The Governmental Accounting Standards Board has issued guidance aimed at helping state and local governments provide additional information to aid certain decision making, assess a government's accountability and address certain application issues.
The 123-page document provides discussion and examples on how the improvements are to work. The guidance builds on Statement 34 released in 1999 "which established government financial statements as we know them today," GASB said.
"The board determined that to improve the effectiveness of the financial reporting model in providing information that is essential for decision making and assessing a government's accountability and address certain application issues, it was most appropriate to establish requirements to improve only certain key components of the financial reporting model," GASB said.
Those key components of a government's financial reports seeing changes are management discussion and analysis (MD&A), unusual or infrequent items, presentation of the proprietary fund statement of revenues, expenses and changes in fund net position and related financial trends information, information about major component units in basic financial statements in addition to budgetary comparison information.
An exposure draft was issued in 2020 to present potential opportunities for improvement, and in it, there was some discussion between the board and respondents as to the scope and language of how the MD&A section of a financial report be presented.
"The Board believes the requirement to present an overview of the basic financial statements and significant differences in the information they provide is necessary to help users understand the information in those statements," GASB said. "The intent of the requirement is to ensure that MD&A is written in 'plain language' that avoids the use of accounting jargon that only more sophisticated users are familiar with."
GASB also considered the need to provide additional information in financial statements related to debt service funds, but ultimately decided not to add reporting requirements related to such information as the focus has been since 1999 on major funds.
The board is confident that the new requirements related to the presentation of budgetary comparison information will benefit used by "communicating the information using a single communication method and enhancing its usefulness by requiring presentation of both the original budget-to-final-budget variance and the final-budget-to-actual-variance," GASB said.
In discussing implementation, GASB considered at first having a two-tiered implementation process that would have made larger governments comply with the standards a year earlier. That was ultimately rejected and all users of GASB are required to comply after June 15, 2025.
"The board believes that the expected benefits that will result from the information provided through implementation of this Statement are significant and justify the perceived costs of implementation and ongoing compliance," GASB concluded.
