The US Governmental Accounting Standards Board (GASB) has released a preliminary views (PV) document seeking public feedback on proposals concerning accounting and financial reporting for severe financial stress (SFS) and probable dissolution (PD) disclosures.
This initiative is aimed at refining and enhancing the existing guidance on going concern uncertainties (GCU) and address disclosure issues related to SFS.
It also aims to reduce diverse practices and provide clear guidance for SFS-related disclosures.
The GASB’s current guidance on GCU, which was adopted from the AICPA’s literature, combines elements of financial stress and continued existence.
However, stakeholder research indicated confusion regarding the application of going concern principles within the governmental context.
The new PV aims to distinguish between financial stress and continued existence, outlining the Board’s preliminary thoughts on SFS and PD disclosure issues.
The proposed SFS guidance would concentrate on a government’s financial condition, irrespective of uncertainties about its continued existence.
Conversely, the PD guidance would address the uncertainties surrounding a government’s continued existence, regardless of its financial health, notes the board.
Governments meeting the criteria for either SFS or PD would be required to disclose specific information related to the respective conditions, and those meeting both sets of criteria would need to make both disclosures.
The guidance suggests that the governments would need to make SFS disclosures if they are experiencing financial stress to such an extent that insolvency is imminent or occurring, independent of whether they will persist.
Governments on the brink of insolvency would be under severe financial stress but not yet insolvent.
The required SFS disclosures would include the reasons for the condition, the government’s assessment of their significance, the actions undertaken in response, and the known impacts of the condition.
Additionally, governments would have to make PD disclosures if it is probable that they will cease to exist as the same legally separate entity within one year from when the financial statements are available for issue, regardless of their financial status.
The likelihood of dissolution would be determined by evaluating relevant factors in aggregate, notes the board.
PD disclosures would include an acknowledgment of the probability of dissolution, the reasons and causes for it, and additional details.
In 2024, the GASB released a PV document for public comment in the US, which focused on proposed changes in accounting and financial reporting for infrastructure assets.
