GASB Update Part 2: GASB 104 and Beyond

DANNY MARTINEZ: Hello everyone and thank you for joining the Cherry Bekaert government and public sector podcast. My name is Danny Martinez. I am a partner with Cherry Bekaert’s Advisory group focused on state and local government, higher education, and Not-for-Profit industries.

DANNY MARTINEZ: With me today is my frequent co-presenter, Scott Anderson. Scott, please introduce yourself.

SCOTT ANDERSON: Thanks, Danny. I have been with Cherry Bekaert for 20 years. I work on the audit side and lead our technical efforts with government accounting and auditing. I also serve a number of clients in North Carolina and Virginia.

DANNY MARTINEZ: You are listening to part two of our GASB update. You should be able to find part one, where we covered GASB 102 and 103, where you found this podcast.

DANNY MARTINEZ: In this segment, we are covering GASB 104, the 2025 implementation guide update, and current projects that GASB is working on. GASB 104 is effective for fiscal years 2026, including the June 30, September 30, and December 31, 2026 fiscal years.

DANNY MARTINEZ: The title of GASB 104 is *Disclosure of Certain Capital Assets*. Scott, would you like to jump in and share a little bit about GASB 104?

SCOTT ANDERSON: I always like to talk about the "why" and what the GASB is trying to do with the standard. While I was at the GASB, I participated in the pre-agenda research that turned into this project.

SCOTT ANDERSON: In the pre-agenda research, we looked at many different financial reports to figure out how consistently governments were reporting their capital assets. We looked at assets held for sale and capital asset disclosures.

SCOTT ANDERSON: There was significant disparity and many folks were doing things differently. Part of this standard is to make that more consistent and add more guidance on capital assets held for sale, as that seems to lack disclosure.

DANNY MARTINEZ: What is the criteria for capital assets held for sale that GASB 104 is putting out?

SCOTT ANDERSON: First, I would point out it is a capital asset held for sale. We are finding that there are some assets held for sale that governments consider to be outside of capital assets.

SCOTT ANDERSON: That part is not being addressed by the standard. The standard focuses only on items classified as capital assets and when they are being held for sale.

SCOTT ANDERSON: There are a couple of criteria for when an asset is held for sale. The government must have decided to pursue the sale, and it must be probable that the sale will be finalized within one year of the financial statement date.

SCOTT ANDERSON: "Probable" means a greater than 50% likelihood. It is intended to be a high threshold indicating the sale will happen this year.

DANNY MARTINEZ: When assessing the likelihood of sale, we have a few factors you can consider. First, the asset is available for immediate sale in its present condition.

DANNY MARTINEZ: Second, the status of the program to locate a buyer, which may include a bid and market conditions. Regulatory approvals needed to sell the asset must be considered, and the evaluation should be made on an annual basis.

SCOTT ANDERSON: This is a serious initiative to sell, not just a casual decision. If you have not started the initiative, the market must be such that you can put it out and sell it fairly quickly.

SCOTT ANDERSON: Regarding the point that you have to make that assessment annually, you cannot move an asset in and out of capital assets. However, for the purpose of categorizing it as a held-for-sale capital asset, it can move in and out of that category.

SCOTT ANDERSON: If it is no longer being held for sale or you do not think it will be sold in the next year, you would no longer classify it that way in your notes.

DANNY MARTINEZ: I could see that tripping people up because many have had it drilled into their heads that you cannot move something out of a capital asset and then back in.

DANNY MARTINEZ: Knowing that this specific categorization should be assessed is important. Is there anything else in terms of disclosure before we move to the implementation guide update?

SCOTT ANDERSON: If you have an asset held for sale, there are additional disclosure requirements. If there is debt associated with that asset, it needs to be disclosed separately.

SCOTT ANDERSON: This ensures a user knows that if you sell it, the associated debt may also go away or be paid off with that sale.

DANNY MARTINEZ: Moving on to the implementation guide update for 2025, topics include cash flow reporting, basic financial statements, and Management’s Discussion and Analysis (MD&A).

DANNY MARTINEZ: There are also questions on leases and other implementation guidance related to GASB 91, 100, 101, and 103. Scott, which of these updates would you like to share?

SCOTT ANDERSON: I want to make a comment first about the implementation guide overall. This was a perfect example of what the due process is supposed to do.

SCOTT ANDERSON: The exposure draft provided additional Q&As. When exposed, commenters had issues with some of those questions and answers.

SCOTT ANDERSON: Even though the answers may have been correct, the board decided to pull them out based on comments. In some cases, they probably will never include that Q&A.

SCOTT ANDERSON: In other cases, they decided the topic might be Category A GAAP, not Category B GAAP, and should be part of another project. We saw the board taking feedback and making changes before it was put out.

DANNY MARTINEZ: Question 13 clarifies the "ghost column" requirement. How is that presentation going this year?

DANNY MARTINEZ: I know you are in the middle of fiscal year 2025 audits. Are you seeing that often, and do people understand what they are doing when moving from a major to a non-major fund, or vice-versa?

SCOTT ANDERSON: I do not think the GASB likes the term "ghost column," but sticking that name to it has helped people understand it better. We saw this a little bit last year when GASB 100 was implemented.

SCOTT ANDERSON: We are seeing more of it this year. I think everybody understands it. Not everybody likes to see that column, but because the guidance has been very explicit, no one has a problem with it.

