The Financial Data Transparency Act will likely make financial reporting more difficult for issuers, as regulators and governing bodies are now tasked with the challenge of providing data standards that can apply across cities, counties, hospitals, school districts and universities, among others.
That's according to panelists at this year's Government Finance Officers Association 5th Annual Minimuni Conference.
The Securities and Exchange Commission has been tasked with developing standards for information submitted to the Municipal Securities Rulemaking Board and will come up with joint standards along with other Financial Stability Oversight Committee members such as Treasury, the Federal Reserve and other banking regulators by December 2024. Specific rulemaking will be filed by December 2026, per the act.
Joel Black, chair of the Governmental Accounting Standards Board, said GASB is devoting resources to developing financial statement technology that might be used by the SEC, and is at work trying to develop a way for these data standards to work across all issuers, as many don't adhere to Generally Accepted Accounting Principles at all.
"It's important that we be involved because we understand all those sectors and we understand all those different things," Black said. "We do that all the time at GASB, there are multiple GAAPs for colleges and universities or hospitals or school districts, apart from cities and counties and states. GAAP covers all of that," he added. "We're familiar with how to do that. Now, is that going to be easy in this more defined structured kind of taxonomy? Probably not."
"We would hope everybody would use GAAP but we understand and are trying to get our arms around and provide information to the SEC about how big an issue is the non-GAAP issue within the municipal debt filing community and within that non-GAAP community, how different are they? And is there a way to build into our taxonomy something that spans beyond GAAP, that would allow even non-GAAP filers to utilize some version of the taxonomy that doesn't necessitate every state having their own taxonomy, so to speak," Black said. "So that's a goal we're working towards."
Adam Wendell, deputy director of the SEC's Office of Municipal Securities, said the joint standards the SEC is developing along with other regulators will include legal entity identifiers, technical specifications, access standards and standard body specifications for organizations such as GASB and FASB.
Legal entity identifiers, which Emily Brock, director of the federal liaison center for GFOA and moderator of the panel jokingly referred to as "social security numbers for issuers," will make it easier to find everything a particular issuer has done.
"If implemented properly, that becomes a lot easier and a lot cleaner, it also becomes a lot easier and a lot cleaner for conduit issuers," Wendell said. "If you are issuing for private developments, for example, and loaning the proceeds to some nonprofit or hospital or something like that, then you can have both the legal entity identifiers for the issuer and the borrower and that might make it easier for an investor who is looking for info specific to the borrower."
The Commission is working with the Global Legal Entity Identifier Foundation, an online source that provides open, standardized legal entity data and just one brand that provides these types of numbers.
"There is no guarantee that GLEIF will be the legal entity identifier that is enshrined in the regulations but it happens to be probably the most well known one out there right now," Wendell said. "We're really trying to get to the bottom of what can a legal entity identifier do and what can it not do and we're not done with that process yet."
Wendell said that the Commission is doing this with care for the issuer community and hopes to minimize any disruptive changes to their normal audit schedule.
"We're not allowed to impose new substantive reporting standards," Wendell said. "It's only reporting format standards."
