The Governmental Accounting Standards Board issued a new standard on Wednesday that the board says is designed to improve the financial reporting requirements for subsequent events.
GASB’s pre-agenda research on subsequent events showed diversity in practice in the application of the previously existing guidance, which was contained in GASB Statement No. 56, Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards.
The GASB issued an exposure draft in November 2024 to examine improvements in the financial reporting of subsequent events.
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Accounting Standards November 25, 2024
GASB Proposes Guidance on Subsequent Events
The new Statement No. 105 released on Dec. 17 is intended to enhance consistency in the application of requirements for subsequent events, the GASB said.
Statement No. 105 defines subsequent events as “transactions or other events that occur after the date of the financial reporting statements but before the date the financial statements are available to be issued.”
The definition of subsequent events in the new accounting standard modifies the subsequent events time frame throughout the GASB literature.
Statement No. 105 also clarifies the different types of subsequent events, such as recognized events and nonrecognized events, when note disclosures are required, and the information that should be included in those note disclosures.
Statement No. 105 says:
Recognized Events
7. A recognized event is a subsequent event that provides evidence of conditions that existed at the financial statement date that inform accounting estimates reported as of the financial statement date. Accounting estimates reported as of the financial statement date should reflect the conditions that existed at that date, including conditions substantiated by recognized events.
8. Identifying recognized events requires professional judgment and knowledge of the facts and circumstances. For example, the bankruptcy of a water utility’s major customer during the subsequent events time frame may be indicative of deteriorating financial conditions that existed at the financial statement date. In this circumstance, the water utility’s financial statements as of the financial statement date should incorporate that event into the measurement of its uncollectible accounts receivable. Conversely, if that customer instead experienced a major casualty, such as a fire or flood, during the subsequent events time frame, such an event would not be indicative of conditions that existed at the financial statement date. Therefore, in that circumstance, the measurement of the water utility’s uncollectible accounts receivable as of the financial statement date should not incorporate the effects of that event. Such a subsequent event should instead be evaluated to determine whether it constitutes a nonrecognized event as described in paragraph 9.
Nonrecognized Events
9. A nonrecognized event is a subsequent event that results in a significant effect (favorable or unfavorable) that is recognized or disclosed in the basic financial statements in the reporting period in which the event occurs and is one of the following:
a. A debt-related transaction
b. A government combination or a disposal of government operations
c. A change to the legally separate entities that compose the financial reporting entity
d. A transaction or other event that is of such a nature that the information items in paragraph 11 are essential to a user’s analysis for making decisions or assessing accountability.10. In contrast to recognized events, nonrecognized events do not inform conditions that existed at the financial statement date, and, therefore, the effects related to nonrecognized events should not be incorporated into amounts reported as of the financial statement date in the basic financial statements.
The requirements of Statement No. 105 are effective for fiscal year beginning after June 15, 2026, and all reporting periods thereafter. Earlier application is encouraged.
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