As we approach June 30, 2024, we want to share some important information regarding a pronouncement from the Governmental Accounting Standards Board (GASB) that is now effective for implementation. GASB Statement No. 100, Accounting Changes and Error Corrections, marks a significant update in governmental accounting standards and aims to enhance the consistency and comparability of financial statements, thereby improving transparency and accountability for governmental entities.
Key Highlights of GASB Statement No. 100:
- Scope and Purpose: GASB 100 provides comprehensive guidance on accounting and financial reporting for changes in accounting principles, changes in accounting estimates, and changes to or within the financial reporting entity (collectively, “accounting changes”) and corrections of errors. This statement seeks to align these practices with the needs of financial statement users, ensuring that the information provided is both relevant and reliable.
- Changes in Accounting Principles: When a governmental entity adopts a new accounting principle or changes an existing one, GASB 100 requires that the change be applied retroactively to prior periods unless it is impractical. This approach ensures that financial statements are consistent over time, providing a clearer view of the entity’s financial position and performance.
- Changes in Accounting Estimates: Changes in estimates are now to be accounted for prospectively. This means that adjustments resulting from revised estimates will only affect the period of the change and future periods, rather than restating prior periods. This treatment helps to reflect the most current information without altering historical data.
- Changes to or within the Financial Reporting Entity: Changes to or within the financial reporting entity result from any of the following: a change in a fund’s presentation as major or nonmajor, the addition or removal of a component unit, a change in a component unit’s presentation as blended or discretely presented, or the addition or removal of a fund that results from the movement of continuing operations within the primary government.
- Error Corrections: GASB 100 stipulates that material errors must be corrected by restating prior period financial statements. This ensures that any inaccuracies are promptly addressed, thereby maintaining the integrity and accuracy of the financial reporting.
- Disclosures: The statement emphasizes the importance of clear and comprehensive disclosures. Entities must disclose the nature and effect of changes in accounting principles, estimates, and error corrections. This transparency is crucial for users of financial statements to understand the reasons behind the changes and their impact on the entity’s financial condition.
Unique Issue Involving a Change in a Fund’s Presentation as Major or Nonmajor:
A key provision of GASB 100 includes identifying a change in a fund’s presentation as major or nonmajor as an accounting change. In preparation for the implementation of the new standard, confusion has arisen as to how to display the change in major funds on the face of the financial statements when you have a fund that was reported as major in the prior period.
The Government Finance Officers Association (GFOA) has posted a short video summarizing the issue here. Recent discussions between Mauldin & Jenkins partners and the GASB have confirmed the presentation as described by GFOA to be the appropriate treatment when governments encounter this situation.
Preparing for Implementation of the New Standard:
GASB 100 is effective for accounting changes and error corrections made in fiscal years beginning after June 15, 2023, and all reporting periods thereafter. Therefore, governments with fiscal years ending on June 30, 2024, will be the first ones to implement the new standard. In preparation for implementation, we recommend clients do the following:
- Review Current Financial Reporting: For some governments, changes in major funds happen almost every year whereas for some governments, the same funds are reported as major year after year. We recommend all governments review their major funds and identify any changes expected for the upcoming fiscal year.
- Review COVID-19 Funding: Many governments have established fund(s) to record receipt and expenditure of Coronavirus State and Local Fiscal Recovery Funds (commonly referred to as “ARPA funds”) and other pandemic-related aid. In many cases, these funds have met the criteria to be presented as major. As those funds dwindle and programs are closed, these funds will most likely revert to nonmajor funds.
Conclusion:
GASB Statement No. 100 represents a significant step towards improving the quality and consistency of financial reporting for governmental entities. By adhering to these updated standards, entities can enhance the transparency and reliability of their financial statements, thereby fostering greater trust and confidence among stakeholders.
For any questions or further assistance on how GASB 100 may impact your entity, please do not hesitate to reach out to your Mauldin & Jenkins advisor. We are here to support you through this transition to ensure compliance with the latest accounting standards.
