Summary of Latest GASB Standards: GASB 100, GASB 101, and GASB 102

The Governmental Accounting Standards Board (GASB) continues to refine and update the accounting standards for governmental entities to ensure transparency, consistency and accountability in financial reporting. Here’s a summary of the latest GASB standards and their main provisions.

GASB 100: Accounting Changes and Error Corrections

GASB Statement No. 100, “Accounting Changes and Error Corrections,” provides a comprehensive framework for accounting changes and error corrections. The goal of this framework is to ensure consistency and transparency in financial statements. The standard is effective for accounting periods beginning after June 15, 2023, and addresses three main areas:

1. Accounting Changes: Includes changes in accounting principles, changes in accounting estimates and changes in reporting entities.
2. Error Corrections: Covers the identification and correction of errors in previously issued financial statements.
3. Disclosures: Mandates specific disclosures to provide users of financial statements with sufficient information about the nature and impact of accounting changes and error corrections.

Let’s take a look at each area in further detail.

Accounting Changes

1. Changes in Accounting Principles:
   • Definition: A change from one generally accepted accounting principle to another generally accepted accounting principle.
   • Example: An entity implements the adoption of a new accounting standard, such as GASB 96.
   • Application: Generally applied retrospectively, meaning the change is reflected as if it had always been applied in prior periods. This involves adjusting the opening balances of assets, liabilities, and equity for each prior period presented.
2. Changes in Accounting Estimates:
   • Definition: A revision of an estimate due to new information or changed circumstances.
   • Example: A government entity revises its estimate of the useful life of its infrastructure assets due to a detailed analysis indicating useful life was longer than previously estimated, leading to changes in depreciation expense.
   • Application: Typically applied prospectively, meaning the change affects future periods’ financial statements and does not require restatement of prior periods. Future depreciation expenses are adjusted based on the revised estimate, but there is no impact on historical financial statements.
3. Changes in Reporting Entities:
   • Definition: Changes in the entities that comprise the reporting entity.
   • Example: A public university integrates a newly acquired research facility into its reporting entity.
   • Application: Generally applied prospectively, meaning the change affects future financial statements. The financial statements for the current and future periods reflect the new reporting entity structure, but there is no restatement of prior periods.

Error Corrections

1. Definition: Corrections of errors in previously issued financial statements, which can arise from mathematical mistakes, mistakes in applying accounting principles, or oversight/misuse of facts that existed when the financial statements were prepared.
2. Example: A higher education institution finds an error in previously recorded tuition revenue and corrects it by restating the prior financial statements. Alternatively, a city discovers that GASB 87 was incorrectly applied in the prior period based on lease terms existing as of the implementation date and corrects error by restating the affected periods’ financial statements.
3. Application: Requires restating the financial statements for prior periods presented to correct the error. The restatement adjusts the opening balances of affected accounts to reflect the correction as if the error had not occurred.

Disclosure Requirements

A critical aspect of GASB 100 is its emphasis on comprehensive disclosures. The standard outlines specific disclosure requirements to ensure users of financial statements are adequately informed:

1. Nature and Justification: Entities must disclose the nature and reason for the accounting change or error correction. This includes explaining why a new accounting principle is preferable or why an error occurred.
2. Impact on Financial Statements: Detailed information is required about the quantitative impact of the change or correction on the financial statements. This includes restated amounts for prior periods and the effect on current period financials.
3. Prospective Application: When changes are applied prospectively, entities need to disclose how the change will affect future periods’ financial statements.
4. Corrections of Errors: For error corrections, entities must provide a description of the error, how it was discovered and the corrective actions taken.
5. Cumulative Effect: Entities must disclose the cumulative effect of the change or correction on the opening balances of net position, fund balance, or other relevant equity components. This should be presented in a tabular format to enhance clarity and usability, see example below:

GASB 101: Compensated Absences

GASB 101 to revises the guidance on accounting for compensated absences. The statement’s goal is to create a more consistent and comprehensive model for recognizing and measuring compensated absences.

GASB 101 applies to all types of compensated absences, including vacation leave, sick leave, paid time off (PTO) and certain sabbatical leaves. The standard clarifies that compensated absences are leave for which employees receive cash or noncash settlements, such as conversion to postemployment benefits.

Recognition Criteria

Under GASB 101, a liability for compensated absences is recognized if three criteria are met:

• The leave is attributable to services already rendered by the employee.
• The leave accumulates and can be carried forward to future periods.
• It is more likely than not that the leave will be used for time off or paid/settled through noncash means.

This approach is designed to standardize how governments account for and report liabilities for compensated absences, enhancing the relevance and reliability of financial information​​​.

Measurement and Disclosure

The new standard provides guidance on measuring the liability for compensated absences and replaces the previous leave-type-specific approach with a unified recognition model. Notably, governments (including public colleges and universities) must now estimate the amount of leave that is more likely than not to be used or paid out. In this estimate they must consider factors such as employment policies and historical usage data. The liability should be measured using employees’ pay rates as of the date of the financial statements (i.e., fiscal year end).

