On November 13, 2024, GASB issued an Exposure Draft (ED) of a proposed Statement of Governmental Accounting Standards for public comment. Comments are due by February 21, 2025. The proposed statement is titled “Subsequent Events” and is available on GASB’s website at www.gasb.org.
In this ED, GASB proposes to define subsequent events and change the end of the subsequent events time period from when the financial statements are issued to when the financial statements are available to be issued. These changes would modify the subsequent events timeframe throughout the GASB literature. In addition, the proposed changes include clarifying which subsequent events constitute recognized and nonrecognized events and the specific note disclosures required for nonrecognized events. The proposed Statement would supersede portions of GASBS No. 56 and related implementation guides, and amend several GASB statements and related interpretations.
The current guidance on subsequent events originates primarily from an AICPA auditing standard dating back to 1972 that was rolled forward into GASBS No. 56. The GASB revisited the literature starting in 2021 to evaluate its effectiveness. They discovered that subsequent events are quite prevalent in the government environment and that there were some issues understanding and applying the requirements in current practice, specifically with multiple understandings of the financial statement issuance date.
The GASB proposed defining a subsequent event as a transaction or other event that occurs after the date of the financial statements but before the date the financial statements are available to be issued (the subsequent events timeframe). The definition of the date the financial statements are available to be issued is the date at which (a) the financial statements are complete in respect to generally accepted accounting principles and (b) all approvals necessary for issuance of the financial statements have been obtained. With those definitions in mind, let’s look at the proposed clarification of recognized and nonrecognized events.
The proposed Statement provides that a recognized event is one that:
- is indicative of conditions existing at the financial statement date and
- informs the inputs to an accounting estimate measured as of the financial statement date.
The proposed Statement emphasizes the importance of incorporating recognized events into the measurement of accounting estimates as of the financial statement date and provides an example.
The proposed Statement defines a nonrecognized event as a subsequent event that has a significant effect, whether favorable or unfavorable, on the basic financial statements in the reporting period in which the event occurs (the reporting period after year end) and is one of the following specific items:
- a debt-related transaction,
- a government combination or a disposal of government operations,
- a change to the legally separate entities that compose the financial reporting entity,
- the application of an enacted tax rate that is different from the tax rate previously in effect, or
- a transaction or other event that is of such a nature that the information items required to be disclosed (see below) are essential to a user’s analysis for making decisions or assessing accountability.
In other words, it would not affect the amounts in the financial statements. It would only affect disclosures and must be one of the items listed, thus excluding other items.
Proposed disclosure requirements for nonrecognized events include:
- a description of the event and
- an estimate of the effect that it has on the basic financial statements for the reporting period in which it occurs, or the reason why it cannot be estimated.
The proposed Statement would be effective for fiscal years beginning after June 15, 2026, and all reporting periods thereafter. Earlier application would be encouraged.
| Practical Consideration: The Exposure Draft is available on Checkpoint at checkpoint.riag.com for users that subscribe to the content, and at gasb.org. |
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