Theory in Practice? GASB's New Concepts Statement on Note Disclosures and ... a Proposal for More Notes!(ACCOUNTING) (Governmental Accounting Standards Board)

• Author: Levine, Michele Mark

In June 2022, the Governmental Accounting Standards Board [GASB] issued its latest expansion of the conceptual frame work for governmental generally accepted accounting principles [GAAP], Concepts Statement No. 7, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements: Notes to Financial Statements [CS7], Concepts statements are not themselves GAAP standards, of course; instead, they provide current and future board members with a framework that should help to set standards that are consistent with each other and logically function together. Also in June, GASB issued an exposure draft of a statement, Certain Risk Disclosures [ED], that, if adopted in final form, would require new note disclosures. Let's look at both and then consider how closely the ED seems to follow CS7.

What's in the Concepts Statement?

Much of CS7 carries forward the preexisting concepts on note disclosures from GASB Concepts Statement No. 3, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements [CS3], with few substantial changes. As part of basic financial statements, note disclosures remain limited to information that explains, describes, or supplements the financial statements, including:

1. Descriptions of accounting and finance-related policies underlying the amounts in the financial statements.

2. Details and explanations of those amounts.

3. Information about the financial position or results of operations that do not meet the criteria for recognition [e.g., because they are not reasonably estimable] J

CS7 added "other finance-related information associated with the accountability of the government" to this list. (2) While this is a change from CS3, it is drawn from existing language In GASB Concepts Statement No. 1, Objectives of Financial Reporting, so it is not a substantive addition to the objectives of note disclosures so much as a way of tying them more explicitly to the overall objectives of financial reporting.

To the prohibitions against including "Subjective assessments of the effects of reported information on the government's future financial position" and "predictions about the effects of future events on future financial position" [more on this shortly], CS7 added a carve-out explicitly permitting disclosure of "expectations and assumptions about the future that are inputs to current measures in the financial statements or notes to financial statements." This simply acknowledges the extensive use of estimates throughout...