The Governmental Accounting Standards Board is adding a major project on going concern uncertainties and severe financial stress to its technical plan for the first third of this year.
GASB added the project at a meeting last month based on the results of over five years of research on its existing standards for going concern uncertainties and the current practice when it comes to identifying state and local governments that are either already experiencing or in danger of severe financial stress.
The concept of going concern uncertainties wasn’t specifically developed or significantly modified for the government environment when incorporated into GASB’s current literature. Pre-agenda research from GASB shows that, even when governments are in or have been experiencing severe financial stress, few of them dissolve or cease operations. While the current guidance gives financial statement preparers the responsibility to evaluate a government’s ability to continue as a going concern, such an evaluation often presents challenges and has led to differences in practice. Other challenges include deciding whether or when governments have a responsibility to evaluate and disclose their exposure to severe financial stress.
The goals of the new project are to consider (1) improvements to existing guidance for going concern considerations (including the definition of a going concern) to address diversity in practice and clarify the circumstances under which disclosure is appropriate; (2) developing a definition of severe financial stress and criteria for identifying when governments should disclose their exposure; and (3) what information about a government’s exposure to severe financial stress is necessary to disclose.
GASB also decided at the December meeting to consider a pre-agenda research item on Subsequent Events in order to (1) evaluate the effectiveness of the existing guidance for identifying and reporting subsequent events and (2) consider the need for revisions to those standards. If more guidance seems to be needed, another goal would be to consider the development of revised accounting and financial reporting for subsequent events.
As part of its consideration of the first-third 2022 technical plan, GASB also considered but decided not to add (1) a project on interim financial reporting and (2) a pre-agenda research activity on related-party transactions.