Additionally, GASB 101 simplifies or removes some previous disclosure requirements. Entities now have the option to disclose only the net annual change in the liability for compensated absences, rather than separately reporting gross increases and decreases. It also removes the requirement to disclose the specific funds that would be used to liquidate the compensated absences liability.

GASB 101 Exclusions

Certain types of leave are excluded from recognition and measurement requirements. According to the updated guidance, the following types of leave are not considered compensated absences under GASB 101:

1. Unlimited leave: Leave that has no limit on accumulation is not included in the compensated absences liability until it is actually used.
2. Holiday leave: Regular holiday leave is excluded from the compensated absences liability calculation.
3. Parental leave: This type of leave is not recognized as a liability until it actually commences and is used.
4. Military leave: Similar to parental leave, military leave is excluded until it begins and is used.
5. Judicial leave (jury duty): This leave is also not recognized until it commences and is used.
6. Leave likely to be converted to defined benefit postemployment benefits: If leave is more likely than not to be settled through conversion to defined benefit postemployment benefits, it should not be included in the compensated absences liability.
7. Termination benefits: GASB 101 specifically excludes termination benefits, as these are addressed separately in GASB Statement 47.

While these types of leave are excluded from the initial liability calculation, they may still need to be accounted for when the leave is actually taken or used. This approach allows the compensated absences liability to reflect only the leave most likely to result in a future obligation for the governmental entity.

The exclusion of these specific types of leave helps streamline the accounting process and focuses the liability calculation on the most relevant and probable future obligations. However, governmental entities should still maintain accurate records of all types of leave to ensure proper accounting when the excluded leave types are actually used.

Implementation Timeline and Considerations

GASB 101 is set to take effect for fiscal years beginning after Dec. 15, 2023, with early adoption encouraged. To prepare for implementation, entities should take the following actions:

1. Review and understand your current compensated absence policies for all employee groups.
2. Analyze historical data on leave usage and retirement rates to support the “more likely than not” assessments.
3. Identify any gaps in data collection and work with IT staff or vendors to address them.
4. Consider the impact on both year-end accruals and beginning balances, as retroactive application may be required.
5. Evaluate all types of compensated absences, including non-traditional options like personal observance time or union release time.

GASB 102: Certain Risk Disclosures

GASB 102 addresses the accounting and financial reporting for risk financing and related insurance issues. Effective for fiscal years beginning after June 15, 2024, GASB 102 aims to improve transparency and consistency in how governmental entities (including higher education institutions) disclose their participation in risk financing activities and manage insurance-related transactions. These activities include managing self-insurance funds, participation in risk pools, and other forms of risk management strategies employed by these institutions.

Major Provisions of GASB 102

GASB 102 focuses on risks arising from certain concentrations or constraints. It does not cover risks related to the nature of a government’s operations or the use of estimates. The key aspects of GASB 102 are noted below:

1. Definitions:
   • Concentration: A lack of diversity related to a significant inflow or outflow of resources.
   • Constraint: A limitation imposed by an external party or by formal action of a government’s highest decision-making authority.
2. Disclosure criteria: A governmental entity must disclose a concentration or constraint if it meets all following criteria:
   • It is known to the government before issuing the financial statements.
   • It makes the reporting unit vulnerable to a risk of substantial impact.
   • An associated event that could cause a substantial impact has occurred, begun to occur, or is more likely than not to occur within 12 months of the financial statement issuance date.

Disclosure Requirements

When the disclosure criteria above are met, governmental entities should provide the following information in the notes to their financial statements:

1. Description of the concentration or constraint: A clear explanation of the nature of the risk.
2. Associated events: Details of any events related to the concentration or constraint that could cause a substantial impact.
3. Mitigating actions: Information about steps taken by the government prior to issuing the financial statements to mitigate the risk.
4. Sufficient detail: The disclosures should allow users to understand the circumstances and the government’s vulnerability to the risk of substantial impact.

Future plans or intentions should not be included in these disclosures.

Effective Date and Implementation

GASB 102 is effective for fiscal years beginning after June 15, 2024, with early application encouraged. While the GASB anticipates minimal implementation burden for most entities, governments and higher education institutions should start planning for compliance by:

1. Identifying potential concentrations and constraints.
2. Assessing risks associated with these factors.
3. Developing processes to monitor and evaluate disclosure criteria.
4. Preparing to gather and present the required information in financial statement notes.

GASB 100, GASB 101 and GASB 102 introduce important updates to improve the accuracy, consistency and transparency of financial reporting. Governmental entities should prepare for the implementation of these standards to ensure compliance and enhance the quality of their financial statements.

For more detailed information on these standards, please refer to the official publications on the GASB website. It also helps to enlist the help of CPAs and consultants experienced in higher education accounting matters, like the Higher Education Services team at James Moore. Professional guidance and support are crucial when you’re implementing these changes.

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