Financial Reporting and Regulatory Update

Second Quarter 2020

From the GASB

Final standards

Implementation guidance update

On April 23, 2020, the GASB issued Implementation Guide 2020-1, “Implementation Guidance Update – 2020,” to clarify, explain, or elaborate on certain GASB pronouncements. The guide includes 21 new questions and answers to address application of existing GASB standards covering various topics including the following:

  • The financial reporting entity (1-2)
  • Accounting and financial reporting for certain investments and for external investment pools (3)
  • Fiduciary activities (4-5)
  • Leases (6-17)
  • Certain asset retirement obligations (18)
  • Conduit debt obligations (19-21)

The implementation guide also amends five previously issued questions and answers from Implementation Guides 2015-1, 2017-1, 2017-2, and 2017-3. In addition, the guide defers indefinitely the effective dates of questions 4.3, 4.5, and 4.6 in Implementation Guide 2019-2, which address issues related to the application of Statement 14 or Statement 84 in specific circumstances involving pension plans or other postemployment benefit (OPEB) plans.

Effective dates

The requirements of this implementation guide are effective as follows:

  • Questions 4.1-4.5, 4.18, and 5.3 are effective for reporting periods beginning after June 15, 2021.
  • Questions 4.6-4.17 are effective for fiscal years beginning after Dec. 15, 2021, and all reporting periods thereafter.
  • Questions 4.19-4.21 are effective for reporting periods beginning after Dec. 15, 2021.
  • Questions 5.1, 5.2, 5.4, and 5.5 are effective for fiscal years beginning after June 15, 2021.
  • The effective date deferral of certain questions in Implementation Guide 2019-2 is effective immediately.

Early application is encouraged for guidance related to standards that already have been implemented.

Statement and implementation guide effective dates

On May 8, 2020, the GASB issued Statement 95, “Postponement of the Effective Dates of Certain Authoritative Guidance,” to provide relief to governments in light of the COVID-19 pandemic by postponing the effective dates of provisions in almost all standards and implementation guides due to be implemented for fiscal years 2019 and later.

The statement postpones by one year the effective dates of certain provisions in the following pronouncements:

  • Statement 83, “Certain Asset Retirement Obligations”
  • Statement 84, “Fiduciary Activities”
  • Statement 88, “Certain Disclosures Related to Debt, Including Direct Borrowings and Direct Placements”
  • Statement 89, “Accounting for Interest Cost Incurred Before the End of a Construction Period”
  • Statement 90, “Majority Equity Interests”
  • Statement 91, “Conduit Debt Obligations”
  • Statement 92, “Omnibus 2020”
  • Statement 93, “Replacement of Interbank Offered Rates”
  • Implementation Guide 2017-3, “Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (and Certain Issues Related to OPEB Plan Reporting)”
  • Implementation Guide 2018-1, “Implementation Guidance Update – 2018”
  • Implementation Guide 2019-1, “Implementation Guidance Update – 2019”
  • Implementation Guide 2019-2, “Fiduciary Activities”

The statement postpones by eighteen months the effective dates of the following pronouncements:

  • Statement 87, “Leases”
  • Implementation Guide 2019-3, “Leases”

Effective date

The provisions of this statement are effective immediately.

Subscription-based information technology arrangements

On June 5, 2020, the GASB issued Statement 96, “Subscription-Based Information Technology Arrangements,” to address questions regarding the proper accounting for and reporting of cloud computing and other remote access forms of software applications and data storage that are subscription based. Although existing GASB literature addresses on-premise computer software – either developed internally or acquired through perpetual licensing agreements – the previous lack of guidance for subscription-based information technology arrangements (SBITAs) has caused inconsistency in accounting and financial reporting.

The statement applies many of the provisions of Statement 87, “Leases,” to subscription-based transactions and establishes the following:

  • An SBITA is defined as a contract that conveys control of the right to use an SBITA vendor’s hardware, software, or both, including IT infrastructure, for a period of time in an exchange or exchange-like
  • Governments with SBITAs should recognize a right-to-use subscription intangible asset and a corresponding subscription liability (with an exception for short-term SBITAs with a maximum term of 12 months, in which case payments would be recognized as outflows of resources).
  • Guidance related to outlays other than subscription payments, including accounting for implementation costs based on three different stages.
  • Note disclosure requirements related to an SBITA.

Effective date

The requirements of this statement are effective for fiscal years beginning after June 15, 2022. Early application is encouraged.

Certain component unit criteria and reporting for IRC Section 457 plans

On June 23, 2020, the GASB issued Statement 97, “Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans,” to increase consistency and comparability related to the reporting of fiduciary component units and IRC Section 457 deferred compensation plans.

