GASB hopes to improve the usefulness and comparability of governmental financial statements by reducing diversity in practice related to the identification and disclosures on subsequent events. A recently issued proposal would:
- Clarify the subsequent events time frame and the subsequent events that constitute recognized and nonrecognized events.
- Specify the disclosures required for nonrecognized events.
Comments are requested by February 21, 2025.
Background
Statement 56, issued in March 2009, incorporated the American Institute of CPAs’ 1972 guidance on subsequent events with only minor edits. This literature was never evaluated for appropriateness to state and local governments, effectiveness, consistency with GASB’s conceptual framework, or the information's usefulness. GASB project research indicated financial statement preparers had challenges with distinguishing between recognized and nonrecognized subsequent events and diversity in practice in note disclosure.
New Subsequent Events Definition
Statement 56 includes a definition for subsequent events (noted below) but did not define the term “issuance date.” For some governments, there could be a lag between the audit report date and the date the financial statements are issued. The proposal clarifies the meaning of “issue date” in this statement and other places the term is used in GASB guidance.
| Subsequent Event Definition | |
|---|---|
| Statement 56 | Proposed |
| “Events or transactions that affect the financial statements sometimes occur subsequent to the statement of net assets date but before financial statements are issued.” | “Subsequent events are transactions or other events that occur after the date of the financial statements but before the date the financial statements are available to be issued (the subsequent events time frame). The date the financial statements are available to be issued is the date at which (a) the financial statements are complete in a form and format that complies with generally accepted accounting principles (GAAP) and (b) all approvals necessary for issuance have been obtained.” |
Recognized Events
The proposed updates focus on whether the condition existed at the financial statement date and clarifies the period to which a change in accounting estimate relates. Identifying recognized events will require professional judgment and knowledge of the facts and circumstances.
| Recognized Event | |
|---|---|
| Statement 56 | Proposed |
| “Recognized events consist of those events that provide additional evidence with respect to conditions that existed at the date of the statement of net assets and affect the estimates inherent in the process of preparing financial statements. All information that becomes available prior to the issuance of the financial statements should be used in evaluating the conditions on which the estimates were based. The financial statements should be adjusted for any changes in estimates resulting from the use of such evidence.” | “A recognized event is a subsequent event that (a) is indicative of conditions existing at the financial statement date and (b) informs the inputs to an accounting estimate measured as of the financial statement date. The effects of recognized events should be incorporated into the measurement of accounting estimates reported as of the financial statement date.” |
The proposal carries forward the substance of existing examples in Statement 56.
The bankruptcy of a water utility’s major customer during the subsequent events time frame could 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.
However, if that customer instead experienced a major casualty, such as a fire or flood, during the subsequent events time frame, that event would not be indicative of conditions existing at the financial statement date. In this case, the measurement of the water utility’s uncollectible accounts receivable as of the financial statement date should not incorporate the effects of the casualty event.
Nonrecognized Events
The proposal carries forward Statement 56’s “essential” threshold to understanding the financial statements but adds a more specific description of nonrecognized events.
Consistent with Statement 56, effects related to nonrecognized events would not be incorporated into amounts reported as of the financial statement date in the basic financial statements.
| Nonrecognized Event | |
|---|---|
| Statement 56 | Proposed |
| “Nonrecognized events consist of those events that provide evidence with respect to conditions that did not exist at the date of the statement of net assets but arose subsequent to that date. These events should not result in adjustment of the financial statements. Some of these events, however, may be of such a nature that their disclosure is essential to a user’s understanding of the financial statements.” | “A nonrecognized event is a subsequent event that has a significant effect (favorable or unfavorable) on the basic financial statements in the reporting period in which the event occurs and is one of the following:
|
Notes to Financial Statements
The proposal would establish more specific note disclosure requirements for nonrecognized events as follows:
- A description of the nonrecognized event
- An estimate of the effect that the nonrecognized event has on the basic financial statements for the reporting period in which the event occurs, or the reason why an estimate cannot be made
This information should be disclosed at the reporting unit level. Information that is the same for more than one reporting unit should be combined in a manner that avoids unnecessary duplication.
Transition & Effective Date
If approved, changes would be effective on a prospective basis for subsequent events for fiscal years beginning after June 15, 2026. Early application is encouraged.
How Forvis Mazars Can Help
The assurance team at Forvis Mazars delivers extensive experience and skilled professionals to help align with your objectives. Our proactive approach includes candid and open communication to help address your financial reporting needs.
Our public sector accounting, audit, and consulting experience and resources can help you stay compliant, stretch your dollar, and plan for the future. We serve a variety of entities, including state and local governments, airports, transportation authorities, public power and utility providers, tribal governments, and public colleges and universities.
If you have any questions, please reach out to a professional at Forvis Mazars.