The Governmental Accounting Standards Board is looking for feedback on its preliminary proposals associated with accounting and financial reporting for severe financial stress and probable dissolution disclosures by state and local governments.
GASB issued a preliminary views document,
GASB's current guidance on going concern uncertainties came into its literature without significant modification from the AICPA's literature and includes elements of both financial stress and continued existence. However, research indicated that GASB's stakeholders were unclear on what going concern means in the government context. Some state and local governments get into financial difficulties but continue to exist and provide services. There are also some governments that dissolve and cease to exist for reasons other than financial stress (for example, to realize greater efficiency and cost savings through governments merging or combining operations).
The preliminary views document aims to separate the notions of financial stress and continued existence and describes GASB's early thinking on issues associated with severe financial stress and probable dissolution disclosures. SFS guidance would focus on a government's financial condition, regardless of whether there is uncertainty about its continued existence. The PD guidance would focus on the uncertainty about a government's continued existence, regardless of its financial condition.
If a government entity meets either the SFS or PD disclosure requirement, the government would be required to make certain disclosures related to the SFS or PD. In some cases, a government may meet requirements for both SFS and PD and would be required to make both sets of disclosures.
SFS disclosures
A government would be required to make SFS disclosures if, as of the financial statement date, it's experiencing financial stress to such a degree that it's near or at the point of insolvency, regardless of whether it will continue to exist. The point of insolvency would be when a government generally isn't paying its liabilities as they come due or is unable to pay its liabilities as they come due. A government near the point of insolvency would be experiencing a very high level of financial stress but would not be insolvent.
SFS disclosures would be the reasons and causes for the condition, the government's evaluation of the significance of those reasons and causes, the actions taken by the government in response, and the known effects of the condition.
PD disclosures
A government would be required to make PD disclosures if it's probable that it will cease to exist as the same legally separate entity within 12 months of the date the financial statements are available to be issued, regardless of its financial condition. Relevant factors would be evaluated in the aggregate to determine the likelihood of the dissolution within the time frame.
The PD disclosures would be a statement that dissolution is probable; the reasons and causes for the PD; the government's evaluation of the significance of those reasons and causes; the actions taken by the government in response; and information about the recoverability, amounts, or classification of assets and liabilities.
GASB is asking its stakeholders to review and offer input on the preliminary views document by June 30, 2025. They can submit comments either via a comment letter or an electronic input form.
GASB has scheduled a series of public forums to give stakeholders a chance to share their views with the board. More information on the public forums is in the document.
