Ch-Ch-Ch-Changes: Adopting GASB GAAP.

• Author: Levine, Michele Mark
• Position: IN PRACTICE: ACCOUNTING

On May 20, 2021, the Governmental Accounting Standards Board (GASB) issued an Exposure Draft (ED) titled Accounting Changes and Error Corrections. With this ED, GASB is looking to bring more consistency to the reporting and disclosure of events that result in changes to previously reported information or potentially distort trend analysis. The clarity will likely be welcomed by most interested parties, although the additional reporting and disclosure requirements may not be welcome by all preparers. For those with opinions--pro or con--GASB is soliciting public comments on the proposals, which are due by August 31,2021.

The scope of the ED includes proposed definitions of, and accounting and reporting standards for, (1) accounting changes, including changes in accounting principles, changes in accounting estimates, and changes to or within the financial reporting entity; as well as for (2) corrections of errors in previously issued financial statements. The ED also clarifies that the first-time adoption of GASB generally accepted accounting principles (GAAP) is neither an accounting change nor an error correction.

One key aspect of the ED is a proposed disclosure requirement for a schedule disclosing the effects of accounting changes and error corrections on beginning position, effectively serving as a crosswalk from previously issued financial statements to the adjusted and/or restated financial statements ("crosswalk schedule").

Changes in accounting principle

The ED proposes defining a change in accounting principle as the application of an accounting principle to transactions or other events (hereafter collectively referred to as "transactions") of a similar type that are different from--and preferable to--the accounting principle previously applied to that type of transaction.

The proposed definition of a change in accounting principle excludes initial adoption and application of an accounting principle to transactions that:

* Are clearly different in substance from those previously occurring,

* Are occurring for the first time, or

* Were previously insignificant in their effect.

Also excluded from the definition of a change in accounting principle are (1) implementations of new authoritative GAAP pronouncements and (2) changes from the application of a non-GAAP accounting principle to the application of a GAAP accounting principle, for transactions and events that were previously significant--the latter being error corrections, which are separately addressed in the ED and discussed below.

Changes that must be justified as being preferable to the previous practice (including changes in accounting principle and changes in estimation methodologies, discussed below) must be preferable based on the qualitative characteristics of financial reporting in GASB's conceptual framework, which are:

* Understandability,

* Reliability,

*...