The Governmental Accounting Standards Board is working on guidance to help state and local governments deal with numerous financial issues as they struggle to maintain enough revenue. GASB chair Joel Black visited the Accounting Today offices this week to discuss some of the main items on the board's agenda.
"Our mission as an organization is to make sure that users of government financial information — those in the municipal bond community, citizens and legislators — are getting the right information to make decisions in assessing governments' accountability," he said.
One item that GASB has begun dealing with recently is the federal government's Financial Data Transparency Act, which was approved last December as part of the National Defense Authorization Act. The FDTA is designed to modernize the collection and dissemination of financial data by federal financial regulators to make the information more accessible, uniform and useful to investors and consumers.
The Treasury Department, the Securities and Exchange Commission and six other federal regulators are jointly developing new standards and leveraging existing data modernization efforts like Extensible Business Reporting Language, or XBRL, to streamline compliance and align data collections with government-wide policies for "open data assets." The legislation included a section requiring local governments to adhere to new financial data standards to be developed by the SEC.
"This idea of electronic financial reporting, beyond FDTA, is something that I've been interested in since I came to the GASB," said Black.
He became chair in July 2020, and around the middle of last year, GASB began devoting more resources around how technology is changing, what new technologies are available, and how people are using technology to extract information from government financial reports.
"Then FDTA came in the middle of that, and really is doing what I was envisioning happening anyway, or maybe speeding it up," said Black.
He has been in contact with the SEC about playing a role in deciding what information should be extracted and made available in a machine readable format.
"We think everything in the GAAP financial statements is important," said Black. "That's why we require it. We didn't want somebody else making choices about what's the right information to maybe pull out. We wanted to be involved in that process to the extent it was evolving. So along comes FDTA. It kind of speeds that up. And essentially, in our world, in the muni world, the SEC has the responsibility to determine what information needs to be made in this machine-readable way, including potentially the financial statements, and then theoretically, what information [comes] out of those financial statements."
"We like to be involved in that process, so we've talked to the SEC Office of Municipal Securities about that and voiced our interest in playing a constructive role," he continued. "They have been meeting with us and talking to us since the act was implemented, but they're still in the early stages of figuring out how they want to proceed and how they want to implement it."
Risk disclosures
GASB has also been working on projects that are further along, including a proposed standard on
"This project was not about all risks that a government faces, but we focused on two in particular," said Black. "These are situations where a government is uniquely vulnerable to a concentration they may have, such as a taxpayer that makes up a large part of their revenue base or a large industry that supports that particular town. A constraint would be some type of externally imposed requirement that limits the financial flexibility of a government, like government-mandated spending or a property tax ceiling. If a government has one of those two vulnerabilities — that concentration or constraint — and if there's an event associated with that concentration or constraint that's more likely than not to happen in the 12 months following issuance of the government's financial statements, and the effects of that event and that concentration or constraint could substantially impact the government's financial condition, then the government would be required to disclose some information about that risk and its existence. That's what the proposal is now."
After issuing an exposure draft in June 2022, GASB received 49 comments, including 15 from users of financial statements like investors and average citizens. Many of them submitted through a new streamlined electronic input form similar to the kind that GASB's sister standard-setting board, the Financial Accounting Standards Board, has been using for several years to make it easier to comment on new proposals.
"We ask them a series of questions, some of which are open-ended but some are specific," said Black. "They can pick and choose the questions they want to answer, click Submit, and we treat it just like a comment letter."
Implementation guide
GASB has an implementation guide coming out at the end of June that will include information in Q&A format on its standards on lease accounting, subscription-based information technology arrangements, and other topics. The implementation guides often come from questions that constituents are asking GASB.
"We have a technical inquiry system to help people," said Black. "As we get common themes among questions coming in, and we figure out maybe we could publish this kind of question with a certain kind of fact pattern and answer it for everybody, that's what we're trying to do. They're in Q&A format to allow people to more easily understand and implement the standards, given different kinds of situations."
The guides are updated periodically. For the lease standard, GASB has updated the implementation guide three times. The new one had six new questions on it, but in previous guides GASB answered over 100 questions.
Besides the leases standard, GASB also includes guidance on its standard for subscription-based information technology arrangements, or SBITAs, as state and local governments make more use of cloud computing rather than purchased software.
Research system
GASB rolled out a new version of its Governmental Accounting Research System this year that's now free and easier to navigate than the old system.
"GARS has been available for a while, but there were two versions," said Black. "One was just the base, essentially all the words that make up the standards and implementation guides, and you could find what you needed, but it was hard to navigate because it had been developed a long time ago. For it to be searchable, you had to pay a subscription fee to get an upgraded version, but even that search function was kind of old technology. We upgraded our underlying publishing system and that allowed us to create a better version of GARS. Now we've decided to make all of it free access, without different functionality for a subscription, so it's much more intuitively navigable now. The search function is much improved over what it used to be."
Environmental credits
GASB is currently considering whether it needs a project on environmental credits offered by state and local governments and is asking stakeholders for their perspective on this area and what they're seeing.
"My concern at this point is that with the climate provisions in the inflation Reduction Act, I think there's going to be a lot more investment and creation of new types of these programs and more money flowing through them," said Black. "I think they might have the potential to become more prevalent and pervasive. Do we have the right accounting guidance for them if they are that prevalent? If a government creates this credit and creates its own program, what's the value of that credit? Let's say it gives it out to the corporation, but then they acquire it back for some reason. Is it some kind of different accounting because now they've had to acquire it? How would all that work?"
