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Since public institutions implemented the Governmental Accounting Standards Board (GASB) landmark Statement No. 34 two decades ago, dozens of noteworthy, sweeping changes have been implemented: defined benefit pension and other postemployment benefits, component unit assessment and reporting, asset retirement obligations, fiduciary activities, and leases, to name a few. Two major, multi-year projects on financial reporting enhancements and revenue and expense recognition are poised to extend this list, and NACUBO recently submitted comments to GASB to improve the proposed rules before implementation.

NACUBO’s comments supported GASB’s financial reporting model improvements exposure draft and provided critical feedback on the board’s Preliminary Views (PV) on revenue and expense recognition. The full comments are available here, and excerpts include–

GASB’s Exposure Draft on Financial Reporting Improvements

Although most of the proposed guidance will impact state and local governments, the exposure draft proposes a new format to the Statement of Revenues, Expenses, and Changes in Net Position (SRECNP) for public institutions and other governmental entities that report as business type activities. NACUBO agreed with GASB’s proposal to strike an income (or loss) total that includes noncapital subsidies such as state appropriations and certain grants and contributions. 

GASB’s Preliminary Views on Revenue and Expense Recognition

The proposed methodology for revenue and expense would move away from evaluating transactions as exchange, nonexchange, or exchange-like and would instead sequentially assess both revenue and expense transactions based on the presence of:

  1. A binding contractual or similar arrangement
  2. Mutual assent between parties to the arrangement
  3. Whether parties to the arrangement have substantive rights and obligations
  4. Whether substantive rights and obligations are interdependent

When all four characterizations exist and the transaction contains a performance obligation, it would be classified as a Category A transaction; if not, then the transaction would be classified as Category B. Revenue and expense for Category A are recognized based on the fulfillment of performance obligations. Revenue and expense for Category B transactions would be based on five subcategories of transaction type:

  1. Derived revenue transactions that are based on when an underlying transaction occurs
  2. Imposed revenue transactions based on an imposition date such as with imposed taxes
  3. Contractual binding arrangements, such as for certain grants, contributions, or pledges
  4. General aid to governments such as appropriations
  5. Shared revenue transactions between governments

NACUBO asked GASB not to abandon current non-exchange transaction guidance, citing that Statement No. 33 was useful during the analysis of various programs funded through the Coronavirus Aid, Relief, and Economic Security (CARES) Act. NACUBO suggested that guidance enhancements could help to clarify differences between eligibility requirements and restrictions, rather than abandoning the current framework.

Performance Obligations

NACUBO discussed the complexity and subjectivity needed to tease detailed performance units for governmental services such as education or even water distribution. Further, sponsored research agreements can contain multiple dimensions that may lead to inconsistent categorization when applying GASB’s proposed framework.

Financial Aid

NACUBO informed the board that college and university field test participants were advised not to consider institutional aid, price waivers, and scholarships when evaluating tuition and fee transactions. Additionally, the classification of Pell Grants solely as agreements between the Department of Education (ED) and the institution failed to consider the underlying transaction and contractual agreement between the university and the student. 

Expenditure Driven and Purpose Restriction Distinctions

The PV appears to conflate whether certain grants have conditions that must be met or whether the funding has restrictions. Although GASB’s proposed requirement to assess interdependencies between parties appears to create a stipulation that distinguishes between revenue entitlement, NACUBO pointed out that the proposal does not delve deep enough into this concept. In other words, the simplistic examples in the proposal do little to clear up confusion between eligibility requirements and restrictions.

Economic Substance

The PV indicates that determining equal value in the current exchange framework is fraught with judgment. NACUBO comments point out that the new construct of interdependencies between parties also requires judgement and as such does not fundamentally improve how certain transactions are evaluated.


Finally, comments expressed some frustration with evaluating major financial reporting and revenue and expense projects at the same time. For example, it is challenging to imagine how revenue and expense categorization, measurement, and recognition will be reflected in a newly proposed financial reporting model. NACUBO asked the board to consider a second due-process document on revenue and expenses before issuing an exposure draft and offered to testify at a public hearing.


Sue Menditto

Senior Director, Accounting Policy


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