generally a taxpaying citizen. For FASB, it’s shareholders and/or investors who can benefit from standards-compliant reports.
Reporting Statements Required for GASB vs FASB
There are 3 main financial statements that nonprofits and government entities use in their reporting. Two of them are the same for GASB and FASB: Statement of Activities and Statement of Cash Flows. The third statement, is referred to differently by both entities:
- Government ((GASB): Statement of Net Position
- Nonprofits (FASB): Statement of Financial Position
These statements are ultimately balance sheets and they will represent assets, summarize asset aand liabilities and assess the financial health of the government body. That said, the GASB sheets must be more detailed as government entities must provide more detailed analyses. Additionally, FASB sheets must include a balance sheet, an income statement, a statement of cash flows and a statemetn of stockholder equity.
For government accounting , government organizations must also put together a Comprehensive Annual Financial Report (CAFR). This is not required for non-profits.
Accounting Methods: Full Accrual Accounting vs Modified Accrual Accounting
There are two accounting methods: full accrual accounting and modified accrual accounting.
The full accrual accounting method measures the performance and the position of a company based on economic events – and there is little regard to time or date of cash payments. Government organizations don’t use full accrual accounting because it means that they can only book income on their balance sheets that has already come in.
Instead, both FASB and GASB recommend modified accrual accounting. Using modified accrual accounting, entities can integrate current cash flows and expected cash flows. This can help them more accurately describe their financial situation, since it also allows them to take into account things like expected income, future budget funds, future sales of assets and expected tax revenue.
Is FASB the same as FASAB?
No, the FASB is not the same as the FASAB.
The Federal Accounting Standards Board (FASAB) is an advisory committee that develops accounting standards for government agencies. The FASB, on the other hand, develops accounting standards for public companies and nonprofit agencies following GAAP.
What are the differences between GASB 87 and FASB’s ASC 842?
There is overlap between GASB 87 and other lease accounting standards like ASC 842 and IFRS 16 . However, GASB more closely resembles IFRS 16. The standard specifically:
- Requires that all leases be reported as a capital lease/financing lease.
- Eliminates the classification of an operating lease unless the lease is a short-term lease, characterized as 12 months or less.
- Provides for three accounting treatments: short-term leases, contracts that transfer ownership and contracts that do not transfer ownership.
- Requires that a lessee recognizes a lease liability and an intangible right-to-use lease asset and that a lessor recognizes a lease receivable and a deferred inflow of resources.
Learn more about each lease accounting standard:
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Our Standards are developed by our two standard-setting boards, the International Accounting Standards Board (IASB) and International Sustainability Standards Board (ISSB).
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IFRS Accounting Standards are developed by the International Accounting Standards Board (IASB). The IASB is an independent standard-setting body within the IFRS Foundation.
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Education, membership and licensing, new ifrs accounting standard will aid investor analysis of companies’ financial performance.
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The International Accounting Standards Board (IASB) today completed its work to improve the usefulness of information presented and disclosed in financial statements. The new Standard, IFRS 18 Presentation and Disclosure in Financial Statements , will give investors more transparent and comparable information about companies’ financial performance, thereby enabling better investment decisions. It will affect all companies using IFRS Accounting Standards.
IFRS 18 introduces three sets of new requirements to improve companies’ reporting of financial performance and give investors a better basis for analysing and comparing companies:
Improved comparability in the statement of profit or loss (income statement)
Currently there is no specified structure for the income statement. Companies choose their own subtotals to include. Often companies report an operating profit but the way operating profit is calculated varies from company to company, reducing comparability. 1
IFRS 18 introduces three defined categories for income and expenses—operating, investing and financing—to improve the structure of the income statement, and requires all companies to provide new defined subtotals, including operating profit. The improved structure and new subtotals will give investors a consistent starting point for analysing companies’ performance and make it easier to compare companies.
Enhanced transparency of management-defined performance measures
Many companies provide company-specific measures, often referred to as alternative performance measures. Investors find this information useful. However, most companies don’t currently provide enough information to enable investors to understand how these measures are calculated and how they relate to the required measures in the income statement.
IFRS 18 therefore requires companies to disclose explanations of those company-specific measures that are related to the income statement, referred to as management-defined performance measures. The new requirements will improve the discipline and transparency of management-defined performance measures, and make them subject to audit.
