GASB Update

The Government Accounting Standards Board (GASB), the organization that establishes accounting and financial reporting standards for governmental entities, has been active in the past few years in issuing new standards and 2020 was not an exception. One of the more popular standards issued in 2020 was GASB Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance. Statement No. 95, issued in May 2020, provided temporary relief to governmental entities by postponing the effective date of certain pronouncements by one year. District’s should be aware that effective dates of the postponed guidance, as well as new GASB pronouncements, are rapidly approaching.

An overview of the GASB pronouncements and their effective dates are listed below:

Some of the pronouncements listed above may not impact your Districts, but others will take planning to ensure that the new guidance is properly implemented. A few of these new standards that may have an impact on your District are discussed below.

1. GASB Statement No. 84, Fiduciary Activities, relates to the definition and presentation of fiduciary activities of all state and local governments. The focus of the criteria is generally on whether a government is controlling the assets of the fiduciary activity and the beneficiaries with whom a fiduciary relationship exists. The pronouncement replaces the terminology “agency funds” with “custodial funds” and defines what is considered direct administrative involvement. Appendix C of the pronouncement provides a flowchart to assist Districts in evaluating the proper reporting of said fiduciary activities.
2. GASB Statement No. 87, Leases, provides guidance on accounting for lease transactions. Under previous guidance, leases could be presented as either capital or operating. The new guidance under Statement No. 87, establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under the new guidance, the underlying asset and liabilities will be reported on the statement of net position. In the governmental fund statements, Districts will report a capital expenditure and an offset by another financing source (similar to the previous guidance when accounting for capital leases). The new standard applies to all new leases, but also applies retroactively to existing agreements. Districts should begin implementation procedures now by compiling a complete inventory related to all leasing transactions, whether or not the leases were previously considered operating or capital, or if the District is the lessor and the lessee. Once the information is obtained regarding all leasing transactions occurring within the District, implementation decisions can be made.
3. GASB Statement No. 96, Subscription-Based Information Technology Arrangements, provides guidance on the accounting and financial reporting for subscription-based information technology arrangements (SBITAs). The pronouncement defines a SBITA, establishes SBITA results in a right-to-use subscription (intangible) asset, a corresponding subscription liability and provides capitalization criteria for outlays other than subscription payments. Districts that have cloud computing arrangements and other hosting type services under a noncancelable right to use contract for the use of another party’s hardware, software, or both, including the underlying hardware or software, for a specified period of time in an exchange or exchange-like transaction are subject to this pronouncement. Many of the accounting provisions in the Statement No. 96 are similar to the provisions in GASB No. 87, Leases.
4. GASB Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans—an amendment of GASB Statements No. 14 and No. 84, and a supersession of GASB Statement No. 32 provides guidance related to reporting component units. The guidance has two major topics and will allow for more consistent financial reporting of defined contribution pension plans, defined contribution other postemployment benefit (OPEB) plans, and other employee benefit plans, while mitigating the costs associated with reporting those plans. The first topic that Statement No. 97, which is effective immediately, focuses on. determining whether a legally separate entity would be a fiduciary component meaning it would be included in the District’s financial statements. If the legally separate entity does not have a governing board, then the District would be financially accountable for the entity. The absence of a governing board should be treated the same as the appointment of a voting majority of a governing board if the District performs the duties that a governing board typically would perform; and therefore, the entity would be considered a fiduciary component unit. The guidance in Statement No. 97, however, does not apply to component units that are a defined contribution pension plan, a defined contribution and other OPEB plans, or another employee benefit plan such as a Section 457 plan, to which only employees contribute. The second topic included in the guidance in Statement No. 97, which is effective fiscal Years beginning after June 15, 2021, requires that the financial burden criterion in GASB No. 84, Fiduciary Activities, is only applicable to defined benefit pension plans and defined benefit OPEB plans that are administered through trusts and also meet the criteria in GASB No. 67, Financial Reporting for Pension Plans, or GASB No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, respectively. Districts that have 457 pension plans (as defined by GASB No. 67, paragraph 3) and are held in a trust, would report the plan as a fiduciary component unit in their financial statements. If the plan is not held in trust, the District would report the plan as a custodial fund. For a 457 plan that does not meet the definition of a pension plan, the transactions are employee contributions (another employee benefit plan) and the District would need to consider whether they had control of the assets when recording the transaction.

The complete text of each pronouncement can be obtained from GASB’s website at https://www.gasb.org/.

Other GASB Projects

As previously mentioned, GASB has been very active in issuing new guidance. GASB has several projects on its technical agenda including the following:

• Implementation Guidance Update – 2021 - Proposed implementation guidance in the form of questions and answers with the goal of clarifying, explaining and elaborating on how to implement and apply some of its recent pronouncements for state and local government accounting. The Exposure Draft, includes questions and answers relating to:
  • Derivative Instruments;
  • Fiduciary Activities;
  • Leases;
  • Nonexchange Transactions; and
  • Basic Financial Statements and Management’s Discussion and Analysis.
• Financial Reporting Model Improvements – A proposed statement that improves key components of the financial reporting model including:
  • Management’s Discussion and Analysis;
  • Unusual or Infrequent Items;
  • Short-Term Financial Resources Measurement Focus and Accrual Basis of Accounting in Governmental Funds;
  • Presentation of both Governmental Fund Financial Statements and Proprietary Fund Statement of Revenues, Expenses, and Changes in Fund Net Position; and
  • Budgetary Comparison Information.
• Recognition of Elements of Financial Statements – A proposed Concepts Statement that addresses concepts for recognition of elements of the financial statements.
• Revenue and Expense Recognition­ ­ – Preliminary views on the development of a comprehensive revenue and expense recognition model for governmental entities.

• Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements: Notes to Financial Statements—an amendment of GASB Concepts Statement No. 3 – A proposed statement that addresses the communication method of the disclosure in the notes to financial statements, including:
  • Type of information disclosed;
  • Type of information that is not appropriate for the notes to financial statements; and
  • The degree of importance that information should posses in the notes to the financial statements.

The details and status of the GASB projects can be obtained from GASB’s website at https://www.gasb.org.