The Governmental Accounting Standards Board released a post-implementation review (PIR) report on Feb. 26 that concluded the board’s fair value measurement standard—GASB Statement No. 72, Fair Value Measurement and Application—has met its objectives.
The fair value measurement standard was approved by the GASB in February 2015. The goal of Statement 72 was to improve financial reporting by clarifying the definition of fair value for financial reporting purposes, establishing general principles for measuring fair value, providing additional fair value application guidance, and enhancing disclosures about fair value measurements. Those requirements were based in part on the conceptual definition of fair value as a measurement attribute established in Concepts Statement No. 6, Measurement of Elements of Financial Statements, which was issued by the GASB in March 2014.
The PIR process was established by the Financial Accounting Foundation Board of Trustees through its Standard-Setting Process Oversight Committee in 2010. Currently used by the GASB and the Financial Accounting Standards Board, the following PIR objectives were established:
1. To determine whether a standard is accomplishing its stated purpose.
2. To evaluate the standard’s implementation and continuing application costs and related benefits.
3. To provide feedback to improve the standard-setting process (as opposed to recommending specific standard-setting actions).
To achieve the first objective, the PIR process evaluates whether:
a. The standard resolved the issues underlying its need (PIR Objective 1a).
b. Decision-useful information is being reported to, and being used by, financial statement users (PIR Objective 1b).
c. The standard is operational; that is, stakeholders can apply the standard as intended, the standard is understandable, and preparers are able to report the information reliably (PIR Objective 1c).
d. Any significant unexpected changes to financial reporting or operating practices resulted from applying the standard (PIR Objective 1d).
e. Any significant unanticipated consequences resulted from applying the standard (PIR Objective 1e).
To achieve the second objective, the PIR process evaluates whether:
a. Implementation and continuing application costs are consistent with the costs that the GASB considered and stakeholders expected.
b. Benefits are consistent with the benefits the GASB intended and stakeholders expected.
To achieve the third objective, the PIR process evaluates whether the results from the review suggest that improvements are needed to the standard-setting process.
The GASB reached the following conclusions on the three objectives, according to the PIR report:
Objective 1a: Overall, Statement 72 resolved the primary issues underlying the need to improve the reporting of complex fair value measurements. That reporting affected application, measurement, disclosure, and presentation of assets and liabilities being measured at fair value for state and local governmental entities, most notably retirement plans and endowments. We believe that the Statement is an improvement over the prior fair value standards, achieving its objective of improving financial reporting by clarifying the definition of fair value for financial reporting purposes, establishing general principles for measuring assets and liabilities at fair value, providing additional application guidance for fair value measurements, and enhancing disclosures about fair value measurements.
Objective 1b: The application of Statement 72 provides users of financial statements with decision-useful information. In particular, stakeholders generally noted that fair value measurements are more relevant to the analysis of governmental financial information for assets that are not being used to provide services and that fair value disclosures provide useful information.
Objective 1c: Overall, Statement 72 is operational. However, some stakeholders identified challenges in the use of unobservable inputs to measure the fair value of assets and liabilities and in the understanding of which level of input is used in measuring the fair value of U.S. Treasury bills, notes, and bonds.
Objective 1d: Our review does not suggest any significant unexpected changes to financial reporting or operating practices as a result of applying Statement 72.
Objective 1e: Our review does not suggest any significant unanticipated consequences as a result of the implementation or continuing application of Statement 72.
Objective 2: Consistent with other GASB Statements, implementation costs were contemplated by the Board and documented in a field test in the Preliminary Views stage of the project. In addition, the costs of continued application of the Statement reflect an expected peak in the year of implementation with a decrease in the following year. Furthermore, the expected benefits of Statement 72—improved guidance on how to measure fair value and what to apply it to, greater consistency on the definition of fair value, increased comparability and transparency, and enhanced disclosure information—have been achieved.
Objective 3: Finally, no standard-setting process recommendations were identified from our review. As noted in the final section of this report, the newly developed GASB disclosure framework has not been applied to disclosures required by Statement 72.
Beginning in May 2019, the GASB began the PIR process to examine the effectiveness of the fair value measurement standard. The three stages of the PIR process include the following:
- Stage 1. Post-issuance date implementation monitoring.
- Stage 2. Post-effective date evaluation of costs and benefits.
- Stage 3. Summary of research and reporting.
“Stage 1 began after the issuance of Statement 72 and continued after its effective date—for reporting periods beginning after June 15, 2015—through 2019. Stage 2 started in 2019 and concluded in the fourth quarter of 2024. Stage 3 is complete with the submission of this report,” the GASB said.
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Tags: Accounting, Accounting Standards, GASB