At this point, it's still early in the process, and Black is asking stakeholders what they think.
Non-financial assets
GASB also plans to issue a proposal to reconsider how certain non-financial assets, including capital assets and intangible assets, should be classified to ensure they're classified in the way that provides the most relevant information, and that the definitions are understandable and appropriate. GASB plans to issue an exposure draft on that project in the third quarter.
"This is really about assets that aren't financial," said Black. "Typically, the most traditional one is a capital asset. But recent pronouncements like the lease standard and the SBITA standard created these right-to-use assets, which are kind of like capital assets, but not exactly. This project was exploring not how you recognize or measure those kinds of assets, but how they're presented and disclosed in the financial statements. Do users need that information presented or disclosed separately from other types of capital assets?"
"The proposal, as it stands now, is to not on the face of the statements require that they be broken out, but in the note disclosures to require the capital asset disclosures, which includes a roll-forward of capital assets, to break out these kinds of capital assets — held-for-sale assets, right-to-use assets under a lease, right-to-use assets under a SBITA — to be broken out separately in each of those note disclosures from the more traditional types of capital assets," he explained. "That's what the proposal that the board has tentatively decided upon will look like. We'll send that out as an exposure draft this fall and then get feedback and hear what people say."
GASB has also been asking stakeholders about whether they're using other types of intangible assets such as digital assets and cryptocurrency in their states.
"We've been asking people about legislation that's going on in their states," said Black. "Are they using digital assets beyond the investment purposes, and if so, would that need accounting guidance? There are a couple of states that are accepting cryptocurrency as a form of payment. But in all the cases we've seen so far, there's always a third-party intermediary who always takes all the holding risk."
State and local governments usually never hold the digital assets, so specific guidance probably won't be needed from GASB, but the board is asking stakeholders if a project would be needed, as it's doing with environmental credits.
"If they do become more prevalent in that way, then we would probably want to undertake a project to figure out what's the best way to recognize, present and disclose the information related to those as opposed to leaving it in intangibles or nonfinancial assets," said Black.
Infrastructure assets
GASB recently added a project on infrastructure assets, such as highways and sewer systems, that will examine how they should be recognized and measured in financial statements and other issues. This project too is still in its early stages.
"We did a number of years of research on capital assets broadly, and what we found was that largely the capital asset accounting model was working, with the possible exception of infrastructure assets, which is a part of capital assets," said Black. "In May, we started the project on infrastructure assets."
The current accounting guidance for infrastructure allows two options, he noted. One is to record them at cost and depreciate them over their useful life like other capital assets. The other allowable method is what's called the modified approach. It allows governments to record their infrastructure at cost and not depreciate them, but commit to maintaining them at a certain level, and then disclose the condition of those infrastructure assets and how much they're spending on maintenance as required supplementary information.
"Not many governments take advantage of that modified approach, and when they do, it tends to be large state governments and governments that do a good job of maintaining their capital assets," said Black. "Most governments are depreciating infrastructure. We heard a lot from users that they'd like a lot more information on the maintenance and preservation of those kinds of assets, and what a government is or isn't doing there, and potentially also on the condition of those assets, because the maintenance is theoretically driving the condition."
GASB is exploring whether those two methods are the right methods, and whether there are other ways to recognize or measure them. "Is there more information we could require to be disclosed related to that to get some of that same information out?" said Black. "The project could go a number of ways, depending upon how we decide on recognition and measurement. It could be disclosure-only. There are a lot of different options we have. We're just in the early stages of that, but it's an important project."
The Infrastructure Investment and Jobs Act of 2021 provided more funds to be spent on repairing and rebuilding the country's decaying infrastructure, and there will probably be demand at the state and local level for how that money is spent.
"That act was a response to the same information that users are looking for from the accounting," said Black. "There's a prevailing thought that at least some infrastructure in our country is undermaintained, is not in good condition and needs reinvestment. Are users getting the information so they know which governments have done a good job, which governments maybe haven't done a good job of maintaining those assets, and what their condition is to know when that reinvestment is necessary?"
Resource constraints
One of the main topics of discussion right now for state and local government accountants is resource constraints.
"I think all of the accounting profession is dealing with that, and I think governments as a whole are dealing with that, but government finance departments are not immune, and certainly are strained in the number of people and resources they have," said Black. "We are trying to be very conscious of that. We will undertake projects we need to undertake. But for us to undertake a project anytime we change GAAP, even if it's an omnibus with just technical corrections, still a government finance officer has to read it and understand how to implement it. And that takes time away from the other things that they're doing."
"We understand anytime we change GAAP, that it's adding some burden to them, so we're trying to make sure that when we take on a project that we really think it has the potential to meaningfully improve government financial reporting, that there's a really important reason we're taking on that project," he said. "So we are not stopping projects, but we are trying to be very conscious of only undertaking those really important projects. And then we try to give longer comment periods and longer implementation times to try to be cognizant of the resource constraints that governments are under. It's something we're considering and thinking about as we go through our processes."
Podcast series
GASB recently launched a new podcast series that focuses on key issues in governmental accounting. The first one will debut later this month and features a Q&A with Black on the Financial Data Transparency Act.
The first podcast is being recorded this week, with new episodes being released at least monthly. The podcast, which will be called Bridging the GAAP, will be available at
