What is in Store at the GASB in 2023?

The issue that is top of mind for many auditors and government finance officials is which standards are required to become effective for the first time with 2023 fiscal year-end reports.

Over the past two years, Arizona governments have implemented groundbreaking standards on fiduciary fund reporting and leases. In 2023, the new lease accounting and financial reporting pronouncement is joined by two siblings with the impending implementation of Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements (referred to as P3), and Statement No. 96, Subscription Based Information Technology Arrangements (referred to as SBITA).

While the underlying principles of these two statements are similar to leases, there are several unique features of those pronouncements. One of the most important considerations that needs to be made is determining when each of the Statements should be employed.

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What is in Store at the GASB in 2023?

By David Bean

If you are wondering what the Governmental Accounting Standards Board (GASB) considers to be a P3, as these transactions are commonly referred to, it should be noted that transactions addressed in Statement 94 will not be found in many Arizona governments. When a government entity enters into this type of transaction, it normally is material and therefore worthy of further discussion. A key factor in determining when Statement 94 applies is based on whether a capital asset is involved in the transaction. In other words, the Statement does not apply to contracts where only services are provided by the private sector (or another public sector entity) to the government or its stakeholders.

Statement 96 was primarily issued to address major Enterprise Resource Planning (ERP) systems that now reside in the cloud, but the new standards also encompass contracts related to other subscription-based information technology arrangements that are not ERPs, which the government controls. The Statement provides guidance associated with subscription liabilities and assets, which is similar in most respects to the lease standards. This is just the tip of the iceberg into accounting for and reporting outlays other than subscription payments that are associated with the implementation of a SBITA.

In 2022, the GASB crossed the century mark in Statements with the issuance of Statement No. 100, Accounting Changes and Error Corrections, and Statement No. 101, Compensated Absences. When a new Statement is issued, one of the first questions asked is – When are the standards effective? The quick answer in most Arizona governments is June 30, 2024, year ends for Statement 100 and June 30, 2025, year ends for Statement 101. While those dates may appear to be far away, it is important to remember that the vast majority of GASB standards are retroactively applied (including all of the Statements referenced in this article). As the message on the passenger side mirror of a car states, “objects in mirror are closer than they appear.” The same can be said about accounting and financial reporting standards.

One of the highlights of Statement 100 is the standardization of transition guidance. Governmental entities will apply the accounting changes and error correction guidance in Statement 100 to all Statements that are issued in the future unless specific transition guidance is provided in a particular Statement. Other key features of Statement 100 include identifying the proper classification of these events – accounting changes, accounting estimates and error corrections; note disclosure requirements; and the impact of these events on required supplementary information.

Statement 101 is the result of a reexamination of compensated absences standards that were issued 30 years ago. For some governments, the environment associated with compensated absences such as benefits like vacation and sick leave have changed. For example, rather than offering separate vacation and sick leave benefits, those benefits are combined into a paid-time-off (PTO) benefit. This type of change was one of the drivers in the GASB rethinking how sick leave benefits, including those that are now a part of PTO and do not expire at year-end should be accounted for and reported. The Statement will not be effective until fiscal years beginning July 1, 2024, for most Arizona governmental entities, but the accrual of compensated absences and the phrase “to be used for time off or otherwise paid in cash or settled through noncash means” does warrant consideration from a policy standpoint before the effective date.

The GASB also has been working on three comprehensive projects over the past several years. Those efforts include a reexamination of the financial reporting model (FRM) project, a revenue and expense recognition (RER) project and a note disclosure project. In 2022, the GASB issued Concepts Statement No. 7, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements: Notes to Financial Statements which establishes a framework that will be used by the GASB to reexamine current disclosure requirements and all future disclosure proposals.

During the year, the Board has been redeliberating the proposals set forth in the Preliminary Views, Revenue and Expense Recognition, and the Exposure Draft, Financial Reporting Model Improvements. While the FRM project currently is out in front from a due process standpoint, the Board may soon be considering how closely linked the projects should be, not only from a theoretical basis, but also from a timing of release perspective.

There are many major proposals that now being considered at the GASB related to the FRM project, including the measurement focus and basis of accounting for governmental funds and modifications to the management’s discussion and analysis; presentation of governmental and proprietary fund statements; budgetary comparison reporting; and unusual or infrequent items. Given the possibility that fundamental changes will be made to what is reported in governmental fund financial statements, I encourage anyone involved in governmental accounting to stay up to date on the latest developments. l

David Bean is a retired director of research and technical activities for the Governmental Accounting Standards Board. He will be speaking at the ASCPA’s Governmental Accounting Conference on Feb. 3, 2023, on GASB updates and the financial reporting model. Register: www.ascpa.com/gac23.

David Bean (second from left) is a recurring speaker on GASB updates at the ASCPA’s Governmental Accounting Conference.