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Comment letter on GASB proposed Exposure Draft: Financial Reporting Model Improvements

February 16, 2021

Director of Research and Technical Activities
Project No. 3-25
Governmental Accounting Standards Board
401 Merritt 7, PO Box 5116 
Norwalk, CT 06856-5116 

Submitted via e-mail to [email protected]  

Re:    Financial Reporting Model Improvements 

Dear Director of Research and Technical Activities: 

The Virginia Society of CPAs (VSCPA) Accounting & Auditing Advisory Committee has reviewed the proposed Exposure Draft, Financial Reporting Model Improvements, issued by the Governmental Accounting Standards Board (GASB). The VSCPA is a leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. The VSCPA membership consists of more than 13,000 individual members who actively work in public accounting, private industry, government and education. We appreciate the work the GASB has undertaken on this effort and the opportunity to respond to this proposed exposure draft. 

Overall Observations

Overall, the Committee recognizes that the new proposed financial reporting model may result in greater conceptual consistency in comparison to the existing model. However, in application, it is unclear whether the proposed model will improve user decision making and assessment of government accountability since the GASB had not defined the objectives of the short-term financial resources focus. The GASB may consider more clearly defining the objectives of the reporting model to justify the breadth and complexity of the new guidance, particularly given the costs and challenges implementation will create for governments. Specifically, many local governments have limited accounting resources and already struggle to compile financial statements that are GAAP-compliant under the current model. Therefore, governments may require significant time to prepare for these changes.   

We recommend the GASB delay implementation until after it first addresses revenue and expense recognition. We believe addressing significant changes to financial elements before overhauling financial presentation is a more logical sequence for preparers and users. Delaying implementation will also allow governments more time to prepare for the new model as they continue to focus their efforts on other impactful standards, such as fiduciary activities, leases, and SPITAs.   

Specific Observations 

Improvements to Financial Statement Presentation 

We support the GASB’s proposed changes to Management Discussion and Analysis by creating a logical consistent structure and focusing the discussion on meaningful events and analysis. Users will also benefit from a set location for required budgetary comparison information and for the additional variance presentations. We further support the GASBs efforts to include determinations of transactions that are infrequent or unusual and the removal of management control from the assessment.  

Measurement Focus and Due Date 

If the objective of the short-term measurement focus is to assist users in understanding the fund balance available for spending in the next period, it is not clear to us why a short-term liability due twelve months from period end would be relevant, while a long-term liability due one day after period end would not be relevant. In addition to this conceptual question, we also have some concern as it relates to application of the ‘due date’ and whether it will be subject to manipulation, especially as it relates to pension and other post-employment benefit (OPEB) contributions. Governments establish pension and OPEB plan contributions through budget bills and historically have delayed contributions to plans during stressful economic times. The GASB may consider specifically addressing contributions to pension and OPEB plans and addressing any other areas where due dates may be subject to manipulation for financial reporting purposes.  

Measurement Focus and Transactions 

Establishing whether events are short-term or long-term at the transaction level for the purposes of recognition under the short-term financial resources measurement focus will be costly and challenging to implement. We recommend the GASB reconsider whether another higher-level unit of evaluation would be more appropriate from a cost benefit perspective. Assessing at the level of a binding arrangement would create some conceptual consistency with the GASB’s preliminary views on revenue and expense recognition.  

Measurement Focus and Binding Arrangements 

Paragraph 18 indicates that short-term or long-term classification does not change when terms or conditions change within an existing binding arrangement, but would change for a new binding arrangement. The GASB may consider clarifying what constitutes as a new binding arrangement to ensure consistency in application.   

Inflows and Outflows of Resources 

We acknowledge the benefit of using inflow and outflow terminology to assist users in differentiating short-term reporting from long-term government-wide reporting. However, we caution the GASB from moving away from revenue and expenditure terminology that is universally understood by the general public.  

Proprietary Fund Classification 

Paragraph 31 indicates that a preparer would first establish non-operating activities and subsidies and would then back into the remainder being operating activities. We believe preparers should first focus on which activities are part of their core operations and then establish whether the remainder falls into non-operating or subsidies.   

We acknowledge the benefit of the GASB’s additional subsidy classification to help users understand when funds are not self-sufficient. However, we recommend the GASB improve its definition of a subsidy in paragraph 32. Tying the classification to whether the inflow or outflow is being used to reduce charges, taxes, or fees relies on the subjective determination of management intent. As currently defined, many gifts and grants currently considered to be operating activities may be re-defined as subsidies. The GASB may consider providing additional guidance to ensure consistency in application regarding this new classification.  

Again, the VSCPA appreciates the opportunity to respond to this Exposure Draft. Please direct any questions or concerns to VSCPA Vice President, Advocacy Emily Walker, CAE, at [email protected] or (804) 612-9428. 


Natalya Yashina, CPA
Chair, VSCPA Accounting & Auditing Advisory Committee 

2020-2021 VSCPA Accounting & Auditing Advisory Committee
Natalya Yashina, CPA — Chair
Tamara Greear, CPA — Vice Chair  
Zach Borgerding, CPA, CGFM, CISA  
Michael Cahill, CPA, CGMA  
George Crowell, CPA, CITP  
Scott Davis, CPA  
Bo Garner, CPA, MBA   
Jimmy Hartson, CPA  
Josh Keene, CPA  
Zach Morris, CPA  
Michael Phillips, CPA, MBA  
Charlie Valadez, CPA, CIA, CGMA, CISA