From the Chairman's Desk
By David A. Vaudt, GASB Chairman

In this column, I’d like to take a look ahead at some of the new projects that the GASB may consider taking up in the next 18 months. In doing that, I’ll address the role that pre-agenda research plays in the Board’s process of adding new projects to its current technical agenda and take a look at the current slate of research topics.

I’d like to take a look ahead at some of the new projects that the GASB may consider taking up in the next 18 months.

Before adding a major project to our agenda, we conduct extensive pre-agenda research to better understand the issue at hand and whether it can be addressed through standard setting. Pre-agenda research includes stakeholder outreach, a review of our existing accounting literature, and an analysis of potential solutions.

Like most things we do at the GASB, your input plays a key role. For example, we may initiate pre-agenda research on an issue due to something you and other stakeholders have encountered in practice and brought to the Board’s attention.

We also may initiate pre-agenda research based on what Board and Governmental Accounting Standards Board Advisory Council (GASAC) members have experienced—or as part of the periodic reexamination we conduct on all of our standards to ensure they continue to meet evolving state and local government needs—as well as the information needs of users of governmental financial statements.

Currently, the GASB is conducting pre-agenda research on the following issues:

Financial Reporting Model Reexamination


In September, the GASB is scheduled to vote on whether to add to its current technical agenda a project to consider updating the existing financial reporting model for state and local governments. The financial reporting model has a pervasive influence on the financial reporting effectiveness of these governments and the ability to achieve the objectives of financial reporting.
In September, the GASB is scheduled to vote on whether to add to its current technical agenda a project to consider updating the existing financial reporting model.

The current model—Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments and related pronouncements—established the blueprint for state and local government financial reporting. This includes the format and measurement focus of the basic financial statements, management’s discussion and analysis, and certain notes to the financial statements.

However, that blueprint was established in 1999 and may be in need of updating as a result of developments in the period since. Consequently, over the past two years, the GASB staff has conducted research on how the financial reporting model is functioning in practice. This research included a comprehensive review of related academic and professional literature, research roundtables across the country, archival research with hundreds of financial reports, and surveys and interviews of preparers, auditors, and users.

The related research findings—which the Board reviewed at its July 2015 meeting—will provide the basis of the Board’s September agenda decision. Stay tuned for more information in the coming months.

Going Concern Disclosures


Financial stress—and how state and local governments deal with it—is an important and timely issue. Currently, the staff is conducting research that will help the Board decide if the GASB’s authoritative literature on going concern provides preparers with sufficient guidance regarding management’s responsibilities for evaluating and disclosing uncertainties associated with severe financial stress.

The traditional concept of going concern has been oriented toward the private sector. It relates to the assumption that a company will continue to exist long enough to carry out its objectives and commitments and will not liquidate in the foreseeable future. If a company's financial situation becomes such that it believes it will not be able to continue, it is required to disclose this.

The staff’s research will help the Board evaluate whether there is a need for disclosure about uncertainties resulting from severe financial stress.

But governments rarely ever go out of business. This raises a question as to whether going concern is a relevant concept for governments and whether it serves the needs of financial statement users.

The staff’s research will help the Board evaluate the relevance of the current going concern guidance for governments and consider whether there is a need for disclosure about uncertainties resulting from severe financial stress.

The Board is scheduled to conduct a review of research findings in March 2017.

Debt Disclosures, including Direct Borrowing


You can’t go to a major municipal bond conference without hearing about how government issuers are increasingly using direct loans from banks—instead of issuing bonds. The question for us is: do current disclosure requirements accurately convey the necessary information about these transactions to users of financial statements?
The question for us is: do current disclosure requirements accurately convey the necessary information about these transactions to users of financial statements?

Since the GASB’s existing standards for debt disclosures were issued, governments have continued to innovate and diversify their debt-issuance practices. Because these types of practices were not envisioned by or were not the focus of existing standards, related disclosures can be inconsistent.

The research in this area will allow the Boardto evaluate whether notes to the financial statements required under current GAAP provide users with sufficient information about current forms of state and local government debt in this regard, including bank loans.

The Board is scheduled to review research findings in this area in March 2016.

Extinguishments of Debt, including Debt Refundings


The issue of debt extinguishments—including the early retirement of debt and debt refundings—has been a continuing priority topic for the GASAC. Although the GASB has its own standards on debt refundings, the broader debt extinguishment guidance was found in Financial Accounting Standards Board standards until it was brought into the GASB’s standards through Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, in December 2010. In April 2014, the GASB decided the time had come to initiate pre-agenda research in this area.

Examples of extinguishments of debt include when a government uses cash on hand to retire existing debt, and when it sells new refunding bonds at a lower interest rate and uses the proceeds to pay off old bonds.

The Board’s existing standards for debt extinguishments (Statement 62) including debt refundings (GASB Statements No. 7, Advance Refundings Resulting in Defeasance of Debt and No. 23, Accounting and Financial Reporting for Refundings of Debt Reported by Proprietary Activities) have now been in effect for many years. Because the GASB is committed to ensuring that standards continue to be effective, the GASB staff has conducted research over the past year on the guidance’s effectiveness in today’s environment.

The Board reviewed the results of the research at its July 2015 meeting and will consider adding a related project to the current technical agenda in September 2015.

Final Thought


Summer is here and, as I’m sure you know, the GASB has provided you with a robust reading list of new final and proposed Statements. We hope you’ll read what we’ve issued, take advantage of the resources we’ve posted on our website, let us know what questions you may have, and share your views on issues of importance to you.


David A. Vaudt
GASB Chair


More information on GASB pre-agenda research

Read the GASB’s document’s for public comment