More useful grouping of information in the financial statements
Investor analysis of companies’ performance is hampered if the information provided by companies is too summarised or too detailed. IFRS 18 sets out enhanced guidance on how to organise information and whether to provide it in the primary financial statements 2 or in the notes. The changes are expected to provide more detailed and useful information. IFRS 18 also requires companies to provide more transparency about operating expenses, helping investors to find and understand the information they need.
Andreas Barckow, IASB Chair, said:
IFRS 18 represents the most significant change to companies’ presentation of financial performance since IFRS Accounting Standards were introduced more than 20 years ago. It will give investors better information about companies’ financial performance and consistent anchor points for their analysis.
IFRS 18 is effective for annual reporting periods beginning on or after 1 January 2027, but companies can apply it earlier. Changes in companies’ reporting resulting from IFRS 18 will depend on their current reporting practices and IT systems.
IFRS 18 replaces IAS 1 Presentation of Financial Statements . It carries forward many requirements from IAS 1 unchanged. IFRS 18 is the culmination of the IASB’s Primary Financial Statements project.
Access the Standard
IFRS 18, the Illustrative Examples and the Basis for Conclusions are available to IFRS Digital subscribers. You can purchase an IFRS Digital Subscription or a PDF version of the Standard from our web shop.
- IFRS 18 Presentation and Disclosure in Financial Statements
- Basis for Conclusions —explanation of the IASB’s considerations in developing the requirements in IFRS 18
- Illustrative Examples —worked examples for aspects of IFRS 18, including flowcharts relating to key requirements in IFRS 18
Access the supporting materials
Support to implement IFRS 18 will be available via the IFRS 18 implementation webpage .
The following documents, along with IFRS 18, are available from the completed project page :
- Short video of IASB Chair Andreas Barckow summarising the new requirements
- One-page quick view of IFRS 18
- Project Summary —overview of the project in non-technical language
- Effects Analysis —description of the likely benefits and costs of IFRS 18
- Feedback Statement —summary of feedback on proposals and the IASB’s response to feedback
- Reference materials —comparison table of requirements in IAS 1 and IFRS 18 showing changes to each paragraph of IAS 1
Watch Andreas Barckow explain the new requirements to improve companies’ financial performance reporting.
1 An IASB study of 100 companies showed that over 60 reported a figure for operating profit, using at least nine different ways to calculate it.
2 The primary financial statements consist of the statement of profit or loss (income statement); statement presenting comprehensive income; statement of financial position (balance sheet); statement of changes in equity; and statement of cash flows.
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New IFRS standard aims to improve corporate reporting
- Accounting and reporting
- Accounting standards
Following work from the IASB to improve the usefulness of information disclosed in financial statements, the IFRS Foundation released a new standard to improve companies' reporting of financial performance and assist investment decision-making, a news release said.
The new standard, IFRS 18, Presentation and Disclosure in Financial Statements , is designed to give investors more transparent and comparable information about companies' financial performance, thereby enabling better investment decisions.
The standard is effective for annual reporting periods beginning on or after 1 January 2027, but companies can apply it earlier.
According to the release, IFRS 18 introduces three sets of new requirements to improve companies' reporting and give investors a better basis for analysing and comparing companies:
Improved comparability in the statement of profit or loss (income statement): Currently there is no specified structure for the income statement, the release said. "IFRS 18 introduces three defined categories for income and expenses — operating, investing, and financing — to improve the structure of the income statement, and requires all companies to provide new defined subtotals, including operating profit."
Enhanced transparency of management-defined performance measures: Many companies don't currently provide enough information to enable investors to understand how company-specific measures are calculated and how they relate to the required measures in the income statement, the release said.
The new standard requires companies to disclose explanations of those "company-specific measures that are related to the income statement, referred to as management-defined performance measures", the release said, to improve the discipline and transparency of management-defined performance measures, and make them subject to audit.
More useful grouping of information in the financial statements: Investor analysis of companies' performance is hampered if the information provided by companies is too summarised or too detailed, the release said. IFRS 18 sets out enhanced guidance on how to organise information and whether to provide it in the primary financial statements or in the notes.
These changes aim to provide more detailed and useful information, the release said. IFRS 18 also requires companies to provide more transparency about operating expenses, helping investors to find and understand the information they need.
— To comment on this article or to suggest an idea for another article, contact Steph Brown at [email protected] .
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Content copyrighted by Financial Accounting Foundation, or any third parties who have not provided specific permission, may not be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the Financial Accounting ...
