GASB Hot Topics and Accounting Standards Update

HOST: DANNY MARTINEZ: Welcome to Cherry Bekaert's Government and Public Sector podcast, where we discuss governmental accounting updates, compliance matters, and best practices to guide state and local governments forward.

HOST: DANNY MARTINEZ: I'm Danny Martinez with Cherry Bekaert. I'm a director and the Government and Public Sector accounting advisory lead. With me today is Scott Anderson, a director in Cherry Bekaert's Government and Public Sector group who recently returned from his fellowship with GASB. Thanks for joining me, Scott.

GUEST: SCOTT ANDERSON: Thanks for having me. Glad to be here.

HOST: DANNY MARTINEZ: We're going to cover a few GASB hot topics on this episode. I thought I'd start with a GASB presentation I recently attended at the Association of Government Accountants National Conference in Anaheim. Joel Black and Lisa Parker from GASB were there, and the topic was how GASB Statement 87 Leases, GASB Statement 94 P3s, and GASB Statement 96 Subscription-Based IT Arrangements are interconnected. They did a good job demystifying the three standards and making implementation feel more manageable.

HOST: DANNY MARTINEZ: Could you share what the similarities are among those standards and what preparers should consider now that they're implementing Statement 87 to take forward to Statements 94 and 96?

GUEST: SCOTT ANDERSON: I think interconnected may not be the exact word. Statement 87 created a template, and Statements 94 and 96 follow that template. Statement 94 combines guidance from Statement 60 and Statement 87. Statement 60 on Service Concession Arrangements was found by the board to be too narrow, and there were many other P3 arrangements without guidance. The board expanded the scope to more P3s and applied much of what Statement 87 did to those arrangements, so a lot is the same.

GUEST: SCOTT ANDERSON: Statement 94 differs in that P3 arrangements often involve a new asset or an asset being transferred, so you will have a receivable for an underlying asset if you're the transferor, or a liability for the underlying asset if you are the operator. That's the main difference when applying Statement 94 to a P3.

GUEST: SCOTT ANDERSON: For Statement 96, there is much in common with Statement 87. Statement 87 scoped out intangible assets, and Statement 96 picks those up for subscription-based IT arrangements. One difference is that not many governments are service providers of cloud-based arrangements, so Statement 96 takes the subscriber's point of view, which makes it easier to read and follow. Statement 96 also incorporates guidance from Statement 51 on stages of software implementation, so it effectively marries those two standards.

HOST: DANNY MARTINEZ: Thank you for explaining the relationship and background among those standards. One other item GASB emphasized at that conference — and they emphasize this anytime they present to the public — is the need and importance of feedback. You were a project lead on Statement 99, the Omnibus, among other projects when you were at GASB. As the project lead, how important is constituent feedback, and what has GASB recently done to attempt to receive more of that feedback?

GUEST: SCOTT ANDERSON: If I learned one thing in the two years I spent at GASB, it's how important feedback is and how much the board values it. Statement 99 is not a comprehensive statement; it amends other pronouncements. We don't get as much feedback on those types of statements. We get some feedback from the Governmental Accounting Standards Advisory Council throughout the project, and then we get comment letters. For Statement 99, we received 18 comment letters.

GUEST: SCOTT ANDERSON: If not enough feedback is received, the board has no problem extending the comment date. I saw comment letters come in well past the deadline stated in the exposure document, and we always accepted those. The board wants that feedback.

GUEST: SCOTT ANDERSON: For bigger projects, such as revenue and expense recognition or the financial reporting framework, the board goes much further in obtaining feedback, soliciting direct input from individuals. With the Exposure Draft currently out on the Risks and Uncertainties project, feedback will be very important because of disagreements the board had in arriving at those provisions.

GUEST: SCOTT ANDERSON: One thing the board is trying to do, and started with Statement 100, is provide a way for commenters to submit feedback electronically through an input form rather than writing a full comment letter. Typically commenters are auditors, preparers, or organizations, but this latest Exposure Draft really needs feedback from users. On the first page of that Exposure Draft there's a link to a survey. I think that process will continue to be refined; there was discussion on what questions the survey should ask to solicit the right responses. It may not be perfect yet, but it gives an opportunity for people, especially users, to respond.

HOST: DANNY MARTINEZ: When I heard about that survey and a more informal way to give feedback, I was really excited. I recently rolled off the AICPA Technical Issues Committee, where I served as the GASB Zone chair, and one of the best parts was how engaging GASB was with feedback. It wasn't just a check-the-box exercise. Whenever we provided a comment letter, they would reach back out and ask for clarification about what we were seeing in practice. It felt like they were trying to arrive at standards that best support constituents.

