In December 2021, the Governmental Accounting Standards Board (GASB) voted to approve pre-agenda research activity on subsequent events as part of its technical plan for the first third of 2022. The GASB also approved the addition of a major project focusing on “going concern” uncertainties and severe financial stress. An entity is a “going concern” if it is able to continue operating long enough to carry out its commitments, obligations, and objectives. The GASB is investigating how “going concern” states are influenced by severe financial distress.
The idea of “going concern” uncertainties was not explicitly developed or greatly changed for the government setting when it was included in the current GASB literature. According to pre-agenda research, few governments dissolve or cease operations even when they are in or have been undergoing severe financial stress. The existing guidance provides that preparers of financial statements have a responsibility to assess a government’s ability to continue as a going concern. However, those evaluations have led to inconsistent practices and often gives rise to challenges. Those challenges may include determining whether or when governments have a responsibility to evaluate and be transparent about their exposure to severe financial stress.
The GASB has added this project based on more than five years of research on its existing standards for “going concern” uncertainties and current practice regarding identifying governments experiencing or in danger of severe financial stress. It intends to meet the following objectives for the pre-agenda research items concerning subsequent events by:
Considering the need for revisions to standards. Should further guidance be needed, another objective would be to consider the development of revised accounting and financial reporting for subsequent events.
Evaluating the effectiveness of the existing guidance for identifying and reporting subsequent events.
The GASB’s project going concern uncertainties and severe financial stress will consider the following:
improvements to existing guidance for going concern considerations (including the definition of a going concern) to address diversity in practice and clarify when disclosure is appropriate
developing a definition of severe financial stress and criteria for identifying when governments should disclose their exposure
what information about a government’s exposure to severe financial stress is necessary to disclose
When developing its first-third 2022 technical plan, the GASB also considered but decided against adding a pre-agenda research activity on related-party transaction and a project on interim financial reporting.
For more information on the new project and pre-agenda research activity, visit the Technical Plan webpage at gasb.org.