The Governmental Accounting Standards Board has voted to begin research on improving the disclosures by state and local governments about going concern and debt.
In a related action, GASB also decided Thursday to remove an earlier project it had planned on economic condition reporting and financial projections from the board’s current technical agenda.
The board decided to initiate research on going concern disclosures based on feedback from stakeholders, who suggested that GASB should examine the relevance of the “going concern” concept as it applies to governments and government organizations. Governments rarely go out of business, though some local governments, such as Detroit, Mich., and Stockton, Calif., have declared bankruptcy in recent years.
The going concern research will focus on whether existing GAAP standards provide state and local government financial statement preparers with enough guidance about management’s responsibilities for evaluating and disclosing uncertainties associated with severe financial stress.
The economic condition project—which related to financial reporting requirements related to financial projections—was put on hold in 2012 and has not been subject to deliberations since.
“The input and feedback we received from stakeholders on the Preliminary Views on economic condition reporting was highly valuable and will likely serve to inform our work in the future—including the research the board has called for regarding going concern disclosures,” said GASB chair David A. Vaudt in a statement.
GASB also approved research on potential improvements to debt disclosure guidance. With state and local governments diversifying their debt-issuance practices—increasingly seeking direct bank loans rather than issuing municipal bonds—disclosures in this area have been inconsistent. The research will focus on whether notes to the financial statements currently provide sufficient debt information to financial statement users for decision making and assessments of accountability.
Both going concern and debt disclosure guidance were identified as high priorities by the members of the Governmental Accounting Standards Advisory Council at their March 2015 meeting. Based on the outcomes of the research and feedback from stakeholders, including the GASAC, the board will decide whether to add projects to the current technical agenda to consider amending the existing standards.
More information about the new pre-agenda research activities will available in the coming weeks at www.gasb.org.
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