GUEST: SCOTT ANDERSON: Each board member reads every single comment letter. The staff summarizes every comment in every letter, and we deliberate on every comment over several months. That material is taken very seriously by the board. Sometimes, Jim Brown would give feedback on our comment letters at the TIC and would dig into ensuring we understood what we were asking when we provided certain comments.

HOST: DANNY MARTINEZ: I want to do a lightning round. We've passed 100 GASB statements with issuance of Statements 100 and 101. Let's take them piece by piece. Statement 100: Accounting Changes and Error Corrections. What impact will that have on our listeners?

GUEST: SCOTT ANDERSON: Many will see Statement 100 as a refresh or clarification of existing guidance. The board found that guidance in Statement 62, which is quite old, was not being applied consistently by users or preparers. A lot of issues involved determining when something was a correction of an error versus a change in estimate. There was gray area preparers could use.

GUEST: SCOTT ANDERSON: I think most inconsistency was in disclosure. My practice aligned with what Statement 100 requires, but that reflected best practice rather than a strict rule. In some instances, implementing Statement 100 will be a shift from what you're used to, but many organizations will consider it a clarification aimed at more consistency.

HOST: DANNY MARTINEZ: I do peer reviews for smaller firms, and approaches were all over the map regarding these notes. Hopefully Statement 100 will bring more clarity and consistency.

HOST: DANNY MARTINEZ: How about Statement 101 on Compensated Absences?

GUEST: SCOTT ANDERSON: Statement 101 addresses inconsistent application of Statement 16, the original guidance on compensated absences from 1993. The environment has changed with more types of leave. Statement 101 creates a conceptual approach, putting all leave into one bucket with three specific recognition requirements. That should help as organizations become more inventive in the types of leave they offer and provide a single approach applicable to all types of leave.

GUEST: SCOTT ANDERSON: One change that some may not agree with or may need time to accept is that vesting is no longer a recognition criterion. Previously, sick leave that did not vest would not be recognized as payable upon termination; now vesting is not a recognition criterion, although it is still considered in the recognition process. Some have had a hard time with that concept.

HOST: DANNY MARTINEZ: Thank you. Let's close with a proposed statement in the comment period — the call to action we mentioned earlier to go on GASB's website and provide feedback. This Exposure Draft on certain risk disclosures is open through the end of September. You were the project lead through the Exposure Draft. Why is it important to give feedback, what is the proposed statement attempting to do, and how might it impact future projects?

GUEST: SCOTT ANDERSON: To clarify, I was the Project Lead for about six months before I finished my fellowship. The previous practice fellow was the project lead for her entire two years. My task was to take tentative board decisions and draft the Exposure Draft, which I did. I wasn't heavily involved in the decisions, but when I brought the draft to the board they deliberated for more than eight hours on what is a relatively short document.

GUEST: SCOTT ANDERSON: The Exposure Draft is short — the standard section is nine paragraphs — but those paragraphs reflect specific, carefully considered choices. The board did not agree unanimously on everything. Everyone shared the same objective about what the statement should do, but there were disagreements about how to achieve it. You will see an alternative view expressed by Chairman Joel Black, with Carolyn Smith signing that alternative view. They disagreed about the disclosure threshold, so there is significant interest in stakeholder views. The board specifically wants users to weigh in.

GUEST: SCOTT ANDERSON: We released a couple of videos I filmed before I left that are now on the GASB website. Jeff P. had a big hand in the script; he's the board member representing user groups. We're trying to get users to weigh in on whether the proposal will achieve essential disclosures.

HOST: DANNY MARTINEZ: You've piqued my interest. I'm going to read the Exposure Draft and comment as well. Thank you for your time and insight.

HOST: DANNY MARTINEZ: If you'd like to discuss these or other GASB topics and the advisory and accounting guidance that Cherry Bekaert can provide, you can reach Scott at scott.anderson@cb.com or me at danny.martinez@cb.com. You can also find us on LinkedIn or on the Cherry Bekaert website. We will continue to provide new episodes on this and other Cherry Bekaert podcast feeds, so please subscribe.

HOST: DANNY MARTINEZ: Scott, my email is actually s.anderson@cb.com. Sorry about that.

GUEST: SCOTT ANDERSON: All right. Thank you.