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GASB Statement 14, The Financial Reporting Entity (issued in June 1991), established criteria for evaluating potential component units and provided guidance on the statement presentation of those entities that met the criteria. Component units are defined as legally separate organizations for which the primary government is financially ...
Define Issues. The University must develop the presentation format for the footnotes to the primary financial statements to support the reporting standards established by GASB Statements No. 34 and 35. The new reporting standards are required for the fiscal year beginning July 1, 2001, with comparative information for the prior year.
Concepts Statement 3, Communications Methods in General Purpose External Financial Reports That Contain Basic Financial Statements, provides that notes "are essential to a user's understanding of those financial statements" (paragraph 36), but does not provide a framework for determining what is essential. GASB has developed proposed ...
2. Changes To or Within the Financial Reporting Entity. A change in a fund's presentation as major or nonmajor. The addition or removal of a fund that results from the movement of continuing operations within the primary government, including its blended component unit. The addition of a component unit to the financial reporting entity or ...
When the Governmental Accounting Standards Board (GASB) met on June 27, 2023, it had already spent two years reworking the standards it proposed in a June 2020 Exposure Draft (ED), Financial Reporting Model Improvements, to address the public comments it received. According to the notice of meetings, the GASB planned to discuss the tentatively revised standards for governmental fund financial ...
A Preliminary Views is a Board document designed to set forth and seek comments on the GASB's current views at a relatively early stage of a project. This Preliminary Views is a step toward an Exposure Draft of a Statement of Governmental Accounting Standards but is not an Exposure Draft. This document presents the GASB's preliminary views ...
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Net position follow the following formula: Total Assets - Total Liabilities = Net Position. Although GASB 34 allows for alternative methods of presentation, South Dakota counties should report the balance sheet accounts on the statement of net position in the order of their relative liquidity. For example, cash is more liquid than inventories ...
Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements • Licensing arrangements that provide a perpetual license to governments to use a vendor's computer software, which are subject to Statement No. 51, Accounting and Financial Reporting for Intangible Assets, as amended. September 19, 2023
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GASB 100 requires that changes be disclosed in a tabular format in the notes while also presenting the aggregate amount of adjustments on the impacted balances in the financial statements. The restatement disclosure should reconcile the beginning balances as previously reported to the beginning balances as adjusted.
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Established in 1984, the Governmental Accounting Standards Board (GASB) is an independent, private-sector organization that develops and issues accounting and financial reporting standards for federal agencies and the U.S. state and local government. Interestingly, the GASB was actually formed out of concerns that FASB standards were not sufficient for the needs of local and state governments.
The International Accounting Standards Board (IASB) has published its new standard IFRS 18 'Presentation and Disclosures in Financial Statements' that will replace IAS 1 'Presentation of Financial Statements'. The new standard is the result of the so-called primary financial statements project, aims at improving how entities communicate in their financial statements and will be effective for ...
On 9 April 2024, the IASB issued a new standard - IFRS 18, 'Presentation and Disclosure in Financial Statements' - in response to investors' concerns about the comparability and transparency of entities' performance reporting. The new requirements introduced in IFRS 18 will help to achieve comparability of the financial performance of similar entities, especially related to how ...
IFRS 18 Presentation and Disclosure in Financial Statements replaces IAS 1 Presentation of Financial Statements. IFRS 18 has an effective date of 1 January 2027. Earlier application is permitted. Please visit the implementation page for IFRS 18 for information relating to the IASB's activities to support the implementation of the Standard.
The objective of IFRS 18 is to set out requirements for the presentation and disclosure of information in general purpose financial statements (financial statements) to help ensure they provide relevant information that faithfully represents an entity's assets, liabilities, equity, income and expenses.
The new Standard, IFRS 18 Presentation and Disclosure in Financial Statements, will give investors more transparent and comparable information about companies' financial performance, thereby enabling better investment decisions. It will affect all companies using IFRS Accounting Standards. IFRS 18 introduces three sets of new requirements to ...
IFRS 18 is here: redefining financial performance reporting. Publication date: 09 Apr 2024. uk In brief INT2024-06. Key points. The IASB has issued IFRS 18, the new standard on presentation and disclosure in financial statements, with a focus on updates to the statement of profit or loss. The key new concepts introduced in IFRS 18 relate to:
The new standard, IFRS 18, Presentation and Disclosure in Financial Statements, is designed to give investors more transparent and comparable information about companies' financial performance, thereby enabling better investment decisions. The standard is effective for annual reporting periods beginning on or after 1 January 2027, but companies ...