SCOTT ANDERSON: I will note that the AICPA has put out a TQA answering whether a ghost column is an opinion unit and how auditors should approach that in their report.

DANNY MARTINEZ: Are there any other questions you would like to touch on?

SCOTT ANDERSON: I am on the AICPA experts panel and we requested more guidance on the subsidy definition from GASB 103, which we talked about in our last podcast. The GASB has promised that next year's implementation guide will address more questions about subsidies.

DANNY MARTINEZ: The last part of this two-part GASB update is to look at the GASB projects that are currently ongoing. We have four: subsequent events, revenue and expense recognition, going concern uncertainties and severe financial stress, and infrastructure assets.

SCOTT ANDERSON: Subsequent events is the one that is next, which will probably be GASB 105. I believe it is on track to be issued at the end of this year.

SCOTT ANDERSON: It provides enhanced guidance on recognized versus unrecognized events. The board continued to deliberate on comments from the exposure draft in the last board meeting.

DANNY MARTINEZ: I am surprised you did not pick revenue and expense recognition, since you were on the panel at the national GFOA discussion. Do you have feedback that is helpful for our audience as this pronouncement continues toward issuance?

SCOTT ANDERSON: The challenge with this project is refining my comments to just a couple of minutes because there is a lot to it. It has been going since 2018.

SCOTT ANDERSON: Right now, the technical plan says it will be issued by 2027, but the project team is not optimistic about that timeline. I think it might go a bit further.

SCOTT ANDERSON: This is intended to be a principles-based approach rather than focusing on non-exchange versus exchange transactions. Whether it is exchange or non-exchange, it will go through the same criteria to determine when revenue or an expense should be recognized.

SCOTT ANDERSON: It will come down to a legally enforceable claim and a performance obligation approach. If you have ever read FASB Topic 606, you understand the nuances involved with that approach.

SCOTT ANDERSON: That is what the GASB is currently going through: how to set that up and what is going to be relevant for the revenue and expenses that governments deal with.

DANNY MARTINEZ: For the "no new GASB standards ever" crowd, only subsequent events is likely to come out at the end of this year. The other three are not expected until mid-to-late 2027.

DANNY MARTINEZ: The GASB is definitely pacing itself and listening to the needs of constituents regarding competing priorities while fulfilling their mission to improve financial reporting for governments across the country.

SCOTT ANDERSON: Those three projects are what they refer to as comprehensive projects, meaning it is not just an exposure draft and a final statement. They start with preliminary views, public hearings, and roundtables.

SCOTT ANDERSON: There is a lot of outreach before they even get to an exposure draft. That is why these projects take time; they want to ensure they result in the best answers that both preparers and users will be satisfied with.

DANNY MARTINEZ: A preliminary views document was issued in March regarding going concern uncertainties and severe financial stress. Can you share what is happening with this project?

SCOTT ANDERSON: The preliminary views document is essentially removing "going concern" as a concept for governments since governments do not go away. The GASB's position is that the term "going concern" means continuing to exist.

SCOTT ANDERSON: When there is no going concern, it means it is no longer going to exist. Auditors have expressed concern about moving away from the "going concern" term, as it creates a disconnect from auditing standards.

SCOTT ANDERSON: Instead, the preliminary views break it into two different pieces: probable dissolution and severe financial stress. These are two different paths for two different issues.

DANNY MARTINEZ: The last one is infrastructure assets. We are seeking to address issues making them more comparable across governments, more useful to decision-makers, and more relevant to assessing economic conditions.

SCOTT ANDERSON: They have done a preliminary views document and are working through the feedback. This is a big topic for Joel Black, the GASB chair.

SCOTT ANDERSON: For general-purpose governments, infrastructure assets are their largest capital asset item, but it is often presented in the notes as a single line. The goal is to provide more information about the condition of those infrastructure assets.

DANNY MARTINEZ: As a best practice, high-performing governments should keep track of these. We would recommend creating a GASB pronouncement tracker.

DANNY MARTINEZ: You can build it in Excel with the name of the pronouncement, the topic, the changes, the effective date, and the person responsible. Who within your government is going to keep track of this project?

DANNY MARTINEZ: GASB does a great job of putting out incremental changes from each meeting on its website. If you take it in small bites, it is definitely doable.

DANNY MARTINEZ: GASB also makes it very easy for you to provide electronic comments during the preliminary views and exposure draft phases. They also have events where you can present in person, which is a very fulfilling experience.

SCOTT ANDERSON: Well, I have been on the other side. I think that is how you and I met the first time.

DANNY MARTINEZ: That is a long time ago. Obviously, you have the ability now to express your views through the expert panel.

DANNY MARTINEZ: There are ways to get involved and keep track of these things. You will also have Scott and the team here at Cherry Bekaert to provide additional GASB updates and training.

DANNY MARTINEZ: GASB 103 is the next project that will get our full focus, including templates, webinars, and a four-phase implementation approach. We will do standalone podcasts on it touching on MD&A and the definition of a subsidy.

DANNY MARTINEZ: That concludes our two-part GASB update. If you have any questions for Scott or me, please email us.

DANNY MARTINEZ: My email is danny.martinez@cbh.com and you can email Scott Anderson at scott.anderson@cbh.com. If you are an audit or advisory client, your manager or service partner is also a great resource. Thank you very much for your time.