The statement is designed to mitigate costs of financial reporting associated with certain defined contribution pension plans, defined contribution OPEB plans, and other employee benefit plans when an organization does not have a governing board and the primary government performs the duties that a governing board typically performs.

The statement also enhances the relevance, consistency, and comparability of accounting and financial reporting for Section 457 plans that meet the definition of a pension plan and for benefits provided through those plans. In addition, for all Section 457 plans, it supersedes the remaining provisions of Statement 32, “Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans,” as amended.

The statement establishes the following:

  1. The absence of a governing board is considered the same as appointment of a voting majority of a governing board if the primary government performs the duties that a governing board typically performs, except in situations related to defined contribution pension and OPEB plans or other employee benefit plans.
  2. The financial burden criterion applies only to defined benefit pension and OPEB plans that are administered through trusts that meet the criteria in paragraph 3 of GASB Statements 67 and 74, respectively.
  3. All accounting and financial reporting requirements relevant to pension plans and related benefits must be applied to Section 457 plans and related benefits that meet the definition of a pension plan.
  4. Statement 84, “Fiduciary Activities,” should be applied to all arrangements organized under IRC Section 457 to determine whether those arrangements should be reported as fiduciary activities.

Effective date

The requirements of this statement are effective as follows:

  • The exception related to defined contribution pension and OPEB plans or other employee benefit plans in number 1 and the requirements in number 2 are effective immediately.
  • The requirements in numbers 3 and 4 are effective for fiscal years beginning after June 15, 2021.
  • All other requirements of this statement are effective for reporting periods beginning after June 15, 2021.

Earlier application is encouraged and is permitted by specific requirement.


Concepts for recognition of financial statement elements

On June 30, 2020, the GASB issued an exposure draft of a proposed concepts statement, “Recognition of Elements of Financial Statements,” addressing concepts for recognition of assets, liabilities, and other elements of state and local government financial statements.

The exposure draft proposes a framework of interrelated objectives and fundamental principles that the board can use to establish consistent accounting and financial reporting principles for recognition of elements of financial statements.

Recognition concepts encompass two aspects of financial statements for state and local governments:

  • Measurement focus – determines what items of a specific financial statement should be reported as elements in a financial statement.
  • Basis of accounting – determines when those items should be reported in a financial statement.

The exposure draft proposes a recognition framework for both:

  • The economic resources measurement focus and accrual basis of accounting.
  • The short-term financial resources measurement focus and accrual basis of accounting.

The proposed concepts statement also contains a recognition hierarchy that would be followed when evaluating an item for recognition in financial statements.

Comments are due to the GASB by Feb. 26, 2021.

Revenue and expense recognition

On June 30, 2020, the GASB issued a preliminary views proposal, “Revenue and Expense Recognition,” intended to present the board’s current thinking about the development of a comprehensive, principles-based model that establishes categorization, recognition, and measurement guidance applicable to a broad range of revenue and expense transactions.

The board is seeking to enhance the usefulness of revenue and expense information that governments report by introducing a new methodology for categorizing transactions, which then is used as a basis for applying recognition proposals. Determining the transaction category would be based on the assessment of specific characteristics that a binding arrangement might or might not contain. This categorization methodology is intended to identify transactions with performance obligations.

If a transaction is determined to have a performance obligation based on the categorization characteristics, the associated revenue or expense would be recognized based on the satisfaction of the performance obligation. For transactions that are determined not to have a performance obligation, the board has proposed specific recognition guidance based on the various subcategories of transactions (for example, derived taxes, such as income and sales taxes, and imposed taxes, such as property taxes).

Comments are due to the GASB by Feb. 26, 2021.

COVID-19 resources

Application guidance on CARES Act and coronavirus issues

On July 2, 2020, the GASB issued Technical Bulletin 2020-1, “Accounting and Financial Reporting Issues Related to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Coronavirus Diseases,” to clarify the application of existing recognition requirements to resources received from certain programs established by the CARES Act. It also clarifies how existing presentation requirements apply to certain inflows of CARES Act resources and to the unplanned and additional outflows of resources incurred in response to the coronavirus disease.

GASB emergency toolbox

The GASB has posted a toolbox on its website to assist governments and other stakeholders in quickly identifying authoritative GASB guidance that could be relevant to the current circumstances related to COVID-19. In addition, the toolbox includes links to other professional organizations from which stakeholders might get nonauthoritative recommendations for financial reporting and other activities as governments deal with the pandemic’s effects.

For more information contact